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)
Susan S. Newton
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: August 31, 2005
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) STRATEGIC GROWTH FUND 8/31/05
ANNUAL REPORT
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LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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MANAGEMENT REVIEW 3
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PERFORMANCE SUMMARY 5
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EXPENSE TABLE 8
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PORTFOLIO OF INVESTMENTS 10
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FINANCIAL STATEMENTS 15
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NOTES TO FINANCIAL STATEMENTS 27
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 38
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RESULTS OF SHAREHOLDER MEETING 39
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TRUSTEES AND OFFICERS 40
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 45
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PROXY VOTING POLICIES AND INFORMATION 49
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QUARTERLY PORTFOLIO DISCLOSURE 49
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FEDERAL TAX INFORMATION 49
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CONTACT INFORMATION BACK COVER
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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.
[logo] M F S(SM)
INVESTMENT MANAGEMENT(R)
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders,
Most investors are familiar with the basic principles of investing - focus on
the long term and keep your assets diversified across different investment
categories. Still, it is surprising how often we forget these basic lessons.
Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s
had many people hoping they could become millionaires overnight. But the
market decline that started in the spring of 2000 taught everyone how
misguided those hopes had been.
Now, less than five years after the market taught a harsh lesson in the
follies of speculative investing, we are seeing a number of trends that
suggest many investors, including professionals, are hoping for overnight
miracles again. We see a steady stream of market "gurus" on television news
shows, promising to teach amateur investors the strategies that will allow
them to get rich quick. Hedge funds - which by their nature move in and out of
investments rapidly - have soared in popularity over the past five years. We
are reminded every day that we live in a "what have you done for me lately?"
world, but this mindset should not influence how we invest and manage our
money. In fact, investors often fall short of their goals because they trade
in and out of investments too frequently and at inopportune times.
Throughout our entire 80-year history, MFS' money management process has
focused on long-term investment opportunities. We firmly believe that one of
the best ways to realize long-term financial goals - be it a college
education, a comfortable retirement, or a secure family legacy - is to follow
a three-pronged approach that focuses on longer time horizons. Allocate
holdings across the major asset classes - including stocks, bonds, and cash.
Diversify within each class to take advantage of different market segments and
investing styles. And rebalance assets regularly to maintain a desired asset
allocation.*
This long-term approach requires diligence and patience, two traits that in
our experience are essential to capitalizing on the many opportunities the
financial markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 17, 2005
* Asset allocation, diversification, and rebalancing does not guarantee a
profit or protect against a loss. The opinions expressed in this letter are
those of MFS, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 98.5%
Cash & Other Net Assets 1.5%
TOP TEN HOLDINGS
Cisco Systems, Inc. 3.8%
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Wyeth 3.6%
------------------------------------------------
Microsoft Corp. 3.5%
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Johnson & Johnson 3.3%
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Dell, Inc. 2.8%
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Amgen, Inc. 2.6%
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Oracle Corp. 2.3%
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Eli Lilly & Co. 2.2%
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EMC Corp. 2.2%
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QUALCOMM, Inc. 2.0%
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SECTOR WEIGHTINGS
Technology 36.3%
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Health Care 23.1%
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Retailing 12.2%
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Leisure 8.8%
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Financial Services 5.1%
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Special Products & Services 4.0%
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Consumer Staples 3.9%
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Industrial Goods & Services 2.3%
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Transportation 1.5%
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Autos & Housing 1.0%
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Basic Materials 0.3%
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Percentages are based on net assets as of 8/31/05.
The portfolio is actively managed, and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2005, Class A shares of the MFS
Strategic Growth Fund provided a total return of 12.88%, at net asset value.
In comparison, the fund's benchmark, the Russell 1000 Growth Index,
returned 12.14%.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the health care and retailing sectors positively impacted
the fund's relative performance. In heath care, biotech firm Amgen was a top
relative contributor. Not holding the poor-performing Merck* (a constituent in
the index) and our small position in Pfizer*, both of which significantly
underperformed the benchmark, also aided relative performance. In retailing,
sporting goods manufacturer Reebok and drugstore chain CVS also
boosted results.
Our underweighted position and, to a lesser extent, stock selection in the
basic materials sector enhanced the fund's relative performance. Our
underweighted position in the consumer staples sector also assisted results.
Both sectors underperformed relative to the overall index for the period. No
individual stocks in these sectors were among the fund's top contributors for
the period.
Stocks in other sectors that helped performance included telecom equipment
company Corning, semiconductor company Marvell Technology (which is not held
in the index), software company Veritas*, and Latin American wireless operator
America Movil* (which is not an index constituent). Avoiding mortgage
financier Fannie Mae, which underperformed the overall index, also had a
positive impact on the results.
DETRACTORS FROM PERFORMANCE
Not holding any stocks in the energy sector, which outperformed the overall
index, hurt relative results for the period. Within this sector, not owning
oilfield services provider Halliburton was a top detractor from relative
performance. Stock selection in the leisure sector dampened results, although
no individual stocks in the leisure sector were among the fund's top
detractors for the period.
Stock selection in the industrial goods and services sector detracted from
performance. Our positioning in manufacturing conglomerate Tyco (which
is not an index constituent) negatively impacted performance. Another stock
that dampened results was the consulting firm Accenture (which is not an index
constituent).
Although the health care and technology sectors were positive contributors
overall, they contained some of our top individual detractors. In health care,
holdings of biotech firm ImClone, and our avoidance of the strong-performing
health insurer UnitedHealth Group, undermined results. In technology,
underweighting chip giant Intel and overweighting networking devices supplier
Cisco Systems hurt results. Not owning personal computer manufacturer Apple
and telecom equipment maker Motorola, as both stocks outperformed the overall
index during the period, also hindered performance.
The fund's cash position was also a detractor from relative performance. As
with nearly all mutual funds, this portfolio holds cash to buy new holdings
and to provide liquidity. In a period when equity markets rose as measured by
the primary benchmark, holding cash hurt performance versus our benchmark,
which has no cash position.
Respectfully,
/s/ S. Irfan Ali
S. Irfan Ali
Portfolio Manager
Note: Effective July 1, 2005, Peggy Adams is no longer a portfolio manager of
the fund.
* Security was not held in the portfolio at period-end.
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
PERFORMANCE SUMMARY THROUGH 8/31/05
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR CLASS 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
January 2, 1996, through August 31, 2005. Index information is from
January 1, 1996.)
MFS Strategic
Growth Fund -- Russell 1000
Class A Growth Index
1/96 $ 9,425 $10,823
8/97 18,435 15,084
8/98 20,845 16,329
8/99 32,183 24,221
8/00 47,367 32,325
8/01 27,032 17,674
8/02 19,815 13,756
8/03 23,403 15,692
8/04 23,473 16,532
8/05 26,496 18,540
TOTAL RETURNS THROUGH 8/31/05
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr Life*
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A 1/02/96 12.88% -10.97% 11.29%
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B 4/11/97 12.10% -11.55% 10.65%
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C 4/11/97 12.14% -11.54% 10.67%
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I 1/02/97 13.26% -10.66% 11.62%
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R** 12/31/02 12.67% -11.05% 11.24%
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R1 4/01/05 12.46% -11.03% 11.25%
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R2 4/01/05 12.59% -11.01% 11.26%
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R3** 10/31/03 12.39% -11.09% 11.21%
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R4 4/01/05 12.82% -10.98% 11.28%
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R5 4/01/05 13.00% -10.95% 11.30%
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529A 7/31/02 12.57% -11.09% 11.21%
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529B 7/31/02 11.84% -11.46% 10.97%
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529C 7/31/02 11.82% -11.47% 10.97%
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AVERAGE ANNUAL
Comparative benchmarks
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Average large-cap growth fund+ 13.74% -9.20% 6.38%
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Russell 1000 Growth Index# 12.14% -10.52% 6.59%
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AVERAGE ANNUAL WITH SALES CHARGE
Share class 1-yr 5-yr Life*
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A 6.39% -12.02% 10.61%
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B 8.10% -11.86% 10.65%
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C 11.14% -11.54% 10.67%
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529A 6.10% -12.14% 10.53%
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529B 7.84% -11.76% 10.97%
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529C 10.82% -11.47% 10.97%
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Class I, R, R1, R2, R3, R4, and R5 shares do not have a sales charge. Please
see Notes to Performance Summary for more details.
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through August 31, 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."
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
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 R
shares have no initial sales charge or CDSC and are available only to existing
Class R shareholders. Class I, R1, R2, R3, R4, and R5 shares have no initial
sales charge or CDSC. Class I shares are only available to certain eligible
investors, and Class R1, R2, R3, R4, and R5 shares are only available to
certain retirement plans. Class 529 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.
EXPENSE TABLE
FUND EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
MARCH 1, 2005 THROUGH AUGUST 31, 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 March 1, 2005 through
August 31, 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.
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Expenses
Paid During
Annualized Beginning Ending Period**
Share Expense Account Value Account Value 3/01/05-
Class Ratio 3/01/05 8/31/05 8/31/05
- -------------------------------------------------------------------------------
Actual 1.30% $1,000.00 $1,027.40 $6.64
A --------------------------------------------------------------------
Hypothetical* 1.30% $1,000.00 $1,018.65 $6.61
- -------------------------------------------------------------------------------
Actual 1.93% $1,000.00 $1,023.50 $9.84
B ---------------------------------------------------------------------
Hypothetical* 1.93% $1,000.00 $1,015.48 $9.80
- -------------------------------------------------------------------------------
Actual 1.93% $1,000.00 $1,024.00 $9.85
C --------------------------------------------------------------------
Hypothetical* 1.93% $1,000.00 $1,015.48 $9.80
- -------------------------------------------------------------------------------
Actual 0.91% $1,000.00 $1,028.90 $4.65
I --------------------------------------------------------------------
Hypothetical* 0.91% $1,000.00 $1,020.62 $4.63
- -------------------------------------------------------------------------------
R Actual 1.44% $1,000.00 $1,026.40 $7.35
(formerly --------------------------------------------------------------------
R1) Hypothetical* 1.44% $1,000.00 $1,017.95 $7.32
- -------------------------------------------------------------------------------
Actual 2.13% $1,000.00 $1,023.60 $10.86
R1 --------------------------------------------------------------------
Hypothetical* 2.13% $1,000.00 $1,014.47 $10.82
- -------------------------------------------------------------------------------
Actual 1.84% $1,000.00 $1,024.80 $9.39
R2 --------------------------------------------------------------------
Hypothetical* 1.84% $1,000.00 $1,015.93 $9.35
- -------------------------------------------------------------------------------
R3 Actual 1.69% $1,000.00 $1,025.40 $8.63
(formerly --------------------------------------------------------------------
R2) Hypothetical* 1.69% $1,000.00 $1,016.69 $8.59
- -------------------------------------------------------------------------------
Actual 1.35% $1,000.00 $1,026.80 $6.90
R4 --------------------------------------------------------------------
Hypothetical* 1.35% $1,000.00 $1,018.40 $6.87
- -------------------------------------------------------------------------------
Actual 1.05% $1,000.00 $1,028.50 $5.37
R5 --------------------------------------------------------------------
Hypothetical* 1.05% $1,000.00 $1,019.91 $5.35
- -------------------------------------------------------------------------------
Actual 1.53% $1,000.00 $1,025.90 $7.81
529A --------------------------------------------------------------------
Hypothetical* 1.53% $1,000.00 $1,017.49 $7.78
- -------------------------------------------------------------------------------
Actual 2.19% $1,000.00 $1,022.50 $11.16
529B --------------------------------------------------------------------
Hypothetical* 2.19% $1,000.00 $1,014.17 $11.12
- -------------------------------------------------------------------------------
Actual 2.19% $1,000.00 $1,023.00 $11.17
529C --------------------------------------------------------------------
Hypothetical* 2.19% $1,000.00 $1,014.17 $11.12
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, 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.
The Portfolio of Investments - 8/31/05
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
- ---------------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.3%
- ---------------------------------------------------------------------------------------------------
Reebok International Ltd.^ 391,810 $ 22,058,901
- ---------------------------------------------------------------------------------------------------
Banks & Credit Companies - 3.4%
- ---------------------------------------------------------------------------------------------------
American Express Co. 229,270 $ 12,664,875
Citigroup, Inc. 507,067 22,194,323
SLM Corp.^ 410,200 20,407,450
--------------
$ 55,266,648
- ---------------------------------------------------------------------------------------------------
Biotechnology - 5.7%
- ---------------------------------------------------------------------------------------------------
Amgen, Inc.* 526,150 $ 42,039,385
Genzyme Corp.^* 196,480 13,983,482
Gilead Sciences, Inc.* 563,460 24,228,780
ImClone Systems, Inc.^* 151,180 4,946,610
MedImmune, Inc.* 253,420 7,584,861
--------------
$ 92,783,118
- ---------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 5.3%
- ---------------------------------------------------------------------------------------------------
Comcast Corp., "Special A"^* 506,930 $ 15,299,147
Grupo Televisa S.A., ADR^ 169,460 10,642,088
News Corp., "A" 1,008,050 16,340,491
Univision Communications, Inc., "A"^* 322,820 8,683,858
Viacom, Inc., "B"^ 691,633 23,508,606
Walt Disney Co. 442,380 11,143,552
--------------
$ 85,617,742
- ---------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 0.8%
- ---------------------------------------------------------------------------------------------------
Chicago Mercantile Exchange Holdings, Inc.^ 18,000 $ 4,996,800
Merrill Lynch & Co., Inc.^ 138,040 7,890,366
--------------
$ 12,887,166
- ---------------------------------------------------------------------------------------------------
Business Services - 4.0%
- ---------------------------------------------------------------------------------------------------
Accenture Ltd., "A"^* 397,500 $ 9,699,000
Amdocs Ltd.^* 492,790 14,463,387
Cintas Corp.^ 406,170 16,754,513
Getty Images, Inc.^* 88,030 7,534,488
Infosys Technologies Ltd., ADR 231,460 16,385,053
--------------
$ 64,836,441
- ---------------------------------------------------------------------------------------------------
Chemicals - 0.3%
- ---------------------------------------------------------------------------------------------------
Monsanto Co. 75,910 $ 4,846,094
- ---------------------------------------------------------------------------------------------------
Computer Software - 9.5%
- ---------------------------------------------------------------------------------------------------
Adobe Systems, Inc.^ 313,800 $ 8,485,152
Check Point Software Technologies Ltd.^* 292,390 6,596,318
Macromedia, Inc.* 133,200 4,921,740
Mercury Interactive Corp.^* 417,100 15,295,057
Microsoft Corp. 2,082,260 57,053,924
Oracle Corp.* 2,844,680 36,895,500
Symantec Corp.* 1,239,369 26,001,962
--------------
$ 155,249,653
- ---------------------------------------------------------------------------------------------------
Computer Software - Systems - 3.7%
- ---------------------------------------------------------------------------------------------------
Dell, Inc.^* 1,279,010 $ 45,532,756
LG Philips LCD Co. Ltd., ADR^* 614,680 13,983,970
--------------
$ 59,516,726
- ---------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.4%
- ---------------------------------------------------------------------------------------------------
Avon Products, Inc. 191,450 $ 6,283,389
Gillette Co. 173,040 9,321,665
Procter & Gamble Co.^ 429,950 23,853,626
--------------
$ 39,458,680
- ---------------------------------------------------------------------------------------------------
Electrical Equipment - 1.9%
- ---------------------------------------------------------------------------------------------------
Cooper Industries Ltd., "A" 106,330 $ 7,064,565
General Electric Co. 332,650 11,180,367
Tyco International Ltd.^ 464,274 12,920,745
--------------
$ 31,165,677
- ---------------------------------------------------------------------------------------------------
Electronics - 9.8%
- ---------------------------------------------------------------------------------------------------
Analog Devices, Inc.^ 580,280 $ 21,151,206
AU Optronics Corp., ADR^ 523,761 7,746,425
Intel Corp. 758,900 19,518,908
KLA-Tencor Corp. 292,900 14,867,604
Marvell Technology Group Ltd.^* 267,360 12,616,718
PMC-Sierra, Inc.^* 1,243,410 10,544,117
Samsung Electronics Co. Ltd., GDR 99,420 26,072,895
Taiwan Semiconductor Manufacturing Co. Ltd., ADR 1,685,096 13,868,340
Texas Instruments, Inc.^ 386,730 12,638,336
Xilinx, Inc.^ 746,030 20,955,983
--------------
$ 159,980,532
- ---------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.0%
- ---------------------------------------------------------------------------------------------------
CVS Corp. 549,400 $ 16,135,878
- ---------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 1.5%
- ---------------------------------------------------------------------------------------------------
PepsiCo, Inc.^ 436,210 $ 23,926,119
- ---------------------------------------------------------------------------------------------------
Furniture & Appliances - 1.0%
- ---------------------------------------------------------------------------------------------------
Harman International Industries, Inc. 164,100 $ 16,967,940
- ---------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.2%
- ---------------------------------------------------------------------------------------------------
Carnival Corp. 260,150 $ 12,835,801
Royal Caribbean Cruises Ltd.^ 143,200 6,117,504
--------------
$ 18,953,305
- ---------------------------------------------------------------------------------------------------
General Merchandise - 4.3%
- ---------------------------------------------------------------------------------------------------
Kohl's Corp.^* 400,240 $ 20,992,588
Target Corp. 358,840 19,287,650
Wal-Mart Stores, Inc.^ 671,926 30,209,793
--------------
$ 70,490,031
- ---------------------------------------------------------------------------------------------------
Insurance - 0.9%
- ---------------------------------------------------------------------------------------------------
American International Group, Inc.^ 250,339 $ 14,820,069
- ---------------------------------------------------------------------------------------------------
Internet - 2.1%
- ---------------------------------------------------------------------------------------------------
eBay, Inc.* 300,920 $ 12,184,251
Yahoo!, Inc.^* 642,500 21,420,950
--------------
$ 33,605,201
- ---------------------------------------------------------------------------------------------------
Leisure & Toys - 2.0%
- ---------------------------------------------------------------------------------------------------
Activision, Inc.^* 219,106 $ 4,897,019
Electronic Arts, Inc.^* 487,230 27,908,534
--------------
$ 32,805,553
- ---------------------------------------------------------------------------------------------------
Machinery & Tools - 0.4%
- ---------------------------------------------------------------------------------------------------
Illinois Tool Works, Inc.^ 75,470 $ 6,360,612
- ---------------------------------------------------------------------------------------------------
Medical Equipment - 4.3%
- ---------------------------------------------------------------------------------------------------
Alcon, Inc.^ 116,200 $ 13,717,410
DENTSPLY International, Inc. 5,200 275,444
Fisher Scientific International, Inc.^* 134,780 8,690,614
Medtronic, Inc.^ 313,450 17,866,650
St. Jude Medical, Inc.^* 402,550 18,477,045
Waters Corp.* 236,500 10,753,655
--------------
$ 69,780,818
- ---------------------------------------------------------------------------------------------------
Network & Telecom - 8.3%
- ---------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 3,469,330 $ 61,129,595
Comverse Technology, Inc.^* 408,950 10,542,731
Corning, Inc.^* 1,597,110 31,878,316
QUALCOMM, Inc.^ 815,900 32,399,389
--------------
$ 135,950,031
- ---------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 2.9%
- ---------------------------------------------------------------------------------------------------
EMC Corp.* 2,738,070 $ 35,211,580
Network Appliance, Inc.^* 512,380 12,163,901
--------------
$ 47,375,481
- ---------------------------------------------------------------------------------------------------
Pharmaceuticals - 13.1%
- ---------------------------------------------------------------------------------------------------
Abbott Laboratories 500,000 $ 22,565,000
Allergan, Inc.^ 88,260 8,124,333
Eli Lilly & Co. 640,290 35,228,756
Johnson & Johnson^ 837,240 53,072,644
Roche Holding AG 135,480 18,770,408
Teva Pharmaceutical Industries Ltd., ADR^ 554,800 17,997,712
Wyeth 1,262,698 57,818,941
--------------
$ 213,577,794
- ---------------------------------------------------------------------------------------------------
Restaurants - 0.3%
- ---------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc.^ 128,030 $ 5,327,328
- ---------------------------------------------------------------------------------------------------
Specialty Stores - 5.6%
- ---------------------------------------------------------------------------------------------------
Bed Bath & Beyond, Inc.^* 184,660 $ 7,487,963
Home Depot, Inc.^ 473,020 19,072,166
Lowe's Cos., Inc.^ 256,520 16,496,801
PETsMART, Inc.^ 646,000 16,647,420
Staples, Inc. 791,720 17,386,171
TJX Cos., Inc.^ 640,970 13,402,683
--------------
$ 90,493,204
- ---------------------------------------------------------------------------------------------------
Trucking - 1.5%
- ---------------------------------------------------------------------------------------------------
FedEx Corp. 126,670 $ 10,316,005
United Parcel Service, Inc., "B"^ 198,070 14,041,182
--------------
$ 24,357,187
- ---------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,573,413,856) $1,604,593,929
- ---------------------------------------------------------------------------------------------------
Convertible Bonds - 0%
- ---------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ---------------------------------------------------------------------------------------------------
Electronics - 0%
- ---------------------------------------------------------------------------------------------------
Candescent Technologies Corp., 8%, 2003##** $10,000,000 $0
- ---------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $--) $0
- ---------------------------------------------------------------------------------------------------
Short-Term Obligation - 0.6%
- ---------------------------------------------------------------------------------------------------
General Electric Capital Corp., 3.58%, due 9/01/05,
at Amortized Cost< $10,315,000 $10,315,000
- ---------------------------------------------------------------------------------------------------
Portfolio of Investments - continued
Collateral for Securities Loaned - 20.2%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ---------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Cost and Net Asset Value 328,217,468 $ 328,217,468
- ---------------------------------------------------------------------------------------------------
Total Investments(S) (Identified Cost, $1,911,946,324) $1,943,126,397
- ---------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (19.3)% (314,572,321)
- ---------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,628,554,076
- ---------------------------------------------------------------------------------------------------
* Non-income producing security.
** Non income producing security - in default.
< The rate shown represents an annualized yield at time of purchase.
^ All or a portion of this security is on loan.
## SEC Rule 144A restriction.
(S) As of August 31, 2005, the fund had one security representing $18,770,408 and 1.2%
of net assets that was fair valued in accordance with the policies adopted by the
Board of Trustees.
Abbreviations:
ADR = American Depository Receipt.
GDR = Global Depository Receipt.
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 the fund.
AT 8/31/05
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $320,649,787 of securities
on loan (identified cost, $1,911,946,324) $1,943,126,397
Cash 2,367,302
Receivable for investments sold 27,698,182
Receivable for fund shares sold 3,077,780
Interest and dividends receivable 2,046,729
Other assets 7,791
- -------------------------------------------------------------------------------------------------------
Total assets $1,978,324,181
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $17,540,757
Payable for fund shares reacquired 3,168,407
Collateral for securities loaned, at value 328,217,468
Payable to affiliates
Management fee 28,798
Shareholder servicing costs 387,427
Distribution and service fees 17,848
Administrative services fee 442
Program manager fees 6
Retirement plan administration and services fees 11
Accrued expenses and other liabilities 408,941
- -------------------------------------------------------------------------------------------------------
Total liabilities $349,770,105
- -------------------------------------------------------------------------------------------------------
Net assets $1,628,554,076
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in capital $2,993,240,499
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 31,180,073
Accumulated net realized gain (loss) on investments and
foreign currency transactions (1,394,420,018)
Accumulated net investment loss (1,446,478)
- -------------------------------------------------------------------------------------------------------
Net assets $1,628,554,076
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 87,228,455
- -------------------------------------------------------------------------------------------------------
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $518,617,585
Shares outstanding 27,651,713
- -------------------------------------------------------------------------------------------------------
Net asset value per share $18.76
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$18.76) $19.90
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $381,085,410
Shares outstanding 21,309,787
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.88
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $89,289,704
Shares outstanding 4,983,695
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.92
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $633,593,461
Shares outstanding 32,961,579
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $19.22
- -------------------------------------------------------------------------------------------------------
Class R shares (formerly Class R1)
- -------------------------------------------------------------------------------------------------------
Net assets $3,783,537
Shares outstanding 202,493
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $18.68
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $203,825
Shares outstanding 11,406
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $17.87
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $133,155
Shares outstanding 7,443
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $17.89
- -------------------------------------------------------------------------------------------------------
Class R3 shares (formerly Class R2)
- -------------------------------------------------------------------------------------------------------
Net assets $821,829
Shares outstanding 44,188
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $18.60
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $52,148
Shares outstanding 2,781
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $18.75
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $52,213
Shares outstanding 2,780
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $18.78
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class 529A shares
- -------------------------------------------------------------------------------------------------------
Net assets $480,789
Shares outstanding 25,806
- -------------------------------------------------------------------------------------------------------
Net asset value per share $18.63
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$18.63) $19.77
- -------------------------------------------------------------------------------------------------------
Class 529B shares
- -------------------------------------------------------------------------------------------------------
Net assets $150,515
Shares outstanding 8,475
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.76
- -------------------------------------------------------------------------------------------------------
Class 529C shares
- -------------------------------------------------------------------------------------------------------
Net assets $289,905
Shares outstanding 16,309
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.78
- -------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A and Class 529A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class
529B and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Operations
This statement describes how much your fund received in investment income and paid in expenses.
It also describes any gains and/or losses generated by fund operations.
YEAR ENDED 8/31/05
NET INVESTMENT LOSS
- ------------------------------------------------------------------------------------------------------
Income
Dividends $19,650,840
Interest 994,892
Foreign taxes withheld (150,679)
- ------------------------------------------------------------------------------------------------------
Total investment income $20,495,053
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $11,913,409
Distribution and service fees 7,054,959
Program manager fees 2,219
Shareholder servicing costs 2,942,183
Administrative services fee 159,647
Retirement plan administration and services fees 1,954
Trustees' compensation 69,027
Custodian fee 386,954
Printing 197,778
Postage 80,900
Auditing fees 50,710
Legal fees 101,623
Shareholder solicitation expenses 154,064
Miscellaneous 14,237
- ------------------------------------------------------------------------------------------------------
Total expenses $23,129,664
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (119,476)
Reduction of expenses by investment adviser (1,591,897)
- ------------------------------------------------------------------------------------------------------
Net expenses $21,418,291
- ------------------------------------------------------------------------------------------------------
Net investment loss $(923,238)
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $62,237,807
Foreign currency transactions 13,938
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $62,251,745
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $125,828,953
Translation of assets and liabilities in foreign currencies (2,267)
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $125,826,686
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $188,078,431
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $187,155,193
- ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statements of Changes in Net Assets
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder
transactions.
FOR YEARS ENDED 8/31 2005 2004
CHANGE IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment loss $(923,238) $(10,384,701)
Net realized gain (loss) on investments and foreign
currency transactions 62,251,745 103,987,570
Net unrealized gain (loss) on investments and foreign
currency translation 125,826,686 (92,871,441)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $187,155,193 $731,428
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(77,169,494) $28,208,131
- -------------------------------------------------------------------------------------------------------
Redemption fees $755 $2,033
- -------------------------------------------------------------------------------------------------------
Total change in net assets $109,986,454 $28,941,592
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period $1,518,567,622 $1,489,626,030
At end of period (including accumulated net investment
loss of $1,446,478 and $2,056,149, respectively) $1,628,554,076 $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 past 5 years
(or, if shorter, the period of the fund's operation). Certain information reflects financial results for a single fund
share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment
in the fund (assuming reinvestment of all distributions) held for the entire period. This information has been audited by
the fund's independent registered public accounting firm, whose report, together with the fund's financial statements, are
included in this report.
CLASS A
YEARS ENDED 8/31
----------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $16.62 $16.57 $14.03 $19.22 $39.19
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $0.01 $(0.08) $(0.07) $(0.13) $(0.17)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.13 0.13 2.61 (4.97) (15.53)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.14 $0.05 $2.54 $(5.10) $(15.70)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- -- (0.09) (4.27)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.76 $16.62 $16.57 $14.03 $19.22
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 12.88*** 0.30+*** 18.10^^^ (26.70) (42.93)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.38 1.37 1.41 1.45 1.37
Expenses after expense reductions## 1.28 1.32 1.41 1.45 1.37
Net investment income (loss) 0.05 (0.46) (0.46) (0.74) (0.67)
Portfolio turnover 69 80 72 116 104
Net assets at end of period
(000 Omitted) $518,618 $563,761 $673,767 $731,283 $984,529
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B
YEARS ENDED 8/31
----------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $15.95 $16.00 $13.65 $18.80 $38.45
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.10) $(0.19) $(0.16) $(0.24) $(0.33)
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.03 0.14 2.51 (4.82) (15.23)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.93 $(0.05) $2.35 $(5.06) $(15.56)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments
and foreign currency transactions -- -- -- (0.09) (4.09)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.88 $15.95 $16.00 $13.65 $18.80
- --------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 12.10*** (0.31)+*** 17.22^^^ (27.08) (43.32)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.02 2.02 2.06 2.10 2.02
Expenses after expense reductions## 1.92 1.97 2.06 2.10 2.02
Net investment loss (0.60) (1.10) (1.12) (1.39) (1.32)
Portfolio turnover 69 80 72 116 104
Net assets at end of period
(000 Omitted) $381,085 $427,364 $505,090 $490,326 $820,848
- --------------------------------------------------------------------------------------------------------------------------
CLASS C
YEARS ENDED 8/31
---------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $15.98 $16.03 $13.67 $18.84 $38.54
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.10) $(0.19) $(0.16) $(0.24) $(0.34)
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.04 0.14 2.52 (4.84) (15.25)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.94 $(0.05) $2.36 $(5.08) $(15.59)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- -- (0.09) (4.11)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.92 $15.98 $16.03 $13.67 $18.84
- --------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 12.14*** (0.31)+*** 17.26^^^ (27.13) (43.29)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.02 2.02 2.06 2.10 2.02
Expenses after expense reductions## 1.92 1.97 2.06 2.10 2.02
Net investment loss (0.58) (1.10) (1.12) (1.39) (1.32)
Portfolio turnover 69 80 72 116 104
Net assets at end of period
(000 Omitted) $89,290 $114,023 $141,307 $148,930 $270,903
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I
YEARS ENDED 8/31
---------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $16.97 $16.86 $14.24 $19.41 $39.53
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $0.07 $(0.01) $(0.01) $(0.07) $(0.08)
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.18 0.12 2.63 (5.01) (15.68)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.25 $0.11 $2.62 $(5.08) $(15.76)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- -- (0.09) (4.36)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.22 $16.97 $16.86 $14.24 $19.41
- --------------------------------------------------------------------------------------------------------------------------
Total return (%)& 13.26*** 0.65+*** 18.40^^^ (26.37) (42.73)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.01 1.01 1.06 1.10 1.02
Expenses after expense reductions## 0.91 0.96 1.06 1.10 1.02
Net investment income (loss) 0.35 (0.06) (0.10) (0.39) (0.32)
Portfolio turnover 69 80 72 116 104
Net assets at end of period
(000 Omitted) $633,593 $405,006 $163,758 $26,193 $28,455
- --------------------------------------------------------------------------------------------------------------------------
CLASS R (FORMERLY CLASS R1)
YEARS ENDED 8/31
----------------------------------------------------
2005= 2004= 2003**
Net asset value, beginning of period $16.58 $16.55 $13.92###
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.03) $(0.09) $(0.06)
Net realized and unrealized gain (loss) on investments
and foreign currency 2.13 0.12 2.69
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.10 $0.03 $2.63
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.68 $16.58 $16.55
- --------------------------------------------------------------------------------------------------------------------------
Total return (%)& 12.67*** 0.18+*** 18.89###++^^^
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.53 1.49 1.60+
Expenses after expense reductions## 1.43 1.44 1.60+
Net investment loss (0.16) (0.52) (0.60)+
Portfolio turnover 69 80 72
Net assets at end of period (000 Omitted) $3,784 $1,982 $221
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 CLASS R2
YEAR ENDED YEAR ENDED
8/31/05** 8/31/05**
Net asset value, beginning of period $17.19 $17.19
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.08) $(0.05)
Net realized and unrealized gain (loss) on investments
and foreign currency 0.76 0.75
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.68 $0.70
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.87 $17.89
- -------------------------------------------------------------------------------------------------------------------
Total return (%)&*** 3.96++ 4.07++
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.23+ 1.95+
Expenses after expense reductions## 2.13+ 1.85+
Net investment loss (1.06)+ (0.80)+
Portfolio turnover 69 69
Net assets at end of period (000 Omitted) $204 $133
- -------------------------------------------------------------------------------------------------------------------
CLASS R3 (FORMERLY CLASS R2)
YEARS ENDED 8/31
-----------------------------------------------------------
2005= 2004=**
Net asset value, beginning of period $16.55 $16.99###
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.10) $(0.10)
Net realized and unrealized gain (loss) on
investments and foreign currency 2.15 (0.34)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.05 $(0.44)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.60 $16.55
- --------------------------------------------------------------------------------------------------------------------
Total return (%)&*** 12.39 (2.59)###+++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.78 1.71+
Expenses after expense reductions## 1.68 1.66+
Net investment loss (0.53) (0.74)+
Portfolio turnover 69 80
Net assets at end of period (000 Omitted) $822 $309
- --------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 CLASS R5
YEAR ENDED YEAR ENDED
8/31/05** 8/31/05**
Net asset value, beginning of period $17.98 $17.98
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.03) $(0.01)
Net realized and unrealized gain (loss) on investments
and foreign currency 0.80 0.81
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.77 $0.80
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.75 $18.78
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)&*** 4.28++ 4.45++
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.45+ 1.15+
Expenses after expense reductions## 1.35+ 1.05+
Net investment loss (0.37)+ (0.07)+
Portfolio turnover 69 69
Net assets at end of period (000 Omitted) $52 $52
- ----------------------------------------------------------------------------------------------------------------------------
CLASS 529A
YEARS ENDED 8/31
--------------------------------------------------------------------
2005= 2004= 2003 2002**
Net asset value, beginning of period $16.55 $16.52 $14.03 $13.89###
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.04) $(0.12) $(0.10) $(0.01)
Net realized and unrealized gain (loss) on
investments and foreign currency 2.12 0.15 2.59 0.15
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.08 $0.03 $2.49 $0.14
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.63 $16.55 $16.52 $14.03
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 12.57*** 0.18+*** 17.75^^^ 1.01###++
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.62 1.61 1.67 1.70+
Expenses after expense reductions## 1.52 1.56 1.67 1.70+
Net investment loss (0.25) (0.68) (0.69) (0.74)+
Portfolio turnover 69 80 72 116
Net assets at end of period (000 Omitted) $481 $394 $225 $5
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529B
YEARS ENDED 8/31
---------------------------------------------------------------------
2005= 2004= 2003 2002**
Net asset value, beginning of period $15.88 $15.97 $13.65 $13.52###
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.15) $(0.22) $(0.19) $(0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency 2.03 0.13 2.51 0.15
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.88 $(0.09) $2.32 $0.13
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.76 $15.88 $15.97 $13.65
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 11.84*** (0.56)+*** 17.00^^^ 0.96###++
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.27 2.25 2.33 2.35+
Expenses after expense reductions## 2.17 2.20 2.33 2.35+
Net investment loss (0.88) (1.31) (1.37) (1.39)+
Portfolio turnover 69 80 72 116
Net assets at end of period (000 Omitted) $151 $143 $79 $5
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C
YEARS ENDED 8/31
--------------------------------------------------------------
2005= 2004= 2003 2002**
Net asset value, beginning of period $15.90 $15.99 $13.67 $13.54###
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.16) $(0.22) $(0.19) $(0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency 2.04 0.13 2.51 0.15
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.88 $(0.09) $2.32 $0.13
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.78 $15.90 $15.99 $13.67
- -------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 11.82*** (0.56)+*** 16.97^^^ 0.96###++
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.27 2.25 2.30 2.35+
Expenses after expense reductions## 2.17 2.20 2.30 2.35+
Net investment loss (0.91) (1.29) (1.35) (1.38)+
Portfolio turnover 69 80 72 116
Net assets at end of period (000 Omitted) $290 $221 $58 $5
- -------------------------------------------------------------------------------------------------------------------------
** For the period from the class' inception, December 31, 2002 (Class R), July 31, 2002 (Classes 529A, 529B, and 529C),
October 31, 2003 (Class R3) and April 1, 2005 (Classes R1, R2, R4, and R5) through the stated period end.
*** Certain expenses have been reduced without which performance would have been lower.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### The net asset values and total returns previously reported as $13.94 and 18.72% (Class R), $17.01 and (2.70)% (Class
R3), $13.88 and 1.08% (Class 529A), $13.51 and 1.04% (Class 529B), and $13.53 and 1.03% (Class 529C), respectively,
have been revised to reflect the net asset value from the day prior to the class' inception date. The net asset
values and total returns previously reported were from inception date, the date the share classes were first
available to public shareholders.
(+) Total returns do not include any applicable sales charges.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
= Redemption fees charged by the fund during this period resulted in a per share impact of less than $0.01.
+ The fund's net asset value and total return calculation included a non-recurring accural recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. 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 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 $0.01 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 for, Class A, Class B, Class C, Class I, Class R, Class 529A, Class 529B, and Class 529C, total
returns for the year ended August 31, 2003 would have been lower by approximately 0.08%, 0.09%, 0.08%, 0.09%, 0.08%,
0.09%, 0.09%, and 0.09%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Strategic Growth Fund (the fund) is a diversified series of MFS Series
Trust I (the trust). The trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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.
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 year ended August 31, 2005, the fund's custodian fees
were reduced by $58,461 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For the year ended August 31, 2005, the fund's miscellaneous expenses
were reduced by $61,015 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, defaulted bonds and net operating losses.
The fund paid no distributions for the years ended August 31, 2005 and August
31, 2004.
During the year ended August 31, 2005, accumulated net investment loss
decreased by $1,532,909, accumulated net realized loss on investments and
foreign currency transactions increased by $283,287,106, and paid-in capital
increased by $281,754,197 due to differences between book and tax accounting
for foreign currency transactions, net operating losses, defaulted bonds,
capital loss carryforward and wash sales loss deferrals assumed as a result of
the acquisition. This change had no impact on net assets or net asset value
per share.
As of August 31, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(1,380,142,592)
Unrealized appreciation (depreciation) 16,902,647
Other temporary differences (1,446,478)
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on:
EXPIRATION DATE
August 31, 2009 $(186,542,212)
August 31, 2010 (863,824,612)
August 31, 2011 (299,742,793)
August 31, 2012 (30,032,975)
--------------------------------------------------------
Total $(1,380,142,592)
The availability of a portion of the capital loss carryforwards, which were
acquired on June 10, 2005 in connection with the MFS Managed Sectors Fund
merger, 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 and Class
529B shares will convert to Class A and Class 529A shares, respectively,
approximately eight years after purchase. Class J shares closed on April 15,
2005.
(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,
MFS has agreed to reduce the management fee to 0.65% of the fund's average
daily net assets for the period March 1, 2004 through February 28, 2009.
For the year ended August 31, 2005, this waiver is reflected as a reduction of
total expenses in the Statement of Operations.
The management fee incurred for the year ended August 31, 2005 was equivalent
to an annual effective rate of 0.65% of the fund's average daily
net assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly owned subsidiary of
MFS, as distributor, received $62,642 and $394 for the year ended
August 31, 2005, as its portion of the initial sales charge on sales of Class
A and Class 529A shares of the fund, respectively. The Board of Trustees has
adopted a distribution plan for certain class shares pursuant to Rule 12b-1 of
the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to and retained by MFD. Another component of the
plan is a service fee paid to MFD which subsequently pays a portion of this
fee 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.
Distribution Fee Plan Table:
TOTAL ANNUAL SERVICE FEE DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE RETAINED AND SERVICE
FEE RATE FEE RATE PLAN(1) RATE(2) BY MFD(3) FEE
Class A 0.10% 0.25% 0.35% 0.35% $49,222 $1,891,651
Class B 0.75% 0.25% 1.00% 1.00% 7,484 4,079,181
Class C 0.75% 0.25% 1.00% 1.00% 3,780 1,026,828
Class J 0.75% 0.25% 1.00% 1.00% -- 32,171
Class R 0.25% 0.25% 0.50% 0.50% 15 15,482
Class R1 0.50% 0.25% 0.75% 0.75% 93 321
Class R2 0.25% 0.25% 0.50% 0.50% 62 128
Class R3 0.25% 0.25% 0.50% 0.50% 24 3,210
Class R4 -- 0.25% 0.25% 0.25% 31 54
Class 529A 0.25% 0.25% 0.50% 0.35% 473 1,584
Class 529B 0.75% 0.25% 1.00% 1.00% 15 1,634
Class 529C 0.75% 0.25% 1.00% 1.00% 58 2,715
- --------------------------------------------------------------------------------
Total Distribution and Service Fees $7,054,959
(1) In accordance with the distribution plan for certain classes, the fund
pays distribution and/or service fees up to these annual percentage rates
of each class' average daily net assets.
(2) The annual effective rates represent actual fees incurred under the
distribution plan for the year ended August 31, 2005 based on each class'
average daily net assets. 0.10% of the Class 529A distribution fee is
currently being paid by the fund. Payment of the remaining 0.15% of the
Class 529A distribution fee is not yet implemented and will commence on
such date as the fund's Board of Trustees may determine.
(3) For the year ended August 31, 2005, MFD retained these service fees.
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 12
months of purchase. Class B and Class 529B shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within six
years of purchase. MFD retained all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended
August 31, 2005 were as follows:
AMOUNT
Class A $26,554
Class B 845,907
Class C 9,372
Class 529B 133
Class 529C --
The fund has entered into and may from time to time enter into contracts with
program managers and other parties which administer the tuition programs
through which an investment in the fund's 529 share classes is made. The fund
has entered into an agreement with MFD pursuant to which MFD receives an
annual fee of up to 0.35% from the fund based solely upon the value of the
fund's 529 share classes attributable to tuition programs to which MFD, or a
third party which contracts with MFD, provides administrative services. The
current fee has been established at 0.25% annually of average net assets of
the fund's 529 share classes. The fee may only be increased with the approval
of the Board of Trustees who 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. Program manager fees for the year ended August 31, 2005, were as
follows:
AMOUNT
Class 529A $1,131
Class 529B $409
Class 529C $679
-------------------------------------------------------
Total Program Manager Fees $2,219
SHAREHOLDER SERVICING AGENT - The fund pays a portion of shareholder servicing
costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS.
MFSC receives a fee from the fund, for its services as shareholder servicing
agent, set periodically under the supervision of the fund's Board of Trustees.
For the year ended August 31, 2005, the fee was $1,639,657, which equated to
0.1034% annually of the fund's average daily net assets. MFSC also receives
payment from the fund for out-of-pocket and sub-accounting expenses paid by
MFSC on behalf of the fund. For the year ended August 31, 2005, these costs
amounted to $782,049.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. Effective July 1, 2005, the fund's annual fixed amount is $10,000. The
administrative services fee incurred for the year ended August 31, 2005 was
equivalent to an annual effective rate of 0.0101% of the fund's average daily
net assets.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain retirement plan
administration and services with respect to certain Class R shares. These
services include various administrative, recordkeeping, and communication/
educational services with respect to the retirement plans which invest in
these shares, and may be provided directly by MFS or by a third party. For the
year ended August 31, 2005, the fund paid an annual retirement plan
administration and services fee up to the following annual percentage rates of
each class' average daily net assets:
AMOUNT
FEE TOTAL RETAINED
RATE AMOUNT BY MFS
Class R1 0.45% $193 $148
Class R2 0.40% 103 76
Class R3 (formerly Class R2) 0.25% 1,605 890
Class R4 0.15% 32 11
Class R5 0.10% 21 19
- ------------------------------------------------------------------------------
Total Retirement Plan Administration
and Services Fees $1,954 $1,144
TRUSTEES' COMPENSATION - The fund pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons. The fund does not pay compensation directly to
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, MFD, and MFSC. The fund has an unfunded, defined benefit plan for retired
Independent Trustees which resulted in a pension expense of $30,269. The fund
also has an unfunded retirement benefit deferral plan for certain current
Independent Trustees which resulted in an expense of $3,101. Both amounts are
included in Trustees compensation for the year ended August 31, 2005.
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 $4,045 of Deferred Trustees'
Compensation.
OTHER - 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 the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $3,684, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided 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, was the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales. As a result, proceeds in the amount of $827,507
were paid to the fund on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$1,070,768,805 and $1,311,255,276, 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 $1,926,223,750
-------------------------------------------------------
Gross unrealized appreciation $107,865,933
Gross unrealized depreciation (90,963,286)
-------------------------------------------------------
Net unrealized appreciation $16,902,647
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 8/31/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 4,757,164 $85,935,893 9,135,629 $159,921,433
Shares issued in connection with
acquisition of MFS Managed Sectors Fund 7,801,545 143,704,457 -- --
Shares reacquired (18,826,189) (339,752,339) (15,888,205) (278,004,488)
- -----------------------------------------------------------------------------------------------------------
Net change (6,267,480) $(110,111,989) (6,752,576) $(118,083,055)
CLASS B SHARES
Shares sold 1,575,957 $27,392,859 2,724,980 $45,750,851
Shares issued in connection with
acquisition of MFS Managed Sectors Fund 1,752,230 30,821,723 -- --
Shares reacquired (8,809,726) (152,957,259) (7,496,759) (125,557,730)
- -----------------------------------------------------------------------------------------------------------
Net change (5,481,539) $(94,742,677) (4,771,779) $(79,806,879)
CLASS C SHARES
Shares sold 333,948 $5,798,886 924,461 $15,527,263
Shares issued in connection with
acquisition of MFS Managed Sectors Fund 51,143 901,145 -- --
Shares reacquired (2,536,107) (43,995,123) (2,603,489) (43,764,517)
- -----------------------------------------------------------------------------------------------------------
Net change (2,151,016) $(37,295,092) (1,679,028) $(28,237,254)
CLASS I SHARES
Shares sold 9,423,324 $174,295,462 14,464,089 $257,055,055
Shares issued in connection with
acquisition of MFS Managed Sectors Fund 112,114 2,114,473 -- --
Shares reacquired (435,238) (8,147,845) (315,485) (5,591,834)
- -----------------------------------------------------------------------------------------------------------
Net change 9,100,200 $168,262,090 14,148,604 $251,463,221
Year ended 8/31/05* Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS J SHARES
Shares sold 22,747 $391,281 134,418 $2,218,836
Shares reacquired (360,973) (6,137,743) (118,008) (2,007,446)
- -----------------------------------------------------------------------------------------------------------
Net change (338,226) $(5,746,462) 16,410 $211,390
CLASS R SHARES (FORMERLY CLASS R1)
Shares sold 181,581 $3,303,225 122,633 $2,203,904
Shares reacquired (98,637) (1,804,140) (16,451) (285,108)
- -----------------------------------------------------------------------------------------------------------
Net change 82,944 $1,499,085 106,182 $1,918,796
Period ended 8/31/05**
SHARES AMOUNT
CLASS R1 SHARES
Shares sold 11,518 $205,511
Shares reacquired (112) (2,057)
- -------------------------------------------------------------------------
Net change 11,406 $203,454
CLASS R2 SHARES
Shares sold 8,385 $149,704
Shares reacquired (942) (17,054)
- -------------------------------------------------------------------------
Net change 7,443 $132,650
Year ended 8/31/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS R3 SHARES (FORMERLY CLASS R2)
Shares sold 44,189 $809,232 18,703 $327,908
Shares reacquired (18,704) (347,920) -- --
- -----------------------------------------------------------------------------------------------------------
Net change 25,485 $461,312 18,703 $327,908
Period ended 8/31/05**
SHARES AMOUNT
CLASS R4 SHARES
Shares sold 2,781 $50,000
- -------------------------------------------------------------------------
CLASS R5 SHARES
Shares sold 2,780 $50,000
- -------------------------------------------------------------------------
Year ended 8/31/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 4,173 $75,144 11,639 $202,658
Shares reacquired (2,182) (38,496) (1,468) (25,484)
- -----------------------------------------------------------------------------------------------------------
Net change 1,991 $36,648 10,171 $177,174
CLASS 529B SHARES
Shares sold 1,599 $27,649 4,118 $68,611
Shares reacquired (2,154) (37,584) (38) (635)
- -----------------------------------------------------------------------------------------------------------
Net change (555) $(9,935) 4,080 $67,976
CLASS 529C SHARES
Shares sold 5,138 $89,910 10,500 $173,280
Shares reacquired (2,714) (48,488) (263) (4,426)
- -----------------------------------------------------------------------------------------------------------
Net change 2,424 $41,422 10,237 $168,854
* Class J shares closed on April 15, 2005.
** For the period from the inception of Class R1, Class R2, Class R4, and Class R5 shares, April 1, 2005
through August 31, 2005.
The fund is one of several mutual funds in which the MFS fund-of-funds may
invest. The MFS fund-of-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 Moderate Allocation Fund, MFS Aggressive Growth Allocation, MFS
Conservative Allocation Fund and MFS Growth Allocation Fund were the owners of
record of approximately 10%, 10%, 2% and 16% respectively, of the value of
outstanding voting shares.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured line
of credit provided by a syndication of banks under a 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 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the fund for the year ended August 31, 2005 was $9,921 and is
included in miscellaneous expense. The fund had no significant borrowings
during the year ended August 31, 2005.
(7) ACQUISITIONS
At close of business on June 10, 2005, the fund acquired all of the assets and
liabilities of MFS Managed Sectors Fund. The acquisition was accomplished by a
tax-free exchange of 9,717,032 shares of the fund (valued at $177,541,798) for
all of the assets and liabilities of MFS Managed Sectors Fund. MFS Managed
Sectors Fund then converted all of its outstanding shares for the shares of
the fund and distributed those shares to its shareholders. MFS Managed Sectors
Fund's net assets on that date were $177,541,798, including $23,232,000 of
unrealized appreciation, $538,133 of accumulated net investment loss, and
$282,661,889 of accumulated net realized loss on investments and foreign
currency transactions. These assets were combined with those of the fund. The
aggregate net assets of the fund after the acquisition were $1,626,560,058.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust I and Shareholders of
MFS Strategic Growth Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Strategic Growth Fund (the Fund) (one of the portfolios comprising MFS Series
Trust I), including the portfolio of investments, as of August 31, 2005, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Fund's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of August 31, 2005, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Strategic Growth Fund at August 31, 2005, the results of its operations for
the year then ended, the changes in its net assets for each of the two years
in the period then ended, and its financial highlights for each of the periods
indicated therein, in conformity with U.S. generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 11, 2005
RESULTS OF SHAREHOLDER MEETING (unaudited) - 8/31/05
At a special meeting of shareholders of MFS Series Trust I, which was held on
March 23, 2005, the following action was taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
---------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $8,025,286,508.56 $117,939,292.78
- -------------------------------------------------------------------------------
David H. Gunning 8,030,402,677.64 112,823,123.70
- -------------------------------------------------------------------------------
William R. Gutow 8,027,523,726.27 115,702,075.07
- -------------------------------------------------------------------------------
Michael Hegarty 8,021,162,525.49 122,063,275.85
- -------------------------------------------------------------------------------
J. Atwood Ives 8,024,062,680.07 119,163,121.27
- -------------------------------------------------------------------------------
Amy B. Lane 8,019,792,882.59 123,432,918.75
- -------------------------------------------------------------------------------
Robert J. Manning 8,030,980,361.78 112,245,439.56
- -------------------------------------------------------------------------------
Lawrence T. Perera 8,025,935,401.12 117,290,400.22
- -------------------------------------------------------------------------------
Robert C. Pozen 8,031,655,470.25 111,570,331.09
- -------------------------------------------------------------------------------
J. Dale Sherratt 8,027,226,595.42 115,999,205.92
- -------------------------------------------------------------------------------
Laurie J. Thomsen 8,019,388,506.87 123,837,294.47
- -------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2005, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.)
The address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(1) OTHER DIRECTORSHIPS(2)
- ------------------- ---------------- --------------- ----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee and February 2004 Massachusetts Financial Services
(born 10/20/63) President Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School
(education), John Olin Visiting
Professor (since July 2002);
Secretary of Economic Affairs, The
Commonwealth of Massachusetts
(January 2002 to December 2002);
Fidelity Investments, Vice
Chairman (June 2000 to December
2001); Fidelity Management &
Research Company (investment
adviser), President (March 1997 to
July 2001); Bell Canada
Enterprises (telecommunications),
Director; Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 05/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Chief of Cardiac Surgery; Harvard
Medical School, Professor of
Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group (1997 to
February 2001); Borders Group,
Inc. (book and music retailer),
Director; Federal Realty
Investment Trust (real estate
investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 06/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 08/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
OFFICERS
Robert J. Manning(3) President and February 2004 Massachusetts Financial Services
(born 10/20/63) Trustee Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Tracy Atkinson(3) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(3) Assistant July 2005 Massachusetts Financial Services
(born 1/18/74) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003); Nvest Services Company,
Assistant Vice President and
Associate Counsel (prior to
January 2001)
Jeffrey N. Carp(3) Secretary and September 2004 Massachusetts Financial Services
(born 12/01/56) Clerk Company, Executive Vice President,
General Counsel and Secretary
(since April 2004); Hale and Dorr
LLP (law firm), Partner (prior to
April 2004)
Ethan D. Corey(3) Assistant July 2005 Massachusetts Financial Services
(born 11/21/63) Secretary and Company, Special Counsel (since
Assistant Clerk December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
Stephanie A. DeSisto(3) Assistant May 2003 Massachusetts Financial Services
(born 10/01/53) Treasurer Company, Vice President (since
April 2003); Brown Brothers
Harriman & Co., Senior Vice
President (November 2002 to April
2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
David L. DiLorenzo(3) Assistant July 2005 Massachusetts Financial Services
(born 8/10/68) Treasurer Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (January
2001 to June 2005); State Street
Bank, Vice President and Corporate
Audit Manager (prior to January
2001)
Timothy M. Fagan(3) Assistant September 2005 Massachusetts Financial Services
(born 7/10/68) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(3) Assistant July 2005 Massachusetts Financial Services
(born 10/27/70) Treasurer Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian T. Hourihan(3) Assistant September 2004 Massachusetts Financial Services
(born 11/11/64) Secretary and Company, Vice President, Senior
Assistant Clerk Counsel and Assistant Secretary
(since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance
Program (January to April 2004);
Fidelity Research & Management
Company, Assistant General Counsel
(prior to January 2004)
Ellen Moynihan(3) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Vice President
Susan S. Newton(3) Assistant May 2005 Massachusetts Financial Services
(born 03/07/50) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(3) Assistant July 2005 Massachusetts Financial Services
(born 11/05/70) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (January 2001 to June
2004); Preti, Flaherty, Beliveau,
Pachios & Haley, LLC, Associate
(prior to January 2001)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (February
1997 to March 2003)
James O. Yost(3) Assistant September 1990 Massachusetts Financial Services
(born 06/12/60) Treasurer Company, Senior Vice President
- ------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served
continuously since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(3) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940
(referred to as the 1940 Act), which is the principal federal law governing investment companies
like the fund, as a result of position with MFS. The address of MFS is 500 Boylston Street,
Boston, Massachusetts 02116.
Each Trustee has been elected by shareholders and each Trustee and officer holds office until his or
her successor is chosen and qualified or until his or her earlier death, resignation, retirement or
removal. Messrs. Ives and Sherratt and Mses. Lane and Thomsen are members of the Trust's Audit
Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of
which MFS or a subsidiary is the investment adviser or distributor, and, in the case of the
officers, with certain affiliates of MFS. As of December 31, 2004, each Trustee served as a board
member of 99 funds within the MFS Family of Funds.
The Trust held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once
every five years thereafter, to elect Trustees.
The Statement of Additional Information contains further information about the Trustees and is
available without charge upon request by calling 1-800-225-2606.
- ------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 02110
02116-3741
INDEPENDENT REGISTERED PUBLIC
DISTRIBUTOR ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 200 Clarendon Street, Boston, MA 02116
02116-3741
PORTFOLIO MANAGER
S. Irfan Ali
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment
advisory agreement with MFS. The Trustees consider matters bearing on the Fund
and its advisory arrangements at their meetings throughout the year, including
a review of performance data at each regular meeting. In addition, the
independent Trustees met several times over the course of three months
beginning in May and ending in July, 2005 ("contract review meetings") for the
specific purpose of considering whether to approve the continuation of the
investment advisory agreement for the Fund and the other investment companies
that the Board oversees (the "MFS Funds"). The independent Trustees were
assisted in their evaluation of the Fund's investment advisory agreement by
independent legal counsel, from whom they received separate legal advice and
with whom they met separately from MFS during various contract review
meetings. The independent Trustees were also assisted in this process by the
MFS Funds' Independent Chief Compliance Officer, a full-time senior officer
appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light
of the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2004 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable
funds identified by Lipper (the "Lipper expense group"), as well as the
advisory fees and other expenses of peer funds identified by objective
criteria suggested by MFS, (iii) information provided by MFS on the advisory
fees of comparable portfolios of other clients of MFS, including institutional
separate account and other clients, (iv) information as to whether and to what
extent applicable expense waivers, reimbursements or fee "breakpoints" are
observed for the Fund, (v) information regarding MFS' financial results and
financial condition, including MFS' and certain of its affiliates' estimated
profitability from services performed for the Fund and the MFS Funds as a
whole, (vi) MFS' views regarding the outlook for the mutual fund industry and
the strategic business plans of MFS, (vii) descriptions of various functions
performed by MFS for the Funds, such as compliance monitoring and portfolio
trading practices, and (viii) information regarding the overall organization
of MFS, including information about MFS' senior management and other personnel
providing investment advisory, administrative and other services to the Fund
and the other MFS Funds. The comparative performance, fee and expense
information prepared and provided by Lipper Inc. was not independently
verified and the independent Trustees did not independently verify any
information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than others, and that
the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed
the Fund's total return investment performance as well as the performance of
peer groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2004, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 61st percentile relative to the other funds in the
universe for this three-year period (the 1st percentile being the best
performers and the 100th percentile being the worst performers). The total
return performance of the Fund's Class A shares was in the 56th percentile
for the one-year period and the 58th percentile for the five-year period
ended December 31, 2004 relative to the Lipper performance universe. Because
of the passage of time, these performance results are likely to differ from
the performance results for more recent periods, including those shown
elsewhere in this report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings,
as well as during investment review meetings conducted with portfolio
management personnel during the course of the year, as to MFS' efforts to
improve the Fund's performance. After reviewing these and related factors, the
Trustees concluded, within the context of their overall conclusions regarding
the investment advisory agreement, that they were satisfied with MFS'
responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
whether the Fund was subject to any fee waivers or reductions or expense
limitations. The Trustees also considered that, according to the Lipper data,
the Fund's effective advisory fee rate and total expense ratio were each
approximately at the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information
provided by MFS as to the generally broader scope of services provided by MFS
to the Fund in comparison to institutional accounts, the higher demands placed
on MFS' investment personnel and trading infrastructure as a result of the
daily cash in-flows and out-flows of the Fund, and the impact on MFS and
expenses associated with the more extensive regulatory regime to which the
Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
not currently subject to any breakpoints. Taking into account fee waivers or
reductions or expense limitations, if any, the Trustees determined not to
recommend any advisory fee breakpoints for the Fund at this time.
The Trustees also considered information prepared by MFS relating to MFS'
costs and profits with respect to the Fund, the MFS Funds considered as a
group, and other investment companies and accounts advised by MFS,
as well as MFS' methodologies used to determine and allocate its costs to the
MFS Funds, the Fund and other accounts and products for purposes of
estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the
financial services industry, including the entry into the industry of large
and well-capitalized companies which are spending, and appear to be prepared
to continue to spend, substantial sums to engage personnel and to provide
services to competing investment companies. In this regard, the Trustees also
considered the financial resources of MFS and its ultimate parent, Sun Life
Financial Inc. The Trustees also considered the advantages and possible
disadvantages to the Fund of having an adviser which also serves other
investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the
Fund by MFS and its affiliates under agreements and plans other than the
investment advisory agreement, including any 12b-1 fees the Fund pays to MFS
Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for research and other similar services
(including MFS' general policy to pay directly for third-party research), and
various other factors. Additionally, the Trustees considered so-called "fall-
out benefits" to MFS such as reputational value derived from serving as
investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material,
including those factors described above, the Board of Trustees, including a
majority of the independent Trustees, concluded that the Fund's investment
advisory agreement with MFS should be continued for an additional one-year
period, commencing August 1, 2005.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement will be available on or before
December 1, 2005 by clicking on the fund's name under "Select a fund" on the
MFS website (mfs.com).
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 Proxy Voting 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.
FEDERAL TAX INFORMATION (unaudited)
In January 2006, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2005.
CONTACT INFORMATION
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
- --------------------------------------------------------------------------------
Share 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-ANN-10/05 158M
MFS(R) CORE EQUITY FUND 8/31/05
ANNUAL REPORT
- -------------------------------------------------------------------------------
LETTER FROM THE CEO 1
- ---------------------------------------------------
PORTFOLIO COMPOSITION 2
- ---------------------------------------------------
MANAGEMENT REVIEW 3
- ---------------------------------------------------
PERFORMANCE SUMMARY 5
- ---------------------------------------------------
EXPENSE TABLE 8
- ---------------------------------------------------
PORTFOLIO OF INVESTMENTS 10
- ---------------------------------------------------
FINANCIAL STATEMENTS 17
- ---------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 27
- ---------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 36
- ---------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 37
- ---------------------------------------------------
TRUSTEES AND OFFICERS 38
- ---------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 43
- ---------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 47
- ---------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 47
- ---------------------------------------------------
FEDERAL TAX INFORMATION 47
- ---------------------------------------------------
CONTACT INFORMATION BACK COVER
- ---------------------------------------------------
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.
[logo] M F S(SM)
INVESTMENT MANAGEMENT(R)
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders,
Most investors are familiar with the basic principles of investing - focus on
the long term and keep your assets diversified across different investment
categories. Still, it is surprising how often we forget these basic lessons.
Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s
had many people hoping they could become millionaires overnight. But the
market decline that started in the spring of 2000 taught everyone how
misguided those hopes had been.
Now, less than five years after the market taught a harsh lesson in the
follies of speculative investing, we are seeing a number of trends that
suggest many investors, including professionals, are hoping for overnight
miracles again. We see a steady stream of market "gurus" on television news
shows, promising to teach amateur investors the strategies that will allow
them to get rich quick. Hedge funds - which by their nature move in and out of
investments rapidly - have soared in popularity over the past five years. We
are reminded every day that we live in a "what have you done for me lately?"
world, but this mindset should not influence how we invest and manage our
money. In fact, investors often fall short of their goals because they trade
in and out of investments too frequently and at inopportune times.
Throughout our entire 80-year history, MFS' money management process has
focused on long-term investment opportunities. We firmly believe that one of
the best ways to realize long-term financial goals - be it a college
education, a comfortable retirement, or a secure family legacy - is to follow
a three-pronged approach that focuses on longer time horizons. Allocate
holdings across the major asset classes - including stocks, bonds, and cash.
Diversify within each class to take advantage of different market segments and
investing styles. And rebalance assets regularly to maintain a desired asset
allocation.*
This long-term approach requires diligence and patience, two traits that in
our experience are essential to capitalizing on the many opportunities the
financial markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 17, 2005
* Asset allocation, diversification, and rebalancing does not guarantee a
profit or protect against a loss. The opinions expressed in this letter are
those of MFS, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 98.6%
Cash & Other Net Assets 1.4%
TOP TEN HOLDINGS
General Electric Co. 3.2%
------------------------------------------------
Bank of America Corp. 2.8%
------------------------------------------------
TOTAL S.A., ADR 2.7%
------------------------------------------------
Exxon Mobil Corp. 2.5%
------------------------------------------------
Wyeth 2.3%
------------------------------------------------
Altria Group, Inc. 2.3%
------------------------------------------------
PepsiCo, Inc. 1.9%
------------------------------------------------
Dell, Inc. 1.8%
------------------------------------------------
SLM Corp. 1.7%
------------------------------------------------
Sprint Nextel Corp. 1.6%
------------------------------------------------
EQUITY SECTORS
Financial Services 19.1%
------------------------------------------------
Technology 13.9%
------------------------------------------------
Health Care 13.8%
------------------------------------------------
Energy 9.4%
------------------------------------------------
Consumer Staples 7.5%
------------------------------------------------
Industrial Goods & Services 7.2%
------------------------------------------------
Utilities & Communications 7.1%
------------------------------------------------
Retailing 6.0%
------------------------------------------------
Leisure 5.5%
------------------------------------------------
Basic Materials 4.3%
------------------------------------------------
Special Products & Services 2.1%
------------------------------------------------
Transportation 1.6%
------------------------------------------------
Autos & Housing 1.1%
------------------------------------------------
Percentages are based on net assets as of 8/31/05.
The portfolio is actively managed, and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2005, Class A shares of the MFS Core
Equity Fund had a total return of 16.48%, at net asset value. In comparison,
the fund's benchmark, the Standard & Poor's 500 Stock Index, returned 12.55%.
CONTRIBUTORS TO PERFORMANCE
Overall favorable stock selection was the primary contributor to relative
performance over the reporting period. At the sector level, security selection
in the health care, basic materials, and utilities and communications sectors
contributed to the fund's strong relative performance.
Within health care, our avoidance of benchmark constituents Pfizer and Merck
aided performance, as both stocks declined significantly over the period. In
the basic materials sector, several portfolio holdings appreciated
considerably including agrichemical products manufacturer Monsanto and iron
ore miner Companhia Vale do Rio Doce. Although security selection in the
utilities and communications sector was also an area of relative strength, no
individual names were among the fund's top relative performers.
Other stocks that made a significant positive impact on relative results
included business software firm MicroStrategy, computer and electronics
company Apple, investment management firm Legg Mason, integrated energy
company TOTAL, and retail giant Wal-Mart.
DETRACTORS FROM PERFORMANCE
Although several technology holdings were among the fund's top relative
contributors, security selection in this sector overall was an area of
relative weakness. Within the technology sector, our holdings of business to
business and e-commerce software vendor Ariba, printer manufacturer Lexmark*,
electronics manufacturing company Solectron, and Internet software firm
SupportSoft* were among the fund's top detractors. Not fully participating in
the strong performance of computer company Hewlett-Packard* was a drag on
relative performance. Additionally, not owning benchmark constituent Texas
Instruments hurt results as the stock had strong gains for the period.
Although no individual stocks in the leisure sector were among the fund's top
detractors, security selection in this sector hurt relative performance. In
other sectors, our holdings in mortgage finance company Freddie Mac* and
retailer Family Dollar Stores, and not owning strong-performing benchmark
constituent UnitedHealth Group detracted from relative results.
The fund's cash position was also a detractor from relative performance. As
with nearly all mutual funds, this portfolio holds cash to buy new holdings
and to provide liquidity. In a period when equity markets rose as measured by
the fund's benchmark, holding cash hurt performance versus the fund's
benchmark, which has no cash position.
Respectfully,
Katrina Mead
Portfolio Manager
* 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 Ms. Mead.
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
PERFORMANCE SUMMARY THROUGH 8/31/05
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR CLASS 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
January 2, 1996, through August 31, 2005. Index information is from January 1,
1996.)
MFS Core Equity Standard & Poor's
Fund -- Class A 500 Stock Index
1/96 $ 9,425 $10,000
8/96 10,490 10,745
8/97 14,290 15,110
8/98 15,194 16,334
8/99 19,546 22,837
8/00 22,235 26,564
8/01 17,899 20,089
8/02 15,036 16,475
8/03 16,790 18,462
8/04 18,449 20,575
8/05 21,490 23,158
TOTAL RATES OF RETURN THROUGH 8/31/05
AVERAGE ANNUAL WITHOUT SALES CHARGE
Class inception
Share class date 1-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/02/96 16.48% -0.68% 8.90%
- ------------------------------------------------------------------------------
B 1/02/97 15.77% -1.32% 8.20%
- ------------------------------------------------------------------------------
C 1/02/97 15.76% -1.32% 8.18%
- ------------------------------------------------------------------------------
I 1/02/97 16.90% -0.33% 9.24%
- ------------------------------------------------------------------------------
R** 12/31/02 16.26% -0.77% 8.85%
- ------------------------------------------------------------------------------
R1 4/01/05 16.07% -0.75% 8.86%
- ------------------------------------------------------------------------------
R2 4/01/05 16.20% -0.73% 8.88%
- ------------------------------------------------------------------------------
R3** 10/31/03 16.02% -0.81% 8.83%
- ------------------------------------------------------------------------------
R4 4/01/05 16.48% -0.68% 8.90%
- ------------------------------------------------------------------------------
R5 4/01/05 16.61% -0.66% 8.92%
- ------------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmarks
- ------------------------------------------------------------------------------
Average multi-cap core fund+ 16.06% -0.85% 8.96%
- ------------------------------------------------------------------------------
Standard & Poor's 500 Stock Index# 12.55% -2.71% 9.08%
- ------------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- ------------------------------------------------------------------------------
A 9.78% -1.85% 8.24%
- ------------------------------------------------------------------------------
B 11.77% -1.71% 8.20%
- ------------------------------------------------------------------------------
C 14.76% -1.32% 8.18%
- ------------------------------------------------------------------------------
Class I, R, R1, R2, R3, R4, and R5 shares do not have a sales charge. Please
see Notes to Performance Summary for more details.
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through
August 31, 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."
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
Standard & Poor's 500 Stock Index (the S&P 500) - 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 R shares have no initial
sales charge or CDSC and are available only to existing Class R shareholders.
Class I, R1, R2, R3, R4, and R5 shares have no initial sales charge or CDSC.
Class I shares are only available to certain eligible investors, and Class R1,
R2, R3, R4, and R5 shares are only available 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.
EXPENSE TABLE
FUND EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
MARCH 1, 2005 THROUGH AUGUST 31, 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 March 1, 2005 through
August 31, 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.
- --------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 3/01/05-
Share Class Ratio 3/01/05 8/31/05 8/31/05
- --------------------------------------------------------------------------------
Actual 1.39% $1,000.00 $1,029.40 $7.11
A ---------------------------------------------------------------------
Hypothetical* 1.39% $1,000.00 $1,018.20 $7.07
- --------------------------------------------------------------------------------
Actual 2.03% $1,000.00 $1,026.50 $10.37
B ----------------------------------------------------------------------
Hypothetical* 2.03% $1,000.00 $1,014.97 $10.31
- --------------------------------------------------------------------------------
Actual 2.03% $1,000.00 $1,026.60 $10.37
C ---------------------------------------------------------------------
Hypothetical* 2.03% $1,000.00 $1,014.97 $10.31
- --------------------------------------------------------------------------------
Actual 1.08% $1,000.00 $1,031.50 $5.53
I ---------------------------------------------------------------------
Hypothetical* 1.08% $1,000.00 $1,019.76 $5.50
- --------------------------------------------------------------------------------
R Actual 1.54% $1,000.00 $1,028.90 $7.88
(formerly ---------------------------------------------------------------------
R1) Hypothetical* 1.54% $1,000.00 $1,017.44 $7.83
- --------------------------------------------------------------------------------
Actual 2.24% $1,000.00 $1,025.70 $11.44
R1 ---------------------------------------------------------------------
Hypothetical* 2.24% $1,000.00 $1,013.91 $11.37
- --------------------------------------------------------------------------------
Actual 1.94% $1,000.00 $1,026.90 $9.91
R2 ---------------------------------------------------------------------
Hypothetical* 1.94% $1,000.00 $1,015.43 $9.86
- --------------------------------------------------------------------------------
R3 Actual 1.79% $1,000.00 $1,027.80 $9.15
(formerly ---------------------------------------------------------------------
R2) Hypothetical* 1.79% $1,000.00 $1,016.18 $9.10
- --------------------------------------------------------------------------------
Actual 1.44% $1,000.00 $1,029.40 $7.37
R4 ---------------------------------------------------------------------
Hypothetical* 1.44% $1,000.00 $1,017.95 $7.32
- --------------------------------------------------------------------------------
Actual 1.14% $1,000.00 $1,030.50 $5.83
R5 ---------------------------------------------------------------------
Hypothetical* 1.14% $1,000.00 $1,019.46 $5.80
- --------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, 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 - 8/31/05
The Portfolio of Investments is a complete list of all securities owned by your fund.
It is categorized by broad-based asset classes.
Stocks - 98.6%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ---------------------------------------------------------------------------------------------------
Aerospace - 2.5%
- ---------------------------------------------------------------------------------------------------
ITT Industries, Inc. 11,500 $ 1,254,880
KVH Industries, Inc.^* 51,070 520,403
Lockheed Martin Corp. 23,980 1,492,515
United Technologies Corp. 57,190 2,859,500
--------------
$ 6,127,298
- ---------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.6%
- ---------------------------------------------------------------------------------------------------
Columbia Sportswear Co.^* 30,820 $ 1,430,048
- --------------------------------------------------------------------------------------------------
Automotive - 0.7%
- ---------------------------------------------------------------------------------------------------
Harley-Davidson, Inc.^ 15,600 $ 768,456
Magna International, Inc., "A"^ 11,910 874,909
--------------
$ 1,643,365
- ---------------------------------------------------------------------------------------------------
Banks & Credit Companies - 11.5%
- ---------------------------------------------------------------------------------------------------
Bank of America Corp. 158,014 $ 6,799,342
Countrywide Financial Corp. 103,420 3,494,562
J.P. Morgan Chase & Co. 98,100 3,324,609
North Fork Bancorporation, Inc.^ 118,670 3,262,238
PNC Financial Services Group, Inc. 43,580 2,450,503
SLM Corp. 84,190 4,188,453
SunTrust Banks, Inc. 31,660 2,225,065
U.S. Bancorp 6,000 175,320
Washington Mutual, Inc. 42,530 1,768,397
--------------
$ 27,688,489
- ---------------------------------------------------------------------------------------------------
Biotechnology - 1.8%
- ---------------------------------------------------------------------------------------------------
Amgen, Inc.* 17,310 $ 1,383,069
Gilead Sciences, Inc.* 25,270 1,086,610
MedImmune, Inc.* 31,470 941,897
Neurochem, Inc.* 75,720 863,208
--------------
$ 4,274,784
- ---------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 3.5%
- ---------------------------------------------------------------------------------------------------
Comcast Corp., "A"^* 17,640 $ 542,430
Interpublic Group of Cos., Inc.* 143,630 1,742,232
R.H. Donnelley Corp.* 24,690 1,587,320
Viacom, Inc., "B" 52,380 1,780,396
Walt Disney Co. 110,110 2,773,671
--------------
$ 8,426,049
- ---------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.4%
- ---------------------------------------------------------------------------------------------------
Affiliated Managers Group, Inc.^* 7,130 $ 517,709
Franklin Resources, Inc. 5,010 403,004
Goldman Sachs Group, Inc. 17,670 1,964,551
Legg Mason, Inc. 16,200 1,693,386
MarketAxess Holdings, Inc.^* 92,640 1,036,642
Mellon Financial Corp. 1,670 54,192
--------------
$ 5,669,484
- ---------------------------------------------------------------------------------------------------
Business Services - 1.8%
- ---------------------------------------------------------------------------------------------------
Accenture Ltd., "A"* 98,450 $ 2,402,180
Getty Images, Inc.* 6,700 573,453
Hewitt Associates, Inc., "A"^* 14,200 411,800
SIRVA, Inc.^* 104,070 1,050,066
--------------
$ 4,437,499
- ---------------------------------------------------------------------------------------------------
Chemicals - 1.8%
- ---------------------------------------------------------------------------------------------------
E.I. du Pont de Nemours & Co. 33,600 $ 1,329,552
Monsanto Co. 45,410 2,898,974
--------------
$ 4,228,526
- ---------------------------------------------------------------------------------------------------
Computer Software - 3.3%
- ---------------------------------------------------------------------------------------------------
MicroStrategy, Inc., "A"^* 31,970 $ 2,461,690
Opsware, Inc.* 104,900 484,638
Oracle Corp.* 169,280 2,195,562
Symantec Corp.* 73,310 1,538,044
TIBCO Software, Inc.^* 155,170 1,185,499
--------------
$ 7,865,433
- ---------------------------------------------------------------------------------------------------
Computer Software - Systems - 2.2%
- ---------------------------------------------------------------------------------------------------
Apple Computer, Inc.* 17,430 $ 817,990
Dell, Inc.* 123,150 4,384,140
--------------
$ 5,202,130
- ---------------------------------------------------------------------------------------------------
Construction - 0.4%
- ---------------------------------------------------------------------------------------------------
Masco Corp. 34,170 $ 1,048,336
- --------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.8%
- ---------------------------------------------------------------------------------------------------
Career Education Corp.* 18,700 $ 733,040
Gillette Co. 46,470 2,503,339
Procter & Gamble Co. 61,890 3,433,657
--------------
$ 6,670,036
- ---------------------------------------------------------------------------------------------------
Electrical Equipment - 3.8%
- ---------------------------------------------------------------------------------------------------
American Standard Cos., Inc. 13,060 $ 595,536
General Electric Co. 232,540 7,815,669
Tyco International Ltd. 27,830 774,509
--------------
$ 9,185,714
- ---------------------------------------------------------------------------------------------------
Electronics - 2.7%
- ---------------------------------------------------------------------------------------------------
Analog Devices, Inc. 52,520 $ 1,914,354
FormFactor, Inc.^* 23,390 635,506
KLA-Tencor Corp. 12,810 650,236
Marvell Technology Group Ltd.* 13,100 618,189
PMC-Sierra, Inc.^* 87,630 743,102
Xilinx, Inc. 70,170 1,971,075
--------------
$ 6,532,462
- ---------------------------------------------------------------------------------------------------
Energy - Independent - 1.2%
- ---------------------------------------------------------------------------------------------------
Devon Energy Corp. 20,540 $ 1,248,216
EOG Resources, Inc. 8,680 554,044
Noble Energy, Inc.^ 12,780 1,126,429
--------------
$ 2,928,689
- ---------------------------------------------------------------------------------------------------
Energy - Integrated - 6.6%
- ---------------------------------------------------------------------------------------------------
ConocoPhillips 48,640 $ 3,207,322
Exxon Mobil Corp. 101,382 6,072,782
TOTAL S.A., ADR 49,630 6,543,219
--------------
$ 15,823,323
- ---------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.0%
- ---------------------------------------------------------------------------------------------------
CVS Corp. 58,650 $ 1,722,551
Kroger Co.* 31,040 612,730
--------------
$ 2,335,281
- ---------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 2.7%
- ---------------------------------------------------------------------------------------------------
Coca-Cola Co. 44,920 $ 1,976,480
Diamond Foods, Inc.^* 1,630 32,649
PepsiCo, Inc. 83,839 4,598,569
--------------
$ 6,607,698
- ---------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.5%
- ---------------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc. 287,060 $ 1,245,840
- --------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.9%
- ---------------------------------------------------------------------------------------------------
Carnival Corp. 18,330 $ 904,402
Harrah's Entertainment, Inc. 4,450 309,542
WMS Industries, Inc.^* 29,890 865,614
--------------
$ 2,079,558
- ---------------------------------------------------------------------------------------------------
General Merchandise - 4.0%
- ---------------------------------------------------------------------------------------------------
Family Dollar Stores, Inc. 56,540 $ 1,124,015
Kohl's Corp.* 64,760 3,396,662
Target Corp. 55,870 3,003,013
Wal-Mart Stores, Inc. 47,110 2,118,066
--------------
$ 9,641,756
- ---------------------------------------------------------------------------------------------------
Health Maintenance Organizations - 0.7%
- ---------------------------------------------------------------------------------------------------
CIGNA Corp. 15,650 $ 1,804,758
- --------------------------------------------------------------------------------------------------
Insurance - 4.4%
- ---------------------------------------------------------------------------------------------------
Ace Ltd. 30,180 $ 1,340,294
American International Group, Inc. 53,980 3,195,616
Conseco, Inc.^* 29,510 616,169
Genworth Financial, Inc., "A" 46,310 1,489,793
Hartford Financial Services Group, Inc. 13,960 1,019,778
MetLife, Inc. 30,080 1,473,318
Prudential Financial, Inc. 23,380 1,504,971
--------------
$ 10,639,939
- ---------------------------------------------------------------------------------------------------
Internet - 1.1%
- ---------------------------------------------------------------------------------------------------
Ariba, Inc.^* 147,810 $ 877,991
Yahoo!, Inc.* 53,580 1,786,357
--------------
$ 2,664,348
- ---------------------------------------------------------------------------------------------------
Leisure & Toys - 0.3%
- ---------------------------------------------------------------------------------------------------
Electronic Arts, Inc.* 4,160 $ 238,285
Hasbro, Inc.^ 8,570 177,399
Mattel, Inc. 10,640 191,839
--------------
$ 607,523
- ---------------------------------------------------------------------------------------------------
Machinery & Tools - 0.7%
- ---------------------------------------------------------------------------------------------------
Caterpillar, Inc. 15,610 $ 866,199
Illinois Tool Works, Inc. 10,950 922,866
--------------
$ 1,789,065
- ---------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 2.2%
- ---------------------------------------------------------------------------------------------------
Allion Healthcare, Inc.* 22,110 $ 398,201
Allscripts Healthcare Solutions, Inc.^* 26,980 479,704
Cerner Corp.^* 4,630 364,659
Emageon, Inc.^* 9,090 119,534
LifePoint Hospitals, Inc.* 32,420 1,474,462
Omnicell, Inc.^* 15,200 137,560
Tenet Healthcare Corp.* 153,630 1,871,213
TriZetto Group, Inc.^* 22,640 355,222
--------------
$ 5,200,555
- ---------------------------------------------------------------------------------------------------
Medical Equipment - 2.3%
- ---------------------------------------------------------------------------------------------------
Aspect Medical Systems, Inc.^* 11,620 $ 352,783
C.R. Bard, Inc. 21,310 1,370,872
St. Jude Medical, Inc.* 23,850 1,094,715
Varian Medical Systems, Inc.* 31,910 1,270,656
Zimmer Holdings, Inc.* 18,750 1,540,688
--------------
$ 5,629,714
- ---------------------------------------------------------------------------------------------------
Metals & Mining - 0.7%
- ---------------------------------------------------------------------------------------------------
Aber Diamond Corp.+* 11,600 $ 393,144
Companhia Vale do Rio Doce, ADR 38,090 1,309,915
--------------
$ 1,703,059
- ---------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.5%
- ---------------------------------------------------------------------------------------------------
Sempra Energy 29,390 $ 1,317,260
- --------------------------------------------------------------------------------------------------
Network & Telecom - 2.8%
- ---------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 187,410 $ 3,302,164
Corning, Inc.* 74,460 1,486,222
QUALCOMM, Inc. 51,920 2,061,743
--------------
$ 6,850,129
- ---------------------------------------------------------------------------------------------------
Oil Services - 1.6%
- ---------------------------------------------------------------------------------------------------
Halliburton Co. 22,690 $ 1,406,099
National Oilwell Varco, Inc.* 14,450 927,835
Noble Corp. 9,590 683,767
Transocean, Inc.* 15,350 906,264
--------------
$ 3,923,965
- ---------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.8%
- ---------------------------------------------------------------------------------------------------
EMC Corp.* 166,380 $ 2,139,647
Flextronics International Ltd.^* 40,220 525,273
Network Appliance, Inc.* 41,930 995,418
Solectron Corp.* 180,330 739,353
--------------
$ 4,399,691
- ---------------------------------------------------------------------------------------------------
Pharmaceuticals - 6.8%
- ---------------------------------------------------------------------------------------------------
Abbott Laboratories 54,400 $ 2,455,072
Allergan, Inc. 19,120 1,759,996
Eli Lilly & Co. 60,870 3,349,067
Johnson & Johnson 51,890 3,289,307
Wyeth 119,610 5,476,942
--------------
$ 16,330,384
- ---------------------------------------------------------------------------------------------------
Pollution Control - 0.2%
- ---------------------------------------------------------------------------------------------------
Waste Management, Inc. 13,270 $ 363,996
- --------------------------------------------------------------------------------------------------
Real Estate - 0.8%
- ---------------------------------------------------------------------------------------------------
Boston Properties, Inc. 19,260 $ 1,370,349
HomeBanc Corp.^ 60,810 484,656
--------------
$ 1,855,005
- ---------------------------------------------------------------------------------------------------
Restaurants - 0.8%
- ---------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 28,830 $ 1,199,616
Rare Hospitality International, Inc.* 30,660 819,848
--------------
$ 2,019,464
- ---------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.3%
- ---------------------------------------------------------------------------------------------------
Lyondell Chemical Co. 54,130 $ 1,396,554
Praxair, Inc. 38,290 1,849,407
--------------
$ 3,245,961
- ---------------------------------------------------------------------------------------------------
Specialty Stores - 0.4%
- ---------------------------------------------------------------------------------------------------
PETsMART, Inc. 13,560 $ 349,441
Restoration Hardware, Inc.^* 89,630 639,958
--------------
$ 989,399
- ---------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.8%
- ---------------------------------------------------------------------------------------------------
Vodafone Group PLC, ADR 72,306 $ 1,970,339
- --------------------------------------------------------------------------------------------------
Telephone Services - 2.4%
- ---------------------------------------------------------------------------------------------------
CenturyTel, Inc.^ 22,970 $ 824,623
Sprint Nextel Corp. 151,480 3,927,876
Syniverse Holdings, Inc.^* 59,030 925,000
--------------
$ 5,677,499
- ---------------------------------------------------------------------------------------------------
Tobacco - 2.3%
- ---------------------------------------------------------------------------------------------------
Altria Group, Inc. 77,190 $ 5,457,333
- --------------------------------------------------------------------------------------------------
Trucking - 1.6%
- ---------------------------------------------------------------------------------------------------
CNF, Inc. 42,930 $ 2,166,677
FedEx Corp. 13,250 1,079,080
United Parcel Service, Inc., "B" 8,250 584,843
--------------
$ 3,830,600
- ---------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.4%
- ---------------------------------------------------------------------------------------------------
CMS Energy Corp.^* 87,080 $ 1,401,988
Constellation Energy Group, Inc. 20,430 1,200,263
Exelon Corp. 22,930 1,235,698
NRG Energy, Inc.^* 21,610 864,832
PG&E Corp. 24,620 923,742
PPL Corp. 45,300 1,447,788
TXU Corp. 11,210 1,087,595
--------------
$ 8,161,906
- ---------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $216,346,440) $ 237,523,690
- ---------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 7.1%
- ---------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Cost and Net Asset Value 17,023,321 $ 17,023,321
- --------------------------------------------------------------------------------------------------
Portfolio of Investments - continued
Repurchase Agreement - 1.5%
- ---------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ---------------------------------------------------------------------------------------------------
Morgan Stanley, 3.58%, dated 8/31/05, due 9/1/05, total to be
received $3,740,372 (secured by various U.S. Treasury and Federal
Agency obligations in a jointly traded account), at Cost $ 3,740,000 $ 3,740,000
- ---------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $237,109,761)(S) $ 258,287,011
- ---------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (7.2)% (17,274,493)
- ---------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 241,012,518
- ---------------------------------------------------------------------------------------------------
(S) As of August 31, 2005, the fund had one security representing $393,144 and 0.2% of net assets
that was fair valued in accordance with the policies adopted by the Board of Trustees.
* Non-income producing security.
^ All or a portion of this security is on loan.
+ Restricted security.
ADR = American Depository Receipt
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 the fund.
AT 8/31/05
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $17,010,502 of securities
on loan (identified cost, $237,109,761) $258,287,011
Cash 285
Receivable for fund shares sold 338,410
Interest and dividends receivable 368,543
Other assets 720
- -------------------------------------------------------------------------------------------------------
Total assets $258,994,969
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for fund shares reacquired $763,397
Collateral for securities loaned, at value* 17,023,321
Payable to affiliates
Management fee 4,258
Shareholder servicing costs 54,628
Distribution and service fees 3,872
Administrative services fee 98
Retirement plan administration and services fees 8
Accrued expenses and other liabilities 132,869
- -------------------------------------------------------------------------------------------------------
Total liabilities $17,982,451
- -------------------------------------------------------------------------------------------------------
Net assets $241,012,518
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in capital $213,414,943
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 21,177,356
Accumulated net realized gain (loss) on investments and
foreign currency transactions 6,456,210
Accumulated net investment loss (35,991)
- -------------------------------------------------------------------------------------------------------
Net assets $241,012,518
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 13,728,878
- -------------------------------------------------------------------------------------------------------
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $141,808,217
Shares outstanding 7,930,302
- -------------------------------------------------------------------------------------------------------
Net asset value per share $17.88
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$17.88) $18.97
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $71,087,589
Shares outstanding 4,174,373
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.03
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $17,897,822
Shares outstanding 1,054,909
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.97
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $3,170,438
Shares outstanding 172,969
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $18.33
- -------------------------------------------------------------------------------------------------------
Class R shares (formerly Class R1)
- -------------------------------------------------------------------------------------------------------
Net assets $5,888,072
Shares outstanding 330,704
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $17.80
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $54,668
Shares outstanding 3,214
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $17.01
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $52,403
Shares outstanding 3,077
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $17.03
- -------------------------------------------------------------------------------------------------------
Class R3 shares (formerly Class R2)
- -------------------------------------------------------------------------------------------------------
Net assets $948,217
Shares outstanding 53,454
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $17.74
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $52,513
Shares outstanding 2,938
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $17.88
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $52,579
Shares outstanding 2,938
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $17.90
- -------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred
sales charge may be imposed on redemptions of Class A, Class B and Class C shares.
Shares outstanding are rounded for presentation purposes.
* Non-cash collateral not included.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Operations
This statement describes how much your fund received in investment income and paid in expenses.
It also describes any gains and/or losses generated by fund operations.
YEAR ENDED 8/31/05
NET INVESTMENT LOSS
- ------------------------------------------------------------------------------------------------------
Income
Dividends $2,903,531
Interest 162,134
Foreign taxes withheld (30,624)
- ------------------------------------------------------------------------------------------------------
Total investment income $3,035,041
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $1,254,079
Distribution and service fees 1,251,018
Shareholder servicing costs 391,170
Administrative services fee 21,701
Retirement plan administration and services fees 1,979
Trustees' compensation 10,915
Custodian fee 70,661
Printing 59,824
Postage 12,735
Auditing fees 43,528
Legal fees 7,592
Registration fees 129,623
Shareholder solicitation expenses 15,765
Miscellaneous 20,368
- ------------------------------------------------------------------------------------------------------
Total expenses $3,290,958
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (11,863)
Reduction of expenses by investment adviser (898)
- ------------------------------------------------------------------------------------------------------
Net expenses $3,278,197
- ------------------------------------------------------------------------------------------------------
Net investment loss $(243,156)
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $17,758,108
Foreign currency transactions 41
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $17,758,149
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $9,020,014
Translation of assets and liabilities in foreign currencies 305
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $9,020,319
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $26,778,468
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $26,535,312
- ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statements of Changes in Net Assets
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2005 2004
CHANGE IN NET ASSETS
- ------------------------------------------------------------------------------------------------------
FROM OPERATIONS
- ------------------------------------------------------------------------------------------------------
Net investment loss $(243,156) $(250,658)
Net realized gain (loss) on investments and foreign
currency transactions 17,758,149 17,255,617
Net unrealized gain (loss) on investments and foreign
currency translation 9,020,319 (2,284,183)
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $26,535,312 $14,720,776
- ------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $53,568,852 $1,733,217
- ------------------------------------------------------------------------------------------------------
Redemption fees $2,690 $--
- ------------------------------------------------------------------------------------------------------
Total change in net assets $80,106,854 $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 $35,991 and $52,021, respectively) $241,012,518 $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 past 5 years
(or, if shorter, the period of the fund's operation). Certain information reflects financial results for a single fund
share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment
in the fund (assuming reinvestment of all distributions) held for the entire period. This information has been audited by
the fund's independent registered public accounting firm, whose report, together with the fund's financial statements, are
included in this report.
CLASS A
YEARS ENDED 8/31
------------------------------------------------------------------------------
2005= 2004 2003 2002 2001
Net asset value, beginning of period $15.35 $13.97 $12.51 $15.15 $18.82
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.03 $0.03 $0.04 $0.00+++ $0.02
Net realized and unrealized gain (loss)
on investments and foreign currency 2.50 1.35 1.42 (2.38) (3.69)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.53 $1.38 $1.46 $(2.38) $(3.67)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions $-- $-- $-- $(0.26) $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.88 $15.35 $13.97 $12.51 $15.15
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 16.48** 9.88**+ 11.67 (16.00) (19.50)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.41 1.38 1.47 1.37 1.32
Expenses after expense reductions## 1.41 1.38 1.47 1.37 1.32
Net investment income 0.17 0.22 0.29 0.03 0.12
Portfolio turnover 81 116 121 100 78
Net assets at end of period
(000 Omitted) $141,808 $67,415 $53,704 $50,366 $63,319
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B
YEARS ENDED 8/31
-----------------------------------------------------------------------
2005= 2004 2003 2002 2001
Net asset value, beginning of period $14.71 $13.48 $12.14 $14.81 $18.52
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.08) $(0.06) $(0.04) $(0.09) $(0.09)
Net realized and unrealized gain (loss) on
investments and foreign currency 2.40 1.29 1.38 (2.32) (3.62)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.32 $1.23 $1.34 $(2.41) $(3.71)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $-- $-- $-- $(0.26) $--
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.03 $14.71 $13.48 $12.14 $14.81
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 15.77** 9.12**+ 11.04 (16.57) (20.03)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.06 2.02 2.12 2.02 1.97
Expenses after expense reductions## 2.06 2.02 2.12 2.02 1.97
Net investment loss (0.47) (0.43) (0.36) (0.62) (0.53)
Portfolio turnover 81 116 121 100 78
Net assets at end of period
(000 Omitted) $71,088 $73,395 $75,007 $73,146 $91,455
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C
YEARS ENDED 8/31
-----------------------------------------------------------------------
2005= 2004 2003 2002 2001
Net asset value, beginning of period $14.66 $13.43 $12.10 $14.76 $18.46
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- --------------------------------------------------------------------------------
Net investment loss $(0.08) $(0.06) $(0.04) $(0.09) $(0.09)
Net realized and unrealized gain (loss) on
investments and foreign currency 2.39 1.29 1.37 (2.31) (3.61)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.31 $1.23 $1.33 $(2.40) $(3.70)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $-- $-- $-- $(0.26) $--
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.97 $14.66 $13.43 $12.10 $14.76
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 15.76** 9.16**+ 10.99 (16.56) (20.04)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.06 2.02 2.12 2.02 1.97
Expenses after expense reductions## 2.06 2.02 2.12 2.02 1.97
Net investment loss (0.48) (0.43) (0.35) (0.62) (0.52)
Portfolio turnover 81 116 121 100 78
Net assets at end of period
(000 Omitted) $17,898 $15,990 $15,325 $17,521 $22,081
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEARS ENDED 8/31
-----------------------------------------------------------------------
CLASS I 2005= 2004 2003 2002 2001
Net asset value, beginning of period $15.68 $14.22 $12.69 $15.31 $18.95
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------------------------
Net investment income $0.09 $0.09 $0.08 $0.06 $0.08
Net realized and unrealized gain (loss) on
investments and foreign currency 2.56 1.37 1.45 (2.42) (3.72)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.65 $1.46 $1.53 $(2.36) $(3.64)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $-- $-- $-- $(0.26) $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.33 $15.68 $14.22 $12.69 $15.31
- --------------------------------------------------------------------------------------------------------------------------
Total return (%)& 16.90** 10.27**+ 12.06 (15.70) (19.21)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.09 1.03 1.12 1.02 0.97
Expenses after expense reductions## 1.09 1.03 1.12 1.02 0.97
Net investment income 0.51 0.56 0.65 0.38 0.47
Portfolio turnover 81 116 121 100 78
Net assets at end of period (000 Omitted) $3,170 $460 $398 $428 $486
- --------------------------------------------------------------------------------------------------------------------------
CLASS R (FORMERLY CLASS R1)
YEARS ENDED 8/31
------------------------------ PERIOD ENDED
2005= 2004 8/31/03*
Net asset value, beginning of period $15.31 $13.96 $11.98###
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $0.00+++ $0.02 $(0.00)+++
Net realized and unrealized gain on investments and
foreign currency 2.49 1.33 1.98^
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.49 $1.35 $1.98
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.80 $15.31 $13.96
- --------------------------------------------------------------------------------------------------------------------------
Total return (%)& 16.26** 9.67**+ 16.53###++
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.56 1.49 1.74+
Expenses after expense reductions## 1.56 1.49 1.74+
Net investment income (loss) 0.03 0.13 (0.04)+
Portfolio turnover 81 116 121
Net assets at end of period (000 Omitted) $5,888 $3,030 $17
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 CLASS R2
PERIOD ENDED PERIOD ENDED
8/31/05* 8/31/05*
Net asset value, beginning of period $16.25 $16.25
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------
Net investment loss $(0.04) $(0.02)
Net realized and unrealized gain on investments and
foreign currency 0.80^ 0.80^
- ----------------------------------------------------------------------------------------------------------
Total from investment operations $0.76 $0.78
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.01 $17.03
- ----------------------------------------------------------------------------------------------------------
Total return (%)&** 4.68++ 4.80++
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.23+ 1.93+
Expenses after expense reductions## 2.23+ 1.93+
Net investment loss (0.63)+ (0.33)+
Portfolio turnover 81 81
Net assets at end of period (000 Omitted) $55 $52
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
CLASS R3 (FORMERLY CLASS R2) 8/31/05= 8/31/04*
Net asset value, beginning of period $15.29 $14.57
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------
Net investment income (loss) $(0.04) $0.03
Net realized and unrealized gain on investments and
foreign currency 2.49 0.69^
- ----------------------------------------------------------------------------------------------------------
Total from investment operations $2.45 $0.72
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.74 $15.29
- ----------------------------------------------------------------------------------------------------------
Total return (%)&** 16.02 4.94+++
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.81 1.80+
Expenses after expense reductions## 1.81 1.80+
Net investment income (loss) (0.22) 0.27+
Portfolio turnover 81 116
Net assets at end of period (000 Omitted) $948 $616
- ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 CLASS R5
PERIOD ENDED PERIOD ENDED
8/31/05* 8/31/05*
Net asset value, beginning of period $17.02 $17.02
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------
Net investment income $0.01 $0.03
Net realized and unrealized gain on investments and
foreign currency 0.85^ 0.85^
- ----------------------------------------------------------------------------------------------------------
Total from investment operations $0.86 $0.88
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.88 $17.90
- ----------------------------------------------------------------------------------------------------------
Total return (%)&** 5.05++ 5.17++
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.43+ 1.13+
Expenses after expense reductions## 1.43+ 1.13+
Net investment income 0.17+ 0.47+
Portfolio turnover 81 81
Net assets at end of period (000 Omitted) $53 $53
- ----------------------------------------------------------------------------------------------------------
* For the period from the class' inception, December 31, 2002 (Class R), October 31, 2003
(Class R3) and April 1, 2005 (Classes R1, R2, R4, and R5) through the stated period end.
** Certain expenses have been reduced without which performance would have been lower.
+ 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 $12.02 and 16.14% (Class R) 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.
^ 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 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. 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 any applicable sales charges.
& From time to time the fund may receive proceeds from litigation settlements, without which performance
would be lower.
= Redemption fees charged by the fund during this period resulted in a per share impact of
less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(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
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.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the fund with indemnification against Borrower default. The
fund bears the risk of loss with respect to the investment of cash collateral.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or short-term securities. A portion of the income generated upon
investment of the collateral is remitted to the Borrowers, and the remainder
is allocated between the fund and the lending agent. On loans collateralized
by U.S. Treasury securities, a fee is received from the Borrower, and is
allocated between the fund and the lending agent. Income from securities
lending is included in interest income on the Statement of Operations. The
dividend and interest income earned on the securities loaned is accounted for
in the same manner as other dividend and interest income. At August 31, 2005,
the value of securities loaned was $17,010,502. These loans were
collateralized by cash of $17,023,321 and non-cash U.S. Treasury obligations
of $473,703.
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 was 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 year ended August 31, 2005, the fund's custodian fees
were reduced by $5,475 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For the year ended August 31, 2005, the fund's miscellaneous expenses
were reduced by $6,388 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, net operating losses, treating a
portion of the proceeds from redemptions as a distribution from realized gains
for tax purposes, real estate investment trusts, and wash sales.
The fund paid no distributions for the years ended August 31, 2005 and August
31, 2004.
During the year ended August 31, 2005, accumulated net investment loss
decreased by $259,186, accumulated net realized gain on investments and
foreign currency transactions decreased by $419,060, and paid-in capital
increased by $159,874 due to differences between book and tax accounting for
foreign currency transactions, net operating losses, treating a portion of the
proceeds from redemptions as a distribution from realized gains for tax
purposes, and real estate investment trusts.
As of August 31, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed long-term capital gain $6,815,148
Unrealized appreciation (depreciation) 20,818,312
Other temporary differences (35,885)
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 management fee incurred for the year ended August 31, 2005 was equivalent
to an annual effective rate of 0.65% of the fund's average daily
net assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly owned subsidiary of
MFS, as distributor, received $38,144 for the year ended August 31, 2005, as
its portion of the initial sales charge on sales of Class A shares of the
fund.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to and retained by MFD. Another component of the
plan is a service fee paid to MFD which subsequently pays a portion of this
fee 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.
Distribution Fee Plan Table:
TOTAL ANNUAL SERVICE FEE DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE RETAINED AND SERVICE
FEE RATE FEE RATE PLAN(1) RATE(2) BY MFD(3) FEE
Class A 0.10% 0.25% 0.35% 0.35% $19,228 $342,731
Class B 0.75% 0.25% 1.00% 1.00% 600 715,035
Class C 0.75% 0.25% 1.00% 1.00% 451 169,311
Class R 0.25% 0.25% 0.50% 0.50% 7 20,133
Class R1 0.50% 0.25% 0.75% 0.75% 93 162
Class R2 0.25% 0.25% 0.50% 0.50% 62 107
Class R3 0.25% 0.25% 0.50% 0.50% 21 3,485
Class R4 -- 0.25% 0.25% 0.25% 31 54
- ----------------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $1,251,018
(1) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up to
these annual percentage rates of each class' average daily net assets.
(2) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August 31,
2005 based on each class' average daily net assets.
(3) For the year ended August 31, 2005, MFD retained these service fees.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months following the
purchase. Class B shares are subject to a contingent deferred sales charge in
the event of a shareholder redemption within six years of purchase. MFD
retained all contingent deferred sales charges. Contingent deferred sales
charges imposed during the year ended August 31, 2005 were as follows:
AMOUNT
Class A $1,892
Class B $95,523
Class C $871
SHAREHOLDER SERVICING AGENT - The fund pays a portion of shareholder servicing
costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS.
MFSC receives a fee from the fund, for its services as shareholder servicing
agent, set periodically under the supervision of the fund's Board of Trustees.
For the year ended August 31, 2005, the fee was $201,687, which equated to
0.1045% annually of the fund's average daily net assets. MFSC also receives
payment from the fund for out-of-pocket and sub-accounting expenses paid by
MFSC on behalf of the fund. For the year ended August 31, 2005, these costs
amounted to $116,928.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. Effective July 1, 2005, the fund's annual fixed amount is $10,000.
The administrative services fee incurred for the year ended August 31, 2005
was equivalent to an annual effective rate of 0.0112% of the fund's average
daily net assets.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain retirement plan
administration and services with respect to certain Class R shares. These
services include various administrative, recordkeeping, and communication/
educational services with respect to the retirement plans which invest in
these shares, and may be provided directly by MFS or by a third party. For the
year ended August 31, 2005, the fund paid an annual retirement plan
administration and services fee up to the following annual percentage rates of
each class' average daily net assets:
AMOUNT
FEE TOTAL RETAINED
RATE AMOUNT BY MFS
Class R1 0.45% $97 $ --
Class R2 0.40% 86 --
Class R3 (formerly Class R2) 0.25% 1,743 179
Class R4 0.15% 32 --
Class R5 0.10% 21 --
- -----------------------------------------------------------------------------
Total Retirement Plan Administration and
Services Fees $1,979 $179
TRUSTEES' COMPENSATION - The fund pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons. The fund does not pay compensation directly to
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, MFD, and MFSC.
The fund has an unfunded, defined benefit plan for retired Independent
Trustees which resulted in a pension expense of $2,070. The fund also has an
unfunded retirement benefit deferral plan for certain current Independent
Trustees which resulted in an expense of $3,224. Both amounts are included in
Trustees compensation for the year ended August 31, 2005.
OTHER - 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 the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $898, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided 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, was the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales. As a result, proceeds in the amount of $52,378
were paid to the fund on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $656,667 $5,109,113
- -------------------------------------------------------------------------------
Investments (non-U.S. government securities) $209,702,406 $148,993,724
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 $237,468,699
----------------------------------------------------------
Gross unrealized appreciation $26,658,272
Gross unrealized depreciation (5,839,960)
-----------------------------------------------------------
Net unrealized appreciation (depreciation) $20,818,312
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 8/31/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 5,204,906 $90,048,226 1,920,069 $28,691,770
Shares reacquired (1,666,274) (28,481,139) (1,372,319) (21,034,291)
- ------------------------------------------------------------------------------------------------------------
Net change 3,538,632 $61,567,087 547,750 $7,657,479
CLASS B SHARES
Shares sold 1,321,624 $21,946,642 1,298,612 $18,903,690
Shares reacquired (2,135,925) (34,776,369) (1,875,435) (27,742,705)
- ------------------------------------------------------------------------------------------------------------
Net change (814,301) $(12,829,727) (576,823) $(8,839,015)
CLASS C SHARES
Shares sold 338,243 $5,567,632 241,139 $3,496,748
Shares reacquired (374,082) (6,036,198) (291,465) (4,264,486)
- ------------------------------------------------------------------------------------------------------------
Net change (35,839) $(468,566) (50,326) $(767,738)
CLASS I SHARES
Shares sold 164,757 $2,901,520 7,449 $113,720
Shares reacquired (21,124) (370,848) (6,092) (93,354)
- ------------------------------------------------------------------------------------------------------------
Net change 143,633 $2,530,672 1,357 $20,366
CLASS R SHARES (FORMERLY CLASS R1)
Shares sold 252,058 $4,402,599 431,299 $6,712,888
Shares reacquired (119,291) (2,072,962) (234,601) (3,650,907)
- --------------------------------------------------------------------------------------------------------------
Net change 132,767 $2,329,637 196,698 $3,061,981
Period ended 8/31/05*
SHARES AMOUNT
CLASS R1 SHARES
Shares sold 3,214 $52,371
- --------------------------------------------------------------------------
CLASS R2 SHARES
Shares sold 3,077 $50,000
- --------------------------------------------------------------------------
Year ended 8/31/05 Period ended 8/31/04**
SHARES AMOUNT SHARES AMOUNT
CLASS R3 SHARES (FORMERLY CLASS R2)
Shares sold 22,723 $393,385 79,265 $1,178,842
Shares reacquired (9,547) (156,007) (38,987) (578,698)
- ------------------------------------------------------------------------------------------------------------
Net change 13,176 $237,378 40,278 $600,144
Period ended 8/31/05*
SHARES AMOUNT
CLASS R4 SHARES
Shares sold 2,938 $50,000
- --------------------------------------------------------------------------
CLASS R5 SHARES
Shares sold 2,938 $50,000
- ----------------------------------------------------------------------------
* For the period from April 1, 2005, through August 31, 2005.
** For the period from October 31, 2003, through August 31, 2004.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured line
of credit provided by a syndication of banks under a 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 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the fund for the year ended August 31, 2005 was $723, and is
included in miscellaneous expense. The fund had no significant borrowings
during the year ended August 31, 2005.
(7) RESTRICTED SECURITIES
At August 31, 2005, the fund owned the following restricted securities which
are subject to legal or contractual restrictions on resale, excluding
securities issued under Rule 144A, constituting 0.2% of net assets which may
not be publicly sold without registration under the Securities Act of 1933. The
fund does not have the right to demand that such securities be registered. The
value of these securities is determined by valuations furnished by dealers or
by a pricing service, or if not available, in good faith at the direction of
the Trustees.
DATE OF SHARES/PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
Aber Diamond Corp. 12/07/04 11,600 $403,691 $393,144
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust I and Shareholders of
MFS Core Equity Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Core Equity Fund (the Fund) (one of the portfolios comprising MFS Series
Trust I), including the portfolio of investments, as of August 31, 2005, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of August 31, 2005, by correspondence with
the custodian. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Core Equity Fund at August 31, 2005, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the periods
indicated therein, in conformity with U.S. generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 11, 2005
RESULTS OF SHAREHOLDER MEETING (unaudited) - 8/31/05
At a special meeting of shareholders of MFS Series Trust I, which was held on
March 23, 2005, the following actions were taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $8,025,286,508.56 $117,939,292.78
- -------------------------------------------------------------------------------
David H. Gunning 8,030,402,677.64 112,823,123.70
- -------------------------------------------------------------------------------
William R. Gutow 8,027,523,726.27 115,702,075.07
- -------------------------------------------------------------------------------
Michael Hegarty 8,021,162,525.49 122,063,275.85
- -------------------------------------------------------------------------------
J. Atwood Ives 8,024,062,680.07 119,163,121.27
- -------------------------------------------------------------------------------
Amy B. Lane 8,019,792,882.59 123,432,918.75
- -------------------------------------------------------------------------------
Robert J. Manning 8,030,980,361.78 112,245,439.56
- -------------------------------------------------------------------------------
Lawrence T. Perera 8,025,935,401.12 117,290,400.22
- -------------------------------------------------------------------------------
Robert C. Pozen 8,031,655,470.25 111,570,331.08
- -------------------------------------------------------------------------------
J. Dale Sherratt 8,027,226,595.42 115,999,205.92
- -------------------------------------------------------------------------------
Laurie J. Thomsen 8,019,388,506.87 123,837,294.47
- -------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2005, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.)
The address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(1) OTHER DIRECTORSHIPS(2)
- ------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee and February 2004 Massachusetts Financial Services
(born 10/20/63) President Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School
(education), John Olin Visiting
Professor (since July 2002);
Secretary of Economic Affairs, The
Commonwealth of Massachusetts
(January 2002 to December 2002);
Fidelity Investments, Vice
Chairman (June 2000 to December
2001); Fidelity Management &
Research Company (investment
adviser), President (March 1997 to
July 2001); Bell Canada
Enterprises (telecommunications),
Director; Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 05/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Chief of Cardiac Surgery; Harvard
Medical School, Professor of
Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group (1997 to
February 2001); Borders Group,
Inc. (book and music retailer),
Director; Federal Realty
Investment Trust (real estate
investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 06/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 08/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
OFFICERS
Robert J. Manning(3) President and February 2004 Massachusetts Financial Services
(born 10/20/63) Trustee Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Tracy Atkinson(3) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(3) Assistant July 2005 Massachusetts Financial Services
(born 1/18/74) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003); Nvest Services Company,
Assistant Vice President and
Associate Counsel (prior to
January 2001)
Jeffrey N. Carp(3) Secretary and September 2004 Massachusetts Financial Services
(born 12/01/56) Clerk Company, Executive Vice President,
General Counsel and Secretary
(since April 2004); Hale and Dorr
LLP (law firm), Partner (prior to
April 2004)
Ethan D. Corey(3) Assistant July 2005 Massachusetts Financial Services
(born 11/21/63) Secretary and Company, Special Counsel (since
Assistant Clerk December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
Stephanie A. DeSisto(3) Assistant May 2003 Massachusetts Financial Services
(born 10/01/53) Treasurer Company, Vice President (since
April 2003); Brown Brothers
Harriman & Co., Senior Vice
President (November 2002 to April
2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
David L. DiLorenzo(3) Assistant July 2005 Massachusetts Financial Services
(born 8/10/68) Treasurer Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (January
2001 to June 2005); State Street
Bank, Vice President and Corporate
Audit Manager (prior to January
2001)
Timothy M. Fagan(3) Assistant September 2005 Massachusetts Financial Services
(born 7/10/68) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(3) Assistant July 2005 Massachusetts Financial Services
(born 10/27/70) Treasurer Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian T. Hourihan(3) Assistant September 2004 Massachusetts Financial Services
(born 11/11/64) Secretary and Company, Vice President, Senior
Assistant Clerk Counsel and Assistant Secretary
(since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance
Program (January to April 2004);
Fidelity Research & Management
Company, Assistant General Counsel
(prior to January 2004)
Ellen Moynihan(3) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Vice President
Susan S. Newton(3) Assistant May 2005 Massachusetts Financial Services
(born 03/07/50) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(3) Assistant July 2005 Massachusetts Financial Services
(born 11/05/70) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (January 2001 to June
2004); Preti, Flaherty, Beliveau,
Pachios & Haley, LLC, Associate
(prior to January 2001)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (February
1997 to March 2003)
James O. Yost(3) Assistant September 1990 Massachusetts Financial Services
(born 06/12/60) Treasurer Company, Senior Vice President
- ------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served
continuously since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(3) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940
(referred to as the 1940 Act), which is the principal federal law governing investment companies
like the fund, as a result of position with MFS. The address of MFS is 500 Boylston Street,
Boston, Massachusetts 02116.
Each Trustee has been elected by shareholders and each Trustee and officer holds office until his or
her successor is chosen and qualified or until his or her earlier death, resignation, retirement or
removal. Messrs. Ives and Sherratt and Mses. Lane and Thomsen are members of the Trust's Audit
Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which
MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with
certain affiliates of MFS. As of December 31, 2004, each Trustee served as a board member of 99 funds
within the MFS Family of Funds.
The Trust held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once
every five years thereafter, to elect Trustees.
The Statement of Additional Information contains further information about the Trustees and is
available without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 02110
02116-3741
INDEPENDENT REGISTERED PUBLIC
DISTRIBUTOR ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 200 Clarendon Street, Boston, MA 02116
02116-3741
PORTFOLIO MANAGER
Katrina Mead
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment
advisory agreement with MFS. The Trustees consider matters bearing on the Fund
and its advisory arrangements at their meetings throughout the year, including
a review of performance data at each regular meeting. In addition, the
independent Trustees met several times over the course of three months
beginning in May and ending in July, 2005 ("contract review meetings") for the
specific purpose of considering whether to approve the continuation of the
investment advisory agreement for the Fund and the other investment companies
that the Board oversees (the "MFS Funds"). The independent Trustees were
assisted in their evaluation of the Fund's investment advisory agreement by
independent legal counsel, from whom they received separate legal advice and
with whom they met separately from MFS during various contract review
meetings. The independent Trustees were also assisted in this process by the
MFS Funds' Independent Chief Compliance Officer, a full-time senior officer
appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light
of the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2004 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable
funds identified by Lipper (the "Lipper expense group"), as well as the
advisory fees and other expenses of peer funds identified by objective
criteria suggested by MFS, (iii) information provided by MFS on the advisory
fees of comparable portfolios of other clients of MFS, including institutional
separate account and other clients, (iv) information as to whether and to what
extent applicable expense waivers, reimbursements or fee "breakpoints" are
observed for the Fund, (v) information regarding MFS' financial results and
financial condition, including MFS' and certain of its affiliates' estimated
profitability from services performed for the Fund and the MFS Funds as a
whole, (vi) MFS' views regarding the outlook for the mutual fund industry and
the strategic business plans of MFS, (vii) descriptions of various functions
performed by MFS for the Funds, such as compliance monitoring and portfolio
trading practices, and (viii) information regarding the overall organization
of MFS, including information about MFS' senior management and other personnel
providing investment advisory, administrative and other services to the Fund
and the other MFS Funds. The comparative performance, fee and expense
information prepared and provided by Lipper Inc. was not independently
verified and the independent Trustees did not independently verify any
information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than others, and that
the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed
the Fund's total return investment performance as well as the performance of
peer groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2004, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 51st percentile relative to the other funds in the
universe for this three-year period (the 1st percentile being the best
performers and the 100th percentile being the worst performers). The total
return performance of the Fund's Class A shares was in the 22nd percentile
for the one-year period and the 47th percentile for the five-year period
ended December 31, 2004 relative to the Lipper performance universe. Because
of the passage of time, these performance results are likely to differ from
the performance results for more recent periods, including those shown
elsewhere in this report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings,
as well as during investment review meetings conducted with portfolio
management personnel during the course of the year regarding the Fund's
performance. After reviewing these and related factors, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that they were satisfied with MFS' responses
and efforts relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
whether the Fund was subject to any fee waivers or reductions or expense
limitations. The Trustees also considered that, according to the Lipper data,
the Fund's effective advisory fee rate was lower than the Lipper expense group
median, and the Fund's total expense ratio was the same as the Lipper expense
group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information
provided by MFS as to the generally broader scope of services provided by MFS
to the Fund in comparison to institutional accounts, the higher demands placed
on MFS' investment personnel and trading infrastructure as a result of the
daily cash in-flows and out-flows of the Fund, and the impact on MFS and
expenses associated with the more extensive regulatory regime to which the
Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
currently subject to a breakpoint that reduces the Fund's advisory fee rate on
net assets over $500 million. Taking into account fee waivers or reductions or
expense limitations, if any, the Trustees concluded that the existing
breakpoint was sufficient to allow the Fund to benefit from economies of scale
as its assets grow.
The Trustees also considered information prepared by MFS relating to MFS'
costs and profits with respect to the Fund, the MFS Funds considered as a
group, and other investment companies and accounts advised by MFS, as
well as MFS' methodologies used to determine and allocate its costs to the MFS
Funds, the Fund and other accounts and products for purposes of estimating
profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the
financial services industry, including the entry into the industry of large
and well-capitalized companies which are spending, and appear to be prepared
to continue to spend, substantial sums to engage personnel and to provide
services to competing investment companies. In this regard, the Trustees also
considered the financial resources of MFS and its ultimate parent, Sun Life
Financial Inc. The Trustees also considered the advantages and possible
disadvantages to the Fund of having an adviser which also serves other
investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the
Fund by MFS and its affiliates under agreements and plans other than the
investment advisory agreement, including any 12b-1 fees the Fund pays to MFS
Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for research and other similar services
(including MFS' general policy to pay directly for third-party research), and
various other factors. Additionally, the Trustees considered so-called "fall-
out benefits" to MFS such as reputational value derived from serving as
investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material,
including those factors described above, the Board of Trustees, including a
majority of the independent Trustees, concluded that the Fund's investment
advisory agreement with MFS should be continued for an additional one-year
period, commencing August 1, 2005.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement will be available on or before
December 1, 2005 by clicking on the fund's name under "Select a fund" on the
MFS website (mfs.com).
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 Proxy Voting 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.
FEDERAL TAX INFORMATION (unaudited)
In January 2006, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2005.
The fund has designated $445,683 as a capital gain dividend for the year ended
August 31, 2005.
CONTACT INFORMATION
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
- --------------------------------------------------------------------------------
Share 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.
RGI-ANN-10/05 29M
MFS(R) CORE GROWTH FUND 8/31/05
ANNUAL REPORT
- -------------------------------------------------------------------------------
LETTER FROM THE CEO 1
- ---------------------------------------------------
PORTFOLIO COMPOSITION 2
- ---------------------------------------------------
MANAGEMENT REVIEW 3
- ---------------------------------------------------
PERFORMANCE SUMMARY 5
- ---------------------------------------------------
EXPENSE TABLE 8
- ---------------------------------------------------
PORTFOLIO OF INVESTMENTS 10
- ---------------------------------------------------
FINANCIAL STATEMENTS 15
- ---------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 25
- ---------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 34
- ---------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 35
- ---------------------------------------------------
TRUSTEES AND OFFICERS 36
- ---------------------------------------------------
BOARD REVIEW OF INVESTMENTADVISORY AGREEMENT 41
- ---------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 45
- ---------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 45
- ---------------------------------------------------
FEDERAL TAX INFORMATION 45
- ---------------------------------------------------
CONTACT INFORMATION BACK COVER
- ---------------------------------------------------
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.
M F S(SM)
INVESTMENT MANAGEMENT(R)
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders,
Most investors are familiar with the basic principles of investing - focus on
the long term and keep your assets diversified across different investment
categories. Still, it is surprising how often we forget these basic lessons.
Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s had
many people hoping they could become millionaires overnight. But the market
decline that started in the spring of 2000 taught everyone how misguided those
hopes had been.
Now, less than five years after the market taught a harsh lesson in the follies
of speculative investing, we are seeing a number of trends that suggest many
investors, including professionals, are hoping for overnight miracles again. We
see a steady stream of market "gurus" on television news shows, promising to
teach amateur investors the strategies that will allow them to get rich quick.
Hedge funds - which by their nature move in and out of investments rapidly -
have soared in popularity over the past five years. We are reminded every day
that we live in a "what have you done for me lately?" world, but this mindset
should not influence how we invest and manage our money. In fact, investors
often fall short of their goals because they trade in and out of investments too
frequently and at inopportune times.
Throughout our entire 80-year history, MFS' money management process has focused
on long-term investment opportunities. We firmly believe that one of the best
ways to realize long-term financial goals - be it a college education, a
comfortable retirement, or a secure family legacy - is to follow a three-pronged
approach that focuses on longer time horizons. Allocate holdings across the
major asset classes - including stocks, bonds, and cash. Diversify within each
class to take advantage of different market segments and investing styles. And
rebalance assets regularly to maintain a desired asset allocation.*
This long-term approach requires diligence and patience, two traits that in our
experience are essential to capitalizing on the many opportunities the financial
markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 17, 2005
* Asset allocation, diversification, and rebalancing does not guarantee a profit
or protect against a loss. The opinions expressed in this letter are those of
MFS, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 96.4%
Cash & Other Net Assets 3.6%
TOP TEN HOLDINGS
Microsoft Corp. 3.5%
------------------------------------------------
Johnson & Johnson 3.0%
------------------------------------------------
General Electric Co. 2.7%
------------------------------------------------
QUALCOMM, Inc. 2.5%
------------------------------------------------
WellPoint, Inc. 2.3%
------------------------------------------------
Cisco Systems, Inc. 2.2%
------------------------------------------------
Roche Holding AG 2.2%
------------------------------------------------
Amgen, Inc. 2.2%
------------------------------------------------
SLM Corp. 2.1%
------------------------------------------------
EMC Corp. 2.1%
------------------------------------------------
SECTOR WEIGHTINGS
Technology 26.9%
------------------------------------------------
Health Care 26.4%
------------------------------------------------
Consumer Staples 7.7%
------------------------------------------------
Retailing 7.4%
------------------------------------------------
Industrial Goods & Services 6.2%
------------------------------------------------
Financial Services 6.1%
------------------------------------------------
Energy 4.2%
------------------------------------------------
Utilities & Communications 2.6%
------------------------------------------------
Leisure 2.5%
------------------------------------------------
Special Products & Services 2.4%
------------------------------------------------
Basic Materials 2.2%
------------------------------------------------
Autos & Housing 1.2%
------------------------------------------------
Transportation 0.6%
------------------------------------------------
Percentages are based on net assets as of 8/31/05.
The portfolio is actively managed, and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2005, Class A shares of the MFS Core
Growth Fund provided a total return of 14.34%, at net asset value. In
comparison, the fund's benchmark, the Russell 1000 Growth Index, returned
12.14%.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the health care, technology, and retailing sectors were among
the strongest contributors to performance relative to the Russell 1000 Growth
Index. In health care, our underweighting in pharmaceutical company Pfizer* and
owning Roche Holdings (which is not an index constituent) contributed to
relative results. Also, not owning the poor-performing pharmaceutical company
Merck boosted the fund's relative performance.
In technology, telecom equipment company Corning and semiconductor company
Marvell Technology, which is not held in the index, helped the relative
performance of the fund.
Stock selection in the retailing sector also enhanced the fund's relative
performance. The strongest contributor in this sector was the drugstore chain
CVS Corp.
Stocks in other sectors that aided performance include oilfield services
provider Halliburton, agricultural products and solutions provider Monsanto Co.,
and Latin American wireless operations company America Movil S.A. de C.V. (which
is not held in the index). Avoiding mortgage financier Fannie Mae, which
underperformed the overall index, also helped performance.
DETRACTORS FROM PERFORMANCE
Stock selection in the industrial goods sector detracted from relative
performance. Our holding of manufacturing conglomerate Tyco (which is not an
index constituent) was a significant detractor.
Stock selection in special products and services as well as autos and housing
sectors also dampened relative performance. In special products and services,
consulting firm Accenture (which is not held in the index) hindered performance.
In autos and housing, motorcycle maker Harley-Davidson also held back results.
Although health care and technology were our top contributing sectors during the
period, positioning among certain individual stocks in these sectors detracted
from performance. In health care, our underweighted positions in health insurer
UnitedHealth Group* and biotech firm Genentech*, and our overweighted position
in biotech company Imclone* hurt relative results. In technology, our
underweighted holdings in strong-performing benchmark constituents Intel and
Motorola detracted from relative performance.
Stocks in other sectors that dampened results include consumer products firm
Avon and personal care product maker Colgate-Palmolive.
The fund's cash position was also a detractor from relative performance. As with
nearly all mutual funds, this portfolio holds cash to buy new holdings and to
provide liquidity. In a period when equity markets rose as measured by the
primary benchmark, holding cash hurt performance versus our benchmark, which has
no cash position.
Respectfully,
Stephen Pesek
Portfolio Manager
Note: Effective July 1, 2005, Peggy Adams is no longer a portfolio manager of
the fund.
* Security was not held in the portfolio at period-end.
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any MFS
Fund's current or future investments.
PERFORMANCE SUMMARY THROUGH 8/31/05
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results include
the deduction of the maximum applicable sales charge and reflect the percentage
change in net asset value, including reinvestment of dividends and capital gains
distributions. Benchmark comparisons are unmanaged and do not reflect any fees
or expenses. The performance of other share classes will be greater than or less
than the line shown. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR CLASS 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
January 2, 1996, through August 31, 2005. Index information is from January 1,
1996.)
MFS Core Growth Russell 1000
Fund - Class A Growth Index
1/96 $ 9,425 $10,000
8/96 11,621 10,823
8/97 16,876 15,084
8/98 18,353 16,329
8/99 28,323 24,221
8/00 42,876 32,325
8/01 27,198 17,674
8/02 21,288 13,756
8/03 23,204 15,692
8/04 23,688 16,532
8/05 27,085 18,540
TOTAL RATES OF RETURN THROUGH 8/31/05
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/02/96 14.34% -8.78% 11.54%
- ------------------------------------------------------------------------------
B 12/31/99 13.57% -9.36% 11.13%
- ------------------------------------------------------------------------------
C 12/31/99 13.50% -9.38% 11.13%
- ------------------------------------------------------------------------------
I 1/02/97 14.69% -8.47% 11.79%
- ------------------------------------------------------------------------------
R** 12/31/02 14.16% -8.83% 11.51%
- ------------------------------------------------------------------------------
R1 4/01/05 13.93% -8.84% 11.50%
- ------------------------------------------------------------------------------
R2 4/01/05 14.07% -8.82% 11.52%
- ------------------------------------------------------------------------------
R3** 10/31/03 13.84% -8.91% 11.46%
- ------------------------------------------------------------------------------
R4 4/01/05 14.28% -8.79% 11.54%
- ------------------------------------------------------------------------------
R5 4/01/05 14.41% -8.77% 11.55%
- ------------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmarks
- ------------------------------------------------------------------------------
Average large-cap growth fund+ 13.74% -9.20% 6.38%
- ------------------------------------------------------------------------------
Russell 1000 Growth Index# 12.14% -10.52% 6.59%
- ------------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- ------------------------------------------------------------------------------
A 7.77% -9.85% 10.86%
- ------------------------------------------------------------------------------
B 9.57% -9.71% 11.13%
- ------------------------------------------------------------------------------
C 12.50% -9.38% 11.13%
- ------------------------------------------------------------------------------
Class I, R, R1, R2, R3, R4, and R5 shares do not have a sales charge. Please see
Notes to Performance Summary for more details.
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through August 31, 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."
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
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
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 R shares have no initial sales charge or
CDSC and are available only to existing Class R shareholders. Class I, R1, R2,
R3, R4, and R5 shares have no initial sales charge or CDSC. Class I shares are
only available to certain eligible investors, and Class R1, R2, R3, R4, and R5
shares are only available 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. For
example, the impact on the Fund's performance (not including sales charge) for
the one-year period through the date shown would have been lower by
approximately 0.10%. 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.
EXPENSE TABLE
FUND EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD, MARCH 1, 2005 THROUGH
AUGUST 31, 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 March 1, 2005 through August 31, 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.
- --------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 3/01/05-
Share Class Ratio 3/01/05 8/31/05 8/31/05
- --------------------------------------------------------------------------------
Actual 1.35% $1,000.00 $1,043.40 $6.95
A ---------------------------------------------------------------------
Hypothetical* 1.35% $1,000.00 $1,018.40 $6.87
- --------------------------------------------------------------------------------
Actual 2.00% $1,000.00 $1,040.40 $10.29
B ----------------------------------------------------------------------
Hypothetical* 2.00% $1,000.00 $1,015.12 $10.16
- --------------------------------------------------------------------------------
Actual 2.01% $1,000.00 $1,039.70 $10.33
C ---------------------------------------------------------------------
Hypothetical* 2.01% $1,000.00 $1,015.07 $10.21
- --------------------------------------------------------------------------------
Actual 0.99% $1,000.00 $1,045.00 $5.10
I ---------------------------------------------------------------------
Hypothetical* 0.99% $1,000.00 $1,020.21 $5.04
- --------------------------------------------------------------------------------
R Actual 1.51% $1,000.00 $1,042.90 $7.78
(formerly ---------------------------------------------------------------------
R1) Hypothetical* 1.51% $1,000.00 $1,017.59 $7.68
- --------------------------------------------------------------------------------
Actual 2.26% $1,000.00 $1,039.60 $11.62
R1 ---------------------------------------------------------------------
Hypothetical* 2.26% $1,000.00 $1,013.81 $11.47
- --------------------------------------------------------------------------------
Actual 1.95% $1,000.00 $1,040.90 $10.03
R2 ---------------------------------------------------------------------
Hypothetical* 1.95% $1,000.00 $1,015.38 $9.91
- --------------------------------------------------------------------------------
R3 Actual 1.78% $1,000.00 $1,041.10 $9.16
(formerly ---------------------------------------------------------------------
R2) Hypothetical* 1.78% $1,000.00 $1,016.23 $9.05
- --------------------------------------------------------------------------------
Actual 1.47% $1,000.00 $1,042.80 $7.57
R4 ---------------------------------------------------------------------
Hypothetical* 1.47% $1,000.00 $1,017.80 $7.48
- --------------------------------------------------------------------------------
Actual 1.17% $1,000.00 $1,044.00 $6.03
R5 ---------------------------------------------------------------------
Hypothetical* 1.17% $1,000.00 $1,019.31 $5.96
- --------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, 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 - 8/31/05
The Portfolio of Investments is a complete list of all securities owned by yourfund.
It is categorized by broad-based asset classes.
Stocks - 96.4%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ---------------------------------------------------------------------------------------------------
Aerospace - 1.8%
- ---------------------------------------------------------------------------------------------------
Northrop Grumman Corp.^ 60,700 $ 3,404,663
United Technologies Corp. 257,200 12,860,000
--------------
$ 16,264,663
- ---------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.3%
- ---------------------------------------------------------------------------------------------------
Pernod Ricard 14,000 $ 2,428,174
- ---------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.7%
- ---------------------------------------------------------------------------------------------------
Nike, Inc., "B" 87,300 $ 6,888,843
- ---------------------------------------------------------------------------------------------------
Automotive - 0.4%
- ---------------------------------------------------------------------------------------------------
Harley-Davidson, Inc.^ 84,160 $ 4,145,722
- ---------------------------------------------------------------------------------------------------
Banks & Credit Companies - 3.3%
- ---------------------------------------------------------------------------------------------------
American Express Co.^ 60,680 $ 3,351,963
Countrywide Financial Corp. 54,580 1,844,258
SLM Corp.^ 398,100 19,805,475
UBS AG 67,874 5,569,228
--------------
$ 30,570,924
- ---------------------------------------------------------------------------------------------------
Biotechnology - 4.7%
- ---------------------------------------------------------------------------------------------------
Amgen, Inc.* 256,340 $ 20,481,566
Genzyme Corp.^* 112,530 8,008,760
Gilead Sciences, Inc.* 358,270 15,405,610
--------------
$ 43,895,936
- ---------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 0.4%
- ---------------------------------------------------------------------------------------------------
Grupo Televisa S.A., ADR^ 50,500 $ 3,171,400
News Corp., "A" 55,200 894,792
--------------
$ 4,066,192
- ---------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.4%
- ---------------------------------------------------------------------------------------------------
Chicago Mercantile Exchange Holdings, Inc.^ 12,500 $ 3,470,000
Goldman Sachs Group, Inc.^ 87,040 9,677,107
--------------
$ 13,147,107
- ---------------------------------------------------------------------------------------------------
Business Services - 1.6%
- ---------------------------------------------------------------------------------------------------
Accenture Ltd., "A"^* 194,850 $ 4,754,340
Amdocs Ltd.^* 353,100 10,363,485
--------------
$ 15,117,825
- ---------------------------------------------------------------------------------------------------
Chemicals - 0.7%
- ---------------------------------------------------------------------------------------------------
3M Co.^ 61,100 $ 4,347,265
Monsanto Co. 37,240 2,377,402
--------------
$ 6,724,667
- ---------------------------------------------------------------------------------------------------
Computer Software - 7.6%
- ---------------------------------------------------------------------------------------------------
Adobe Systems, Inc.^ 214,000 $ 5,786,560
Mercury Interactive Corp.^* 48,880 1,792,430
Microsoft Corp. 1,172,990 32,139,926
NAVTEQ Corp.^* 61,900 2,880,826
Oracle Corp.* 1,342,710 17,414,949
Symantec Corp.^* 494,401 10,372,533
--------------
$ 70,387,224
- ---------------------------------------------------------------------------------------------------
Computer Software - Systems - 2.8%
- ---------------------------------------------------------------------------------------------------
Apple Computer, Inc.^* 244,700 $ 11,483,771
Dell, Inc.^* 399,900 14,236,440
--------------
$ 25,720,211
- ---------------------------------------------------------------------------------------------------
Consumer Goods & Services - 4.9%
- ---------------------------------------------------------------------------------------------------
Apollo Group, Inc., "A"^* 89,600 $ 7,047,936
Avon Products, Inc. 103,110 3,384,070
Colgate-Palmolive Co. 267,300 14,033,250
Gillette Co. 57,900 3,119,073
Procter & Gamble Co.^ 219,490 12,177,305
Reckitt Benckiser PLC 175,800 5,464,465
--------------
$ 45,226,099
- ---------------------------------------------------------------------------------------------------
Electrical Equipment - 4.0%
- ---------------------------------------------------------------------------------------------------
Danaher Corp.^ 43,400 $ 2,324,504
General Electric Co. 740,200 24,878,122
Tyco International Ltd.^ 358,600 9,979,838
--------------
$ 37,182,464
- ---------------------------------------------------------------------------------------------------
Electronics - 5.5%
- ---------------------------------------------------------------------------------------------------
Analog Devices, Inc.^ 63,980 $ 2,332,071
Applied Materials, Inc.^ 179,900 3,293,969
Intel Corp. 215,000 5,529,800
Marvell Technology Group Ltd.^* 109,142 5,150,411
Samsung Electronics Co. Ltd. 17,230 9,087,314
SanDisk Corp.^* 154,300 5,991,469
Texas Instruments, Inc.^ 360,640 11,785,715
Xilinx, Inc.^ 289,000 8,118,010
--------------
$ 51,288,759
- ---------------------------------------------------------------------------------------------------
Energy - Independent - 0.2%
- ---------------------------------------------------------------------------------------------------
EOG Resources, Inc.^ 25,400 $ 1,621,282
- ---------------------------------------------------------------------------------------------------
Energy - Integrated - 0.8%
- ---------------------------------------------------------------------------------------------------
Amerada Hess Corp.^ 56,600 $ 7,193,860
- ---------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.2%
- ---------------------------------------------------------------------------------------------------
CVS Corp. 386,240 $ 11,343,869
- ---------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 3.3%
- ---------------------------------------------------------------------------------------------------
Cadbury Schweppes PLC 95,600 $ 946,520
Coca-Cola Co.^ 110,800 4,875,200
Kellogg Co.^ 236,200 10,706,946
Nestle S.A 8,471 2,380,419
PepsiCo, Inc. 216,920 11,898,062
--------------
$ 30,807,147
- ---------------------------------------------------------------------------------------------------
Furniture & Appliances - 0.8%
- ---------------------------------------------------------------------------------------------------
Harman International Industries, Inc. 73,600 $ 7,610,240
- ---------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.8%
- ---------------------------------------------------------------------------------------------------
Carnival Corp. 55,610 $ 2,743,797
Harrah's Entertainment, Inc.^ 19,500 1,356,420
Hilton Group PLC 561,400 3,199,411
--------------
$ 7,299,628
- ---------------------------------------------------------------------------------------------------
General Merchandise - 3.1%
- ---------------------------------------------------------------------------------------------------
Kohl's Corp.^* 127,860 $ 6,706,257
Target Corp. 150,060 8,065,725
Wal-Mart Stores, Inc.^ 301,290 13,545,998
--------------
$ 28,317,980
- ---------------------------------------------------------------------------------------------------
Health Maintenance Organizations - 2.3%
- ---------------------------------------------------------------------------------------------------
WellPoint, Inc.^* 288,260 $ 21,403,305
- ---------------------------------------------------------------------------------------------------
Insurance - 1.4%
- ---------------------------------------------------------------------------------------------------
AFLAC, Inc. 21,100 $ 911,942
American International Group, Inc.^ 201,500 11,928,800
--------------
$ 12,840,742
- ---------------------------------------------------------------------------------------------------
Internet - 1.8%
- ---------------------------------------------------------------------------------------------------
eBay, Inc.* 70,220 $ 2,843,208
Google, Inc., "A"^* 28,205 8,066,630
Yahoo!, Inc.^* 168,810 5,628,125
--------------
$ 16,537,963
- ---------------------------------------------------------------------------------------------------
Leisure & Toys - 1.0%
- ---------------------------------------------------------------------------------------------------
Electronic Arts, Inc.^* 157,230 $ 9,006,134
- ---------------------------------------------------------------------------------------------------
Machinery & Tools - 0.4%
- ---------------------------------------------------------------------------------------------------
Caterpillar, Inc. 59,900 $ 3,323,851
- ---------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.8%
- ---------------------------------------------------------------------------------------------------
Caremark Rx, Inc.* 129,600 $ 6,056,208
Cerner Corp.^* 13,400 1,055,384
--------------
$ 7,111,592
- ---------------------------------------------------------------------------------------------------
Medical Equipment - 6.6%
- ---------------------------------------------------------------------------------------------------
Alcon, Inc.^ 42,200 $ 4,981,710
DENTSPLY International, Inc. 12,100 640,937
Fisher Scientific International, Inc.^* 175,040 11,286,579
Medtronic, Inc. 277,760 15,832,320
St. Jude Medical, Inc.* 286,600 13,154,940
Varian Medical Systems, Inc.^* 60,100 2,393,182
Zimmer Holdings, Inc.^* 155,100 12,744,567
--------------
$ 61,034,235
- ---------------------------------------------------------------------------------------------------
Network & Telecom - 7.0%
- ---------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 1,174,330 $ 20,691,695
Corning, Inc.* 837,820 16,722,887
Motorola, Inc.^ 160,600 3,513,928
Nokia Oyj 91,900 1,445,753
QUALCOMM, Inc.^ 575,860 22,867,401
--------------
$ 65,241,664
- ---------------------------------------------------------------------------------------------------
Oil Services - 3.2%
- ---------------------------------------------------------------------------------------------------
GlobalSantaFe Corp.^ 126,810 $ 5,944,853
Halliburton Co. 229,220 14,204,763
National Oilwell Varco, Inc.* 50,000 3,210,500
Noble Corp.^ 83,700 5,967,810
--------------
$ 29,327,926
- ---------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 2.2%
- ---------------------------------------------------------------------------------------------------
EMC Corp.* 1,490,050 $ 19,162,043
Network Appliance, Inc.^* 38,720 919,213
--------------
$ 20,081,256
- ---------------------------------------------------------------------------------------------------
Pharmaceuticals - 12.0%
- ---------------------------------------------------------------------------------------------------
Abbott Laboratories 288,300 $ 13,010,979
Allergan, Inc.^ 9,900 911,295
Eli Lilly & Co. 239,160 13,158,583
Johnson & Johnson^ 445,820 28,260,530
Roche Holding AG 148,200 20,532,731
Sanofi-Aventis^ 64,700 5,547,978
Teva Pharmaceutical Industries Ltd., ADR^ 368,900 11,967,116
Wyeth^ 383,090 17,541,691
--------------
$ 110,930,903
- ---------------------------------------------------------------------------------------------------
Printing & Publishing - 0.3%
- ---------------------------------------------------------------------------------------------------
McGraw-Hill Cos., Inc.^ 59,000 $ 2,844,980
- ---------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.5%
- ---------------------------------------------------------------------------------------------------
Praxair, Inc.^ 287,200 $ 13,871,760
- ---------------------------------------------------------------------------------------------------
Specialty Stores - 2.4%
- ---------------------------------------------------------------------------------------------------
Best Buy Co., Inc.^ 40,000 $ 1,906,400
Lowe's Cos., Inc.^ 175,560 11,290,264
PETsMART, Inc.^ 182,980 4,715,395
Staples, Inc. 213,700 4,692,853
--------------
$ 22,604,912
- ---------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.1%
- ---------------------------------------------------------------------------------------------------
America Movil S.A. de C.V., ADR, "L" 465,100 $ 10,232,200
- ---------------------------------------------------------------------------------------------------
Telephone Services - 1.1%
- ---------------------------------------------------------------------------------------------------
Sprint Nextel Corp.^ 389,350 $ 10,095,846
- ---------------------------------------------------------------------------------------------------
Trucking - 0.6%
- ---------------------------------------------------------------------------------------------------
FedEx Corp. 67,560 $ 5,502,086
- ---------------------------------------------------------------------------------------------------
Utilities - Electric Power - 0.4%
- ---------------------------------------------------------------------------------------------------
AES Corp.^* 250,000 $ 3,935,000
- ---------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $843,006,264) $ 893,175,171
- ---------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 21.6%
- ---------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 200,568,378 $ 200,568,378
- ---------------------------------------------------------------------------------------------------
Repurchase Agreement - 1.8%
- ---------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ---------------------------------------------------------------------------------------------------
Morgan Stanley, 3.58%, dated 8/31/05, due 9/01/05, total to be
received $16,639,655 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account), at Cost $ 16,638,000 $ 16,638,000
- ---------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,060,212,642)(+) $1,110,381,549
- ---------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (19.8)% (183,359,062)
- ---------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 927,022,487
- ---------------------------------------------------------------------------------------------------
(+) As of August 31, 2005, the fund had eight securities representing $51,793,400 and 5.6% of net
assets that were fair valued in accordance with the policies adopted by the Board of Trustees.
* Non-income producing security.
^ All or a portion of this security is on loan.
Abbreviations:
ADR = American Depository Receipt
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 the fund.
AT 8/31/05
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $196,110,739 of securities
on loan (identified cost, $1,060,212,642) $1,110,381,549
Cash 478
Receivable for investments sold 30,424,779
Receivable for fund shares sold 550,375
Interest and dividends receivable 1,050,179
Other assets 4,271
- -------------------------------------------------------------------------------------------------------
Total assets $1,142,411,631
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $11,653,087
Payable for fund shares reacquired 2,347,018
Collateral for securities loaned, at value 200,568,378
Payable to affiliates
Management fee 16,318
Shareholder servicing costs 324,065
Distribution and service fees 13,794
Administrative services fee 296
Retirement plan administration and services fees 12
Accrued expenses and other liabilities 466,176
- -------------------------------------------------------------------------------------------------------
Total liabilities $215,389,144
- -------------------------------------------------------------------------------------------------------
Net assets $927,022,487
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in capital $1,202,048,936
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 50,156,599
Accumulated net realized gain (loss) on investments and
foreign currency transactions (325,139,337)
Accumulated net investment loss (43,711)
- -------------------------------------------------------------------------------------------------------
Net assets $927,022,487
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 55,725,377
- -------------------------------------------------------------------------------------------------------
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $632,209,426
Shares outstanding 37,592,131
- -------------------------------------------------------------------------------------------------------
Net asset value per share $16.82
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$16.82) $17.85
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $201,513,122
Shares outstanding 12,412,200
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.24
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $82,182,342
Shares outstanding 5,062,367
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.23
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $3,816,248
Shares outstanding 222,080
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $17.18
- -------------------------------------------------------------------------------------------------------
Class R shares (formerly Class R1)
- -------------------------------------------------------------------------------------------------------
Net assets $5,904,404
Shares outstanding 352,129
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.77
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $79,808
Shares outstanding 4,918
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.23
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $436,678
Shares outstanding 26,879
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.25
- -------------------------------------------------------------------------------------------------------
Class R3 shares (formerly Class R2)
- -------------------------------------------------------------------------------------------------------
Net assets $774,330
Shares outstanding 46,365
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.70
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $53,031
Shares outstanding 3,154
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.81
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $53,098
Shares outstanding 3,154
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.83
- -------------------------------------------------------------------------------------------------------
Shares outstanding are rounded for presentation purposes.
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred sales
charge may be imposed on redemptions of Class A, Class B, and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Operations
This statement describes how much your fund received in investment income and paid in expenses.
It also describes any gains and/or losses generated by fund operations.
YEAR ENDED 8/31/05
NET INVESTMENT LOSS
- -------------------------------------------------------------------------------------------------------
Income
Dividends $7,962,439
Interest 624,894
Foreign taxes withheld (57,138)
- -------------------------------------------------------------------------------------------------------
Total investment income $8,530,195
- -------------------------------------------------------------------------------------------------------
Expenses
Management fee $5,346,780
Distribution and service fees 4,049,123
Shareholder servicing costs 1,188,243
Administrative services fee 74,091
Retirement plan administration and services fees 716
Trustees' compensation 39,284
Custodian fee 228,183
Printing 126,150
Postage 71,038
Auditing fees 29,124
Legal fees 46,209
Shareholder solicitation expenses 99,586
Miscellaneous 127,224
- -------------------------------------------------------------------------------------------------------
Total expenses $11,425,751
- -------------------------------------------------------------------------------------------------------
Fees paid indirectly (75,961)
Reduction of expenses by investment adviser (714,737)
- -------------------------------------------------------------------------------------------------------
Net expenses $10,635,053
- -------------------------------------------------------------------------------------------------------
Net investment loss $(2,104,858)
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $152,652,182
Foreign currency transactions (131,323)
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $152,520,859
- -------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(56,252,391)
Translation of assets and liabilities in foreign currencies (12,345)
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(56,264,736)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $96,256,123
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $94,151,265
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statements of Changes in Net Assets
This statement describes the increases and/or decreases in net assets resulting
from operations, any distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2005 2004
CHANGE IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment loss $(2,104,858) $(5,201,107)
Net realized gain (loss) on investments and foreign
currency transactions 152,520,859 69,898,609
Net unrealized gain (loss) on investments and foreign
currency translation (56,264,736) (47,792,510)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $94,151,265 $16,904,992
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $191,397,865 $(144,281,991)
- -------------------------------------------------------------------------------------------------------
Redemption fees $3,489 $1,504
- -------------------------------------------------------------------------------------------------------
Total change in net assets $285,552,619 $(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 $43,711 and $34,107, respectively) $927,022,487 $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 past 5 years
(or, if shorter, the period of the fund's operation). Certain information reflects financial results for a single fund share.
The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the
fund (assuming reinvestment of all distributions) held for the entire period. This information has been audited by the fund's
independent registered public accounting firm, whose report, together with the fund's financial statements, are included in
this report.
CLASS A
YEARS ENDED 8/31
------------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $14.71 $14.41 $13.22 $16.89 $27.51
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.01) $(0.07) $(0.07) $(0.12) $(0.11)
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.12 0.37 1.26 (3.55) (9.73)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.11 $0.30 $1.19 $(3.67) $(9.84)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $-- $(0.78)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.82 $14.71 $14.41 $13.22 $16.89
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 14.34*** 2.08***+ 9.00 (21.73) (36.57)***
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.38 1.41 1.42 1.43 1.57
Expenses after expense reductions## 1.28 1.36 1.42 1.47^^ 1.52
Net investment loss (0.08) (0.47) (0.52) (0.76) (0.56)
Portfolio turnover (%) 184 261 312 257 283
Net assets at end of period
(000 Omitted) $632,209 $404,511 $496,271 $417,986 $111,062
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B
YEARS ENDED 8/31
-----------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $14.30 $14.09 $13.01 $16.72 $27.41
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.11) $(0.16) $(0.15) $(0.22) $(0.23)
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.05 0.37 1.23 (3.49) (9.70)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.94 $0.21 $1.08 $(3.71) $(9.93)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions $-- $-- $-- $-- $(0.76)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.24 $14.30 $14.09 $13.01 $16.72
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 13.57*** 1.49***+ 8.22 (22.13) (37.01)***
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.03 2.05 2.07 2.08 2.22
Expenses after expense reductions## 1.93 2.00 2.07 2.12^^ 2.17
Net investment loss (0.73) (1.11) (1.18) (1.41) (1.20)
Portfolio turnover (%) 184 261 312 257 283
Net assets at end of period
(000 Omitted) $201,513 $138,226 $155,602 $114,619 $68,839
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C
YEARS ENDED 8/31
--------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $14.30 $14.10 $13.02 $16.73 $27.43
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.11) $(0.16) $(0.15) $(0.22) $(0.23)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.04 0.36 1.23 (3.49) (9.70)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.93 $0.20 $1.08 $(3.71) $(9.93)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions $-- $-- $-- $-- $(0.77)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.23 $14.30 $14.10 $13.02 $16.73
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 13.50*** 1.42***+ 8.29 (22.18) (36.99)***
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.03 2.05 2.07 2.08 2.22
Expenses after expense reductions## 1.93 2.00 2.07 2.12^^ 2.17
Net investment loss (0.69) (1.12) (1.18) (1.41) (1.20)
Portfolio turnover (%) 184 261 312 257 283
Net assets at end of period
(000 Omitted) $82,182 $91,225 $110,786 $82,441 $45,879
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I
YEARS ENDED 8/31
-------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $14.98 $14.63 $13.37 $17.01 $27.63
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $0.05 $(0.02) $(0.02) $(0.06) $(0.03)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.15 0.37 1.28 (3.58) (9.80)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.20 $0.35 $1.26 $(3.64) $(9.83)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $-- $-- $-- $-- $(0.79)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.18 $14.98 $14.63 $13.37 $17.01
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)& 14.69*** 2.39***+ 9.42 (21.40) (36.39)***
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.02 1.06 1.07 1.08 1.20
Expenses after expense reductions## 0.92 1.01 1.07 1.12^^ 1.15
Net investment income (loss) 0.32 (0.11) (0.16) (0.39) (0.14)
Portfolio turnover (%) 184 261 312 257 283
Net assets at end of period (000 Omitted) $3,816 $4,136 $4,317 $4,403 $7,381
- ----------------------------------------------------------------------------------------------------------------------------
CLASS R (FORMERLY CLASS R1)
YEARS ENDED 8/31
-----------------------------------------------------
2005= 2004= 2003**
Net asset value, beginning of period $14.69 $14.41 $12.35
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.04) $(0.09) $(0.08)
Net realized and unrealized gain on investments and
foreign currency 2.12 0.37 2.14^
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.08 $0.28 $2.06
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.77 $14.69 $14.41
- ----------------------------------------------------------------------------------------------------------------------
Total return (%)& 14.16*** 1.94***+ 16.68++
- ----------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.54 1.56 1.65+
Expenses after expense reductions## 1.44 1.51 1.65+
Net investment loss (0.25) (0.60) (0.82)+
Portfolio turnover (%) 184 261 312
Net assets at end of period (000 Omitted) $5,904 $3,266 $1,869
- ----------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 CLASS R2
YEAR ENDED YEAR ENDED
8/31/05** 8/31/05**
Net asset value, beginning of period $15.35 $15.35
- -------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------
Net investment loss $(0.08) $(0.04)
Net realized and unrealized gain on investments and
foreign currency 0.96^ 0.94^
- -------------------------------------------------------------------------------------------------------
Total from investment operations $0.88 $0.90
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.23 $16.25
- -------------------------------------------------------------------------------------------------------
Total return (%)&*** 5.73++ 5.86++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.35+ 2.04+
Expenses after expense reductions## 2.25+ 1.94+
Net investment loss (1.21)+ (0.67)+
Portfolio turnover (%) 184 184
Net assets at end of period (000 Omitted) $80 $437
- -------------------------------------------------------------------------------------------------------
CLASS R3 (FORMERLY CLASS R2)
YEARS ENDED 8/31
--------------------------------
2005= 2004=**
Net asset value, beginning of period $14.67 $14.63###
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------
Net investment loss $(0.06) $(0.06)
Net realized and unrealized gain on investments and
foreign currency 2.09 0.10^
- ----------------------------------------------------------------------------------------------------------
Total from investment operations $2.03 $0.04
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.70 $14.67
- ----------------------------------------------------------------------------------------------------------
Total return (%)&*** 13.84 0.27###+++
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.82 1.95+
Expenses after expense reductions## 1.72 1.90+
Net investment loss (0.48) (0.48)+
Portfolio turnover (%) 184 261
Net assets at end of period (000 Omitted) $774 $105
- ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 CLASS R5
YEAR ENDED YEAR ENDED
8/31/05** 8/31/05**
Net asset value, beginning of period $15.85 $15.85
- -------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------
Net investment loss $(0.03) $(0.01)
Net realized and unrealized gain on investments and
foreign currency 0.99^ 0.99^
- -------------------------------------------------------------------------------------------------------
Total from investment operations $0.96 $0.98
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.81 $16.83
- -------------------------------------------------------------------------------------------------------
Total return (%)&*** 6.06++ 6.18++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.56+ 1.26+
Expenses after expense reductions## 1.46+ 1.16+
Net investment loss (0.41)+ (0.11)+
Portfolio turnover (%) 184 184
Net assets at end of period (000 Omitted) $53 $53
- -------------------------------------------------------------------------------------------------------
** For the period from the class' inception, December 31, 2002 (Class R), October 31, 2003 (Class R3)
and April 1, 2005 (Classes R1, R2, R4, and R5) through the stated period end.
*** Certain expenses have been reduced without which performance would have been lower. + Annualized.
++ Not annualized.
# 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 $14.64 and 0.20% (Class R3), have been
revised to reflect the net asset value from the day prior to the class' inception date. The net
asset values and total returns previously reported were from inception date, the date the share
classes were first available to public shareholders.
^ 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.
^^ Ratio includes a reimbursement fee for expenses borne by MFS in prior years under the then existing
expense reimbursement agreement.
(+) Total returns do not include any applicable sales charges.
& 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. 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.
= Redemption fees charged by the fund during this period resulted in a per share impact of less than
$0.01.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Core Growth Fund (the fund) is a diversified series of MFS Series Trust I
(the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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.
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 was 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 year ended August 31, 2005, the fund's custodian fees were
reduced by $21,835 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the fund
a portion of the commissions generated, to offset certain expenses of the fund.
For the year ended August 31, 2005, the fund's miscellaneous expenses were
reduced by $54,126 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, net operating losses, capital loss
carryforward assumed as a result of the acquisition, and wash sales.
The fund paid no distributions for the years ended August 31, 2005 and August
31, 2004.
During the year ended August 31, 2005, accumulated net investment loss
decreased by $2,095,254, accumulated net realized loss on investments and
foreign currency transactions increased by $300,597,737, and paid-in capital
increased by $298,502,483 due to differences between book and tax accounting
for foreign currency transactions, net operating losses, and capital loss
carryforward and wash sale loss deferrals assumed as a result of the
acquisition. This change had no effect on the net assets or net asset value per
share.
As of August 31, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(316,413,027)
Unrealized appreciation (depreciation) 41,899,671
Other temporary differences (513,093)
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, 2008 $(82,754,624)
August 31, 2009 (161,321,462)
August 31, 2010 (25,708,026)
August 31, 2011 (46,628,915)
----------------------------------------------------------
Total $(316,413,027)
The availability of a portion of the capital loss carryforwards, which were
acquired on June 3, 2005 in connection with the MFS Large Cap Growth Fund
merger, may be limited in a given year.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates are
generally due to differences in separate class expenses. Class B shares will
convert to Class A shares approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with MFS to
provide overall investment advisory and administrative services, and general
office facilities. The management fee is computed daily and paid monthly at an
annual rate of 0.75% of the fund's average daily net assets.
As part of a settlement agreement with the New York Attorney General concerning
market timing and related matters, MFS has agreed to reduce the management fee
to 0.65% of the fund's average daily net assets for the period March 1, 2004
through February 28, 2009. For the year ended August 31, 2005, this waiver is
reflected as a reduction of total expenses in the Statement of Operations.
The management fee incurred for the year ended August 31, 2005 was equivalent to
an annual effective rate of 0.65% of the fund's average daily net assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly owned subsidiary of
MFS, as distributor, received $51,691 for the year ended August 31, 2005, as its
portion of the initial sales charge on sales of Class A shares of the fund.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to and retained by MFD. Another component of the
plan is a service fee paid to MFD which subsequently pays a portion of this fee
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.
Distribution Fee Plan Table:
TOTAL ANNUAL SERVICE FEE DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE RETAINED AND SERVICE
FEE RATE FEE RATE PLAN(1) RATE(2) BY MFD(3) FEE
Class A 0.10% 0.25% 0.35% 0.35% $31,876 $1,623,948
Class B 0.75% 0.25% 1.00% 1.00% 1,116 1,531,573
Class C 0.75% 0.25% 1.00% 1.00% 1,041 869,071
Class R 0.25% 0.25% 0.50% 0.50% 15 23,333
Class R1 0.50% 0.25% 0.75% 0.75% 93 227
Class R2 0.25% 0.25% 0.50% 0.50% 62 225
Class R3 0.25% 0.25% 0.50% 0.50% 27 692
Class R4 -- 0.25% 0.25% 0.25% 31 54
- -----------------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $4,049,123
(1) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up to these
annual percentage rates of each class' average daily net assets.
(2) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August 31, 2005
based on each class' average daily net assets.
(3) For the year ended August 31, 2005, MFD retained these service fees.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months following the
purchase. Class B shares are subject to a contingent deferred sales charge in
the event of a shareholder redemption within six years of purchase. MFD retained
all contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended August 31, 2005 were as follows:
AMOUNT
Class A $19,069
Class B $347,578
Class C $5,599
SHAREHOLDER SERVICING AGENT - The fund pays a portion of shareholder servicing
costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS. MFSC
receives a fee from the fund, for its services as shareholder servicing agent,
set periodically under the supervision of the fund's Board of Trustees. For the
year ended August 31, 2005, the fee was $742,773, which equated to 0.1041%
annually of the fund's average daily net assets. MFSC also receives payment from
the fund for out-of-pocket and sub-accounting expenses paid by MFSC on behalf of
the fund. For the year ended August 31, 2005, these costs amounted to $364,560.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. Effective July 1, 2005, the fund's annual fixed amount is $10,000.
The administrative services fee incurred for the year ended August 31, 2005 was
equivalent to an annual effective rate of 0.0104% of the fund's average daily
net assets.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain retirement plan
administration and services with respect to certain Class R shares. These
services include various administrative, recordkeeping, and communication/
educational services with respect to the retirement plans which invest in these
shares, and may be provided directly by MFS or by a third party. For the year
ended August 31, 2005, the fund paid an annual retirement plan administration
and services fee up to the following annual percentage rates of each class'
average daily net assets:
AMOUNT
FEE TOTAL RETAINED
RATE AMOUNT BY MFS
Class R1 0.45% $136 $105
Class R2 0.40% 180 132
Class R3 (formerly Class R2) 0.25% 346 175
Class R4 0.15% 32 11
Class R5 0.10% 22 19
- ------------------------------------------------------------------------------
Total Retirement Plan Administration and
Services Fees $716 $442
TRUSTEES' COMPENSATION - The fund pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons. The fund does not pay compensation directly to
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, MFD,
and MFSC. The fund has an unfunded, defined benefit plan for retired Independent
Trustees which resulted in a pension expense of $19,683. The fund also has an
unfunded retirement benefit deferral plan for certain current Independent
Trustees which resulted in an expense of $3,203. Both amounts are included in
Trustees compensation for the year ended August 31, 2005.
OTHER - 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 the fund
for a portion of the payments made by the funds to Tarantino LLC in the amount
of $2,489, which is shown as a reduction of total expenses in the Statement of
Operations. Additionally, MFS has agreed to bear all expenses associated with
office space, other administrative support, and supplies provided 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, was the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in connection
with fund sales. As a result, proceeds in the amount of $589,873 were paid to
the fund on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$1,263,327,719 and $1,428,275,766, 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 $1,068,481,878
---------------------------------------------------------
Gross unrealized appreciation $59,605,147
Gross unrealized depreciation (17,705,476)
---------------------------------------------------------
Net unrealized appreciation (depreciation) $41,899,671
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 8/31/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 6,045,043 $96,257,424 10,626,969 $158,101,180
Shares issued in connection with
acquisition of MFS Large Cap
Growth Fund 15,966,412 260,252,510 -- --
Shares reacquired (11,909,431) (190,911,285) (17,569,674) (262,111,271)
- ----------------------------------------------------------------------------------------------------------
Net change 10,102,024 $165,598,649 (6,942,705) $(104,010,091)
CLASS B SHARES
Shares sold 824,699 $12,849,738 2,054,497 $29,865,095
Shares issued in connection with
acquisition of MFS Large Cap
Growth Fund 4,980,471 78,492,230 -- --
Shares reacquired (3,061,054) (47,687,100) (3,426,834) (49,782,232)
- ----------------------------------------------------------------------------------------------------------
Net change 2,744,116 $43,654,868 (1,372,337) $(19,917,137)
CLASS C SHARES
Shares sold 733,441 $11,311,540 1,747,376 $25,401,296
Shares reacquired (2,051,435) (31,628,141) (3,226,826) (46,906,587)
- ----------------------------------------------------------------------------------------------------------
Net change (1,317,994) $(20,316,601) (1,479,450) $(21,505,291)
CLASS I SHARES
Shares sold 36,183 $585,957 39,694 $605,358
Shares issued in connection with
acquisition of MFS Large Cap
Growth Fund 2,991 49,763 -- --
Shares reacquired (93,157) (1,502,028) (58,806) (894,652)
- ----------------------------------------------------------------------------------------------------------
Net change (53,983) $(866,308) (19,112) $(289,294)
CLASS R SHARES (FORMERLY CLASS R1)
Shares sold 216,408 $3,447,630 320,957 $4,749,392
Shares reacquired (86,556) (1,385,040) (228,340) (3,418,826)
- ----------------------------------------------------------------------------------------------------------
Net change 129,852 $2,062,590 92,617 $1,330,566
Period ended 8/31/05**
SHARES AMOUNT
CLASS R1 SHARES
Shares sold 5,484 $84,854
Shares reacquired (566) (9,209)
- ------------------------------------------------------------------------
Net change 4,918 $75,645
CLASS R2 SHARES
Shares sold 26,881 $437,516
Shares reacquired (2) (39)
- ------------------------------------------------------------------------
Net change 26,879 $437,477
Year ended 8/31/05 Period ended 8/31/04*
SHARES AMOUNT SHARES AMOUNT
CLASS R3 SHARES (FORMERLY CLASS R2)
Shares sold 42,062 $697,441 13,975 $213,149
Shares reacquired (2,868) (45,896) (6,804) (103,893)
- ----------------------------------------------------------------------------------------------------------
Net change 39,194 $651,545 7,171 $109,256
Period ended 8/31/05**
SHARES AMOUNT
CLASS R4 SHARES
Shares sold 3,154 $50,000
CLASS R5 SHARES
Shares sold 3,154 $50,000
* For the period from October 31, 2003, through August 31, 2004.
** For the period from April 1, 2005, through August 31, 2005.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured line
of credit provided by a syndication of banks under a 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 0.35%. In addition, a commitment fee, based on the average daily,
unused portion of the line of credit, is allocated among the participating funds
at the end of each calendar quarter. The commitment fee allocated to the fund
for the year ended August 31, 2005 was $4,536, and is included in miscellaneous
expense. The fund had no significant borrowings during the year ended August 31,
2005.
(7) ACQUISITIONS
At close of business on June 3, 2005, the fund acquired all of the assets and
liabilities of MFS Large Cap Growth Fund pursuant to a plan of reorganization
approved by the MFS Large Cap Growth Fund shareholders on May 17, 2005. The
acquisition was accomplished by a tax-free exchange of 20,949,874 shares of the
fund (valued at $338,794,503) for all of the assets and liabilities of MFS Large
Cap Growth Fund. MFS Large Cap Growth Fund then converted all of its outstanding
shares for shares of the fund and distributed those shares to its shareholders.
MFS Large Cap Growth Fund's net assets on that date were $338,794,503, including
$39,750,917 of unrealized appreciation, $1,382,225 of accumulated net investment
loss, and $300,727,128 of accumulated net realized loss on investments and
foreign currency transactions. These assets were combined with those of the
fund. The aggregate net assets of the fund after the acquisition were
$960,823,462.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust I and Shareholders of MFS Core Growth Fund:
We have audited the accompanying statement of assets and liabilities of MFS Core
Growth Fund (the Fund) (one of the portfolios comprising MFS Series Trust I),
including the portfolio of investments, as of August 31, 2005, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of August 31, 2005, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Core Growth Fund at August 31, 2005, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and its financial highlights for each of the periods
indicated therein, in conformity with U.S. generally accepted accounting
principles.
ERNST & YOUNG LLP
Boston, Massachusetts
October 11, 2005
RESULTS OF SHAREHOLDER MEETING (unaudited) - 8/31/05
At a special meeting of shareholders of Series Trust I, which was held on March
23, 2005, the following actions were taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-----------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $8,025,286,508.56 $117,939,292.78
- --------------------------------------------------------------------------
David H. Gunning 8,030,402,677.64 112,823,123.70
- --------------------------------------------------------------------------
William R. Gutow 8,027,523,726.27 115,702,075.07
- --------------------------------------------------------------------------
Michael Hegarty 8,021,162,525.49 122,063,275.85
- --------------------------------------------------------------------------
J. Atwood Ives 8,024,062,680.07 119,163,121.27
- --------------------------------------------------------------------------
Amy B. Lane 8,019,792,882.59 123,432,918.75
- --------------------------------------------------------------------------
Robert J. Manning 8,030,980,361.78 112,245,439.56
- --------------------------------------------------------------------------
Lawrence T. Perara 8,025,935,401.12 117,290,400.22
- --------------------------------------------------------------------------
Robert C. Pozen 8,031,655,470.25 111,570,331.09
- --------------------------------------------------------------------------
J. Dale Sherratt 8,027,226,595.42 115,999,205.92
- --------------------------------------------------------------------------
Laurie J. Thomsen 8,019,388,506.87 123,837,294.47
- --------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2005, are listed below, together with their principal
occupations during the past five years. (Their titles may have varied during that period.) The address of each
Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(1) OTHER DIRECTORSHIPS(2)
- ------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee and February 2004 Massachusetts Financial Services
(born 10/20/63) President Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman
(since February 2004); Harvard Law
School (education), John Olin Visiting
Professor (since July 2002); Secretary
of Economic Affairs, The Commonwealth
of Massachusetts (January 2002 to
December 2002); Fidelity Investments,
Vice Chairman (June 2000 to December
2001); Fidelity Management & Research
Company (investment adviser), President
(March 1997 to July 2001); Bell Canada
Enterprises (telecommunications),
Director; Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications), Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 05/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and Chief
Executive Officer (until November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Chief of Cardiac Surgery; Harvard
Medical School, Professor of Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider),
Vice Chairman/Director (since April
2001); Encinitos Ventures (private
investment company), Principal (1997 to
April 2001); Lincoln Electric Holdings,
Inc. (welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video franchise),
Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating Officer
(until May 2001); The Equitable Life
Assurance Society (insurance),
President and Chief Operating Officer
(until May 2001)
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group (1997 to
February 2001); Borders Group, Inc.
(book and music retailer), Director;
Federal Realty Investment Trust (real
estate investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys), Partner
(born 06/23/35)
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition planning
(born 09/23/38) specialists), President; Wellfleet
Investments (investor in health care
companies), Managing General Partner
(since 1993); Cambridge Nutraceuticals
(professional nutritional products),
Chief Executive Officer (until May
2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 08/05/57) Partners (venture capital), Co-
founder and General Partner (until June
2004); St. Paul Travelers Companies
(commercial property liability
insurance), Director
OFFICERS
Robert J. Manning(3) President and February 2004 Massachusetts Financial Services
(born 10/20/63) Trustee Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Tracy Atkinson(3) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP, Partner
(prior to September 2004)
Christopher R. Bohane(3) Assistant July 2005 Massachusetts Financial Services
(born 1/18/74) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law firm),
Associate (prior to April 2003); Nvest
Services Company, Assistant Vice
President and Associate Counsel (prior
to January 2001)
Jeffrey N. Carp(3) Secretary and September 2004 Massachusetts Financial Services
(born 12/01/56) Clerk Company, Executive Vice President,
General Counsel and Secretary (since
April 2004); Hale and Dorr LLP (law
firm), Partner (prior to April 2004)
Ethan D. Corey(3) Assistant July 2005 Massachusetts Financial Services
(born 11/21/63) Secretary and Company, Special Counsel (since
Assistant Clerk December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
Stephanie A. DeSisto(3) Assistant May 2003 Massachusetts Financial Services
(born 10/01/53) Treasurer Company, Vice President (since
April 2003); Brown Brothers
Harriman & Co., Senior Vice
President (November 2002 to April
2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
David L. DiLorenzo(3) Assistant July 2005 Massachusetts Financial Services
(born 8/10/68) Treasurer Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (January 2001
to June 2005); State Street Bank, Vice
President and Corporate Audit Manager
(prior to January 2001)
Timothy M. Fagan(3) Assistant September 2005 Massachusetts Financial Services
(born 7/10/68) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance Officer
(September 2004 to August 2005), Senior
Attorney (prior to September 2004);
John Hancock Group of Funds, Vice
President and Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(3) Assistant July 2005 Massachusetts Financial Services
(born 10/27/70) Treasurer Company, Vice President (since May
2005); JP Morgan Investment Management
Company, Vice President (prior to May
2005)
Brian T. Hourihan(3) Assistant September 2004 Massachusetts Financial Services
(born 11/11/64) Secretary and Company, Vice President, Senior
Assistant Clerk Counsel and Assistant Secretary
(since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance Program
(January to April 2004); Fidelity
Research & Management Company,
Assistant General Counsel (prior to
January 2004)
Ellen Moynihan(3) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Vice President
Susan S. Newton(3) Assistant May 2005 Massachusetts Financial Services
(born 03/07/50) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel (since
April 2005); John Hancock Advisers,
LLC, Senior Vice President, Secretary
and Chief Legal Officer (prior to April
2005); John Hancock Group of Funds,
Senior Vice President, Secretary and
Chief Legal Officer (prior to April
2005)
Susan A. Pereira(3) Assistant July 2005 Massachusetts Financial Services
(born 11/05/70) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since June 2004); Bingham
McCutchen LLP (law firm), Associate
(January 2001 to June 2004); Preti,
Flaherty, Beliveau, Pachios & Haley,
LLC, Associate (prior to January 2001)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting services),
Executive Vice President (April 2003 to
June 2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative Officer
and Director (February
1997 to March 2003)
James O. Yost(3) Assistant September 1990 Massachusetts Financial Services
(born 06/12/60) Treasurer Company, Senior Vice President
- ------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(3) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940 (referred to as
the 1940 Act), which is the principal federal law governing investment companies like the fund, as a
result of position with MFS. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.
Each Trustee has been elected by shareholders and each Trustee and officer holds office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal.
Messrs. Ives and Sherratt and Mses. Lane and Thomsen are members of the Trust's Audit Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor, and, in the case of the officers, with certain
affiliates of MFS. As of December 31, 2004, each Trustee served as a board member of 99 funds within the MFS
Family of Funds.
The Trust held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five
years thereafter, to elect Trustees.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -----------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 02116-3741 200 Clarendon Street, Boston, MA 02116
PORTFOLIO MANAGER
Stephen Pesek
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of Trustees
and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment advisory
agreement with MFS. The Trustees consider matters bearing on the Fund and its
advisory arrangements at their meetings throughout the year, including a review
of performance data at each regular meeting. In addition, the independent
Trustees met several times over the course of three months beginning in May and
ending in July, 2005 ("contract review meetings") for the specific purpose of
considering whether to approve the continuation of the investment advisory
agreement for the Fund and the other investment companies that the Board
oversees (the "MFS Funds"). The independent Trustees were assisted in their
evaluation of the Fund's investment advisory agreement by independent legal
counsel, from whom they received separate legal advice and with whom they met
separately from MFS during various contract review meetings. The independent
Trustees were also assisted in this process by the MFS Funds' Independent Chief
Compliance Officer, a full-time senior officer appointed by and reporting to the
independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent Trustees,
considered such information and factors as they believed, in light of the legal
advice furnished to them and their own business judgment, to be relevant. The
investment advisory agreement for the Fund was considered separately, although
the Trustees also took into account the common interests of all MFS Funds in
their review. As described below, the Trustees considered the nature, quality,
and extent of the various investment advisory, administrative, and shareholder
services performed by MFS under the existing investment advisory agreement and
other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2004 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a group
of funds identified by objective criteria suggested by MFS ("peer funds"), (ii)
information provided by Lipper Inc. on the Fund's advisory fees and other
expenses and the advisory fees and other expenses of comparable funds identified
by Lipper (the "Lipper expense group"), as well as the advisory fees and other
expenses of peer funds identified by objective criteria suggested by MFS, (iii)
information provided by MFS on the advisory fees of comparable portfolios of
other clients of MFS, including institutional separate account and other
clients, (iv) information as to whether and to what extent applicable expense
waivers, reimbursements or fee "breakpoints" are observed for the Fund, (v)
information regarding MFS' financial results and financial condition, including
MFS' and certain of its affiliates' estimated profitability from services
performed for the Fund and the MFS Funds as a whole, (vi) MFS' views regarding
the outlook for the mutual fund industry and the strategic business plans of
MFS, (vii) descriptions of various functions performed by MFS for the Funds,
such as compliance monitoring and portfolio trading practices, and (viii)
information regarding the overall organization of MFS, including information
about MFS' senior management and other personnel providing investment advisory,
administrative and other services to the Fund and the other MFS Funds. The
comparative performance, fee and expense information prepared and provided by
Lipper Inc. was not independently verified and the independent Trustees did not
independently verify any information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information provided
to the Trustees and not the result of any single factor. Some of the factors
that figured particularly in the Trustees' deliberations are described below,
although individual Trustees may have evaluated the information presented
differently from one another, giving different weights to various factors. It is
also important to recognize that the fee arrangements for the Fund and other MFS
Funds are the result of years of review and discussion between the independent
Trustees and MFS, that certain aspects of such arrangements may receive greater
scrutiny in some years than others, and that the Trustees' conclusions may be
based, in part, on their consideration of these same arrangements during the
course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed the
Fund's total return investment performance as well as the performance of peer
groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2004, which the Trustees believed was a
long enough period to reflect differing market conditions. The Fund's
performance was in the 62nd percentile relative to the other funds in the
universe for this three-year period (the 1st percentile being the best
performers and the 100th percentile being the worst performers). The total
return performance of the Fund's Class A shares was in the 20th percentile
for the one-year period and the 34th percentile for the five-year period
ended December 31, 2004 relative to the Lipper performance universe. Because of
the passage of time, these performance results are likely to differ from the
performance results for more recent periods, including those shown elsewhere in
this report.
In the course of their deliberations, the Trustees took into account information
provided by MFS in connection with the contract review meetings, as well as
during investment review meetings conducted with portfolio management personnel
during the course of the year, as to MFS' efforts to improve the Fund's
performance. After reviewing these and related factors, the Trustees concluded,
within the context of their overall conclusions regarding the investment
advisory agreement, that they were satisfied with MFS' responses and efforts
relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average net assets
and the advisory fee and total expense ratios of peer groups of funds based on
information provided by Lipper Inc. and MFS. The Trustees considered whether the
Fund was subject to any fee waivers or reductions or expense limitations. The
Trustees also considered that, according to the Lipper data, the Fund's
effective advisory fee rate and total expense ratio were each approximately at
the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the Fund
in comparison to institutional accounts, the higher demands placed on MFS'
investment personnel and trading infrastructure as a result of the daily cash
in-flows and out-flows of the Fund, and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is not
currently subject to any breakpoints. Taking into account fee waivers or
reductions or expense reductions, if any, the Trustees determined not to
recommend any advisory fee breakpoints for the Fund at this time.
The Trustees also considered information prepared by MFS relating to MFS' costs
and profits with respect to the Fund, the MFS Funds considered as a group, and
other investment companies and accounts advised by MFS, as well as MFS'
methodologies used to determine and allocate its costs to the MFS Funds, the
Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the financial
services industry, including the entry into the industry of large and
well-capitalized companies which are spending, and appear to be prepared to
continue to spend, substantial sums to engage personnel and to provide services
to competing investment companies. In this regard, the Trustees also considered
the financial resources of MFS and its ultimate parent, Sun Life Financial Inc.
The Trustees also considered the advantages and possible disadvantages to the
Fund of having an adviser which also serves other investment companies as well
as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the Fund
by MFS and its affiliates under agreements and plans other than the investment
advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund
Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for research and other similar services
(including MFS' general policy to pay directly for third-party research), and
various other factors. Additionally, the Trustees considered so-called "fall-
out benefits" to MFS such as reputational value derived from serving as
investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material, including
those factors described above, the Board of Trustees, including a majority of
the independent Trustees, concluded that the Fund's investment advisory
agreement with MFS should be continued for an additional one-year period,
commencing August 1, 2005.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement will be available on or before December 1, 2005 by
clicking on the fund's name under "Select a fund" on the MFS website (mfs.com).
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 Proxy Voting 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.
FEDERAL TAX INFORMATION (unaudited)
In January 2006, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2005.
CONTACT INFORMATION
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
- --------------------------------------------------------------------------------
Share 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-ANN-10/05 86M
MFS(R) NEW DISCOVERY FUND 8/31/05
ANNUAL REPORT
- --------------------------------------------------------------------------
LETTER FROM THE CEO 1
- ---------------------------------------------------
PORTFOLIO COMPOSITION 2
- ---------------------------------------------------
MANAGEMENT REVIEW 3
- ---------------------------------------------------
PERFORMANCE SUMMARY 5
- ---------------------------------------------------
EXPENSE TABLE 8
- ---------------------------------------------------
PORTFOLIO OF INVESTMENTS 10
- ---------------------------------------------------
FINANCIAL STATEMENTS 16
- ---------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 29
- ---------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 38
- ---------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 39
- ---------------------------------------------------
TRUSTEES AND OFFICERS 40
- ---------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 45
- ---------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 49
- ---------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 49
- ---------------------------------------------------
FEDERAL TAX INFORMATION 49
- ---------------------------------------------------
CONTACT INFORMATION BACK COVER
- ---------------------------------------------------
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.
M F S(SM)
INVESTMENT MANAGEMENT(R)
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders,
Most investors are familiar with the basic principles of investing - focus on
the long term and keep your assets diversified across different investment
categories. Still, it is surprising how often we forget these basic lessons.
Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s
had many people hoping they could become millionaires overnight. But the
market decline that started in the spring of 2000 taught everyone how
misguided those hopes had been.
Now, less than five years after the market taught a harsh lesson in the
follies of speculative investing, we are seeing a number of trends that
suggest many investors, including professionals, are hoping for overnight
miracles again. We see a steady stream of market "gurus" on television news
shows, promising to teach amateur investors the strategies that will allow
them to get rich quick. Hedge funds - which by their nature move in and out of
investments rapidly - have soared in popularity over the past five years. We
are reminded every day that we live in a "what have you done for me lately?"
world, but this mindset should not influence how we invest and manage our
money. In fact, investors often fall short of their goals because they trade
in and out of investments too frequently and at inopportune times.
Throughout our entire 80-year history, MFS' money management process has
focused on long-term investment opportunities. We firmly believe that one of
the best ways to realize long-term financial goals - be it a college
education, a comfortable retirement, or a secure family legacy - is to follow
a three-pronged approach that focuses on longer time horizons. Allocate
holdings across the major asset classes - including stocks, bonds, and cash.
Diversify within each class to take advantage of different market segments and
investing styles. And rebalance assets regularly to maintain a desired asset
allocation.*
This long-term approach requires diligence and patience, two traits that in
our experience are essential to capitalizing on the many opportunities the
financial markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 17, 2005
* Asset allocation, diversification, and rebalancing does not guarantee a
profit or protect against a loss. The opinions expressed in this letter are
those of MFS, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 99.9%
Cash & Other Net Assets 0.1%
TOP TEN HOLDINGS
Aspect Medical Systems, Inc. 2.5%
------------------------------------------------
Cognex Corp. 2.1%
------------------------------------------------
TIBCO Software, Inc. 2.0%
------------------------------------------------
Strayer Education, Inc. 1.8%
------------------------------------------------
MSC Industrial Direct Co., Inc., "A" 1.8%
------------------------------------------------
Activision, Inc. 1.8%
------------------------------------------------
MicroStrategy, Inc., "A" 1.8%
------------------------------------------------
Medicis Pharmaceutical Corp., "A" 1.7%
------------------------------------------------
THQ, Inc. 1.6%
------------------------------------------------
Cytyc Corp. 1.6%
------------------------------------------------
EQUITY SECTORS
Health Care 26.3%
------------------------------------------------
Technology 21.3%
------------------------------------------------
Special Products & Services 14.3%
------------------------------------------------
Leisure 9.8%
------------------------------------------------
Industrial Goods & Services 8.6%
------------------------------------------------
Retailing 6.9%
------------------------------------------------
Financial Services 6.7%
------------------------------------------------
Basic Materials 2.4%
------------------------------------------------
Autos & Housing 2.1%
------------------------------------------------
Consumer Staples 1.3%
------------------------------------------------
Energy 0.2%
------------------------------------------------
Percentages are based on net assets as of 8/31/05.
The portfolio is actively managed, and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2005, Class A shares of the MFS New
Discovery Fund had a total return of 24.54%, at net asset value. In comparison,
the fund's benchmark, the Russell 2000 Growth Index, returned 23.51%.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the health care, industrial goods and services, and leisure
sectors aided relative performance over the reporting period. Several health
care positions were among the fund's top contributors which included medical
equipment companies Aspect Medical Systems, Ventana Medical Systems, FoxHollow
Technologies*, and Thoratec.
Within the leisure sector, our holdings in video game makers THQ and
Activision, which is not a benchmark constituent, and slot machine manufacturer
WMS Industries* benefited performance as each had strong gains over the period.
Although security selection in industrial goods and services significantly
contributed to relative results, no individual holdings were among the fund's
greatest contributors.
Other securities that positively impacted relative results included business
software firm MicroStrategy, Internet software company Macromedia*, which is
not held in the benchmark, and urban fashion apparel chain Citi Trends.
DETRACTORS FROM PERFORMANCE
Energy, special products and services, and consumer staples were the greatest
detracting sectors during the reporting period. For energy, our underweighted
position in the strong-performing sector and, to a lesser extent, security
selection hurt relative performance.
Security selection in the special products and services sector also hurt
relative results. Within this sector, our positions in relocation services
company SIRVA and market research firm Harris Interactive detracted from
performance as both stocks underperformed the benchmark. Stock selection in
the consumer staples sector was also a drag on performance with frozen foods
manufacturer CoolBrands*, which is not a benchmark constituent, among the top
detractors.
Elsewhere, our positioning in business to business and e-commerce software
vendor Ariba*, semiconductor firm Silicon Laboratories*, dermatological
pharmaceutical company Medicis Pharmaceuticals, and media company Gemstar-TV
Guide* hindered results. Additionally, our holdings in chip makers AudioCodes*
and Zarlink Semiconductor*, neither of which are benchmark constituents,
significantly detracted as both stocks declined over the period.
The fund's cash position was also a detractor from relative performance. As
with nearly all mutual funds, this portfolio holds cash to buy new holdings
and to provide liquidity. In a period when equity markets rose as measured by
the primary benchmark, holding cash hurt performance versus our benchmark,
which has no cash position.
* Security was not held in the portfolio at period-end.
Respectfully,
Thomas Wetherald
Portfolio Manager
Note to Shareholders: Effective May 1, 2005, Thomas H. Wetherald became the
sole portfolio manager of the fund. Previously, Camille H. Lee had co-managed
the fund with Mr. Wetherald.
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
PERFORMANCE SUMMARY THROUGH 8/31/05
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR CLASS 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
January 2, 1997, through August 31, 2005. Index information is from January 1,
1997.)
MFS New Discovery Russell 2000
Fund -- Class A Growth Index
1/97 $ 9,425 $10,000
8/97 12,318 11,394
8/98 11,718 8,396
8/99 16,222 12,033
8/00 28,653 16,734
8/01 22,242 10,887
8/02 16,493 8,054
8/03 20,042 10,865
8/04 18,611 11,232
8/05 23,178 13,873
TOTAL RETURNS THROUGH 8/31/05
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr Life*
- -----------------------------------------------------------------------------
A 1/02/97 24.54% -4.15% 10.95%
- -----------------------------------------------------------------------------
B 11/03/97 23.76% -4.78% 10.31%
- -----------------------------------------------------------------------------
C 11/03/97 23.82% -4.78% 10.32%
- -----------------------------------------------------------------------------
I 1/02/97 24.98% -3.81% 11.34%
- -----------------------------------------------------------------------------
R** 12/31/02 24.37% -4.22% 10.90%
- -----------------------------------------------------------------------------
R1 4/01/05 24.04% -4.23% 10.90%
- -----------------------------------------------------------------------------
R2 4/01/05 24.12% -4.22% 10.91%
- -----------------------------------------------------------------------------
R3** 10/31/03 24.13% -4.29% 10.86%
- -----------------------------------------------------------------------------
R4 4/01/05 24.46% -4.16% 10.94%
- -----------------------------------------------------------------------------
R5 4/01/05 24.61% -4.14% 10.96%
- -----------------------------------------------------------------------------
529A 7/31/02 24.20% -4.29% 10.86%
- -----------------------------------------------------------------------------
529B 7/31/02 23.43% -4.67% 10.60%
- -----------------------------------------------------------------------------
529C 7/31/02 23.41% -4.69% 10.59%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmarks
- -----------------------------------------------------------------------------
Average small-cap growth fund+ 24.16% -3.48% 7.42%
- -----------------------------------------------------------------------------
Russell 2000 Growth Index# 23.51% -3.68% 3.85%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -----------------------------------------------------------------------------
A 17.38% -5.28% 10.19%
- -----------------------------------------------------------------------------
B 19.76% -5.10% 10.31%
- -----------------------------------------------------------------------------
C 22.82% -4.78% 10.32%
- -----------------------------------------------------------------------------
529A 17.06% -5.42% 10.10%
- -----------------------------------------------------------------------------
529B 19.43% -4.98% 10.60%
- -----------------------------------------------------------------------------
529C 22.41% -4.69% 10.59%
- -----------------------------------------------------------------------------
Class I, R, R1, R2, R3, R4, and R5 shares do not have a sales charge. Please
see Notes to Performance Summary for more details.
* For the period from the commencement of the fund's investment operations,
January 2, 1997, through August 31, 2005. Index information is from January
1, 1997.
** Effective April 1, 2005, Class R1 shares have been renamed "Class R
shares" and Class R2 shares have been renamed "Class R3 shares."
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
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 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 R
shares have no initial sales charge or CDSC and are available only to existing
Class R shareholders. Class I, R1, R2, R3, R4, and R5 shares have no initial
sales charge or CDSC. Class I shares are only available to certain eligible
investors, and Class R1, R2, R3, R4, and R5 shares are only available to
certain retirement plans. Class 529 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.
EXPENSE TABLE
FUND EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
MARCH 1, 2005 THROUGH AUGUST 31, 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 March 1, 2005 through
August 31, 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.
- --------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 3/01/05-
Share Class Ratio 3/01/05 8/31/05 8/31/05
- --------------------------------------------------------------------------------
Actual 1.47% $1,000.00 $1,077.40 $ 7.70
A ---------------------------------------------------------------------
Hypothetical* 1.47% $1,000.00 $1,017.80 $ 7.48
- --------------------------------------------------------------------------------
Actual 2.12% $1,000.00 $1,074.30 $11.08
B ----------------------------------------------------------------------
Hypothetical* 2.12% $1,000.00 $1,014.52 $10.76
- --------------------------------------------------------------------------------
Actual 2.12% $1,000.00 $1,074.20 $11.08
C ---------------------------------------------------------------------
Hypothetical* 2.12% $1,000.00 $1,014.52 $10.76
- --------------------------------------------------------------------------------
Actual 1.14% $1,000.00 $1,079.20 $ 5.97
I ---------------------------------------------------------------------
Hypothetical* 1.14% $1,000.00 $1,019.46 $ 5.80
- --------------------------------------------------------------------------------
R Actual 1.62% $1,000.00 $1,077.00 $ 8.48
(formerly ---------------------------------------------------------------------
R1) Hypothetical* 1.62% $1,000.00 $1,017.04 $ 8.24
- --------------------------------------------------------------------------------
Actual 2.34% $1,000.00 $1,073.10 $12.23
R1 ---------------------------------------------------------------------
Hypothetical* 2.34% $1,000.00 $1,013.41 $11.88
- --------------------------------------------------------------------------------
Actual 2.04% $1,000.00 $1,073.70 $10.66
R2 ---------------------------------------------------------------------
Hypothetical* 2.04% $1,000.00 $1,014.92 $10.36
- --------------------------------------------------------------------------------
R3 Actual 1.87% $1,000.00 $1,075.20 $ 9.78
(formerly ---------------------------------------------------------------------
R2) Hypothetical* 1.87% $1,000.00 $1,015.78 $ 9.50
- --------------------------------------------------------------------------------
Actual 1.55% $1,000.00 $1,076.70 $ 8.11
R4 ---------------------------------------------------------------------
Hypothetical* 1.55% $1,000.00 $1,017.39 $ 7.88
- --------------------------------------------------------------------------------
Actual 1.24% $1,000.00 $1,078.00 $ 6.49
R5 ---------------------------------------------------------------------
Hypothetical* 1.24% $1,000.00 $1,018.95 $ 6.31
- --------------------------------------------------------------------------------
Actual 1.72% $1,000.00 $1,075.90 $ 9.00
529A ---------------------------------------------------------------------
Hypothetical* 1.72% $1,000.00 $1,016.53 $ 8.74
- --------------------------------------------------------------------------------
Actual 2.37% $1,000.00 $1,072.00 $12.38
529B ---------------------------------------------------------------------
Hypothetical* 2.37% $1,000.00 $1,013.26 $12.03
- --------------------------------------------------------------------------------
Actual 2.37% $1,000.00 $1,072.00 $12.38
529C ---------------------------------------------------------------------
Hypothetical* 2.37% $1,000.00 $1,013.26 $12.03
- --------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, 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.
The Portfolio of Investments is a complete list of all securities owned by your fund.
It is categorized by broad-based asset classes.
Stocks - 99.9%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ---------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.5%
- ---------------------------------------------------------------------------------------------------
Columbia Sportswear Co.^* 47,440 $ 2,201,216
Maidenform Brands, Inc.* 162,090 2,674,485
--------------
$ 4,875,701
- ---------------------------------------------------------------------------------------------------
Banks & Credit Companies - 4.9%
- ---------------------------------------------------------------------------------------------------
BankUnited Financial Corp., "A"^ 229,810 $ 5,423,516
Collegiate Funding Services, Inc.^* 329,118 4,900,567
FirstCity Financial Corp.^* 131,660 1,468,009
Intervest Bancshares Corp.^* 68,780 1,471,204
Investors Financial Services Corp.^ 259,000 9,096,080
MetroCorp Bancshares, Inc. 71,015 1,679,505
Nelnet, Inc., "A"* 15,900 569,220
New York Community Bancorp, Inc. 167,000 2,935,860
Signature Bank* 441,200 13,231,588
Sterling Bancshares, Inc.^ 558,920 8,378,211
--------------
$ 49,153,760
- ---------------------------------------------------------------------------------------------------
Biotechnology - 3.9%
- ---------------------------------------------------------------------------------------------------
Advanced Life Sciences Holdings* 309,200 $ 1,620,208
Affymetrix, Inc.^* 121,480 6,012,045
Applera Corp.* 402,260 4,722,532
CV Therapeutics, Inc.^* 183,980 4,998,737
Cypress Bioscience, Inc.^* 74,090 1,019,478
Encysive Pharmaceuticals, Inc.^* 352,220 4,360,484
Gen-Probe, Inc.* 197,090 8,971,537
Keryx Biopharmaceuticals, Inc.^* 150,970 2,530,257
Neurochem, Inc.^* 147,370 1,680,018
Vertex Pharmaceuticals, Inc.* 168,540 3,101,136
--------------
$ 39,016,432
- ---------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 1.9%
- ---------------------------------------------------------------------------------------------------
ADVO, Inc.^ 142,180 $ 4,654,973
R.H. Donnelley Corp.* 115,022 7,394,764
Radio One, Inc., "A"* 517,490 7,286,259
--------------
$ 19,335,996
- ---------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.0%
- ---------------------------------------------------------------------------------------------------
Affiliated Managers Group, Inc.^* 50,090 $ 3,637,035
Janus Capital Group, Inc.^ 226,010 3,193,521
MarketAxess Holdings, Inc.^* 322,920 3,613,475
--------------
$ 10,444,031
- ---------------------------------------------------------------------------------------------------
Business Services - 11.5%
- ---------------------------------------------------------------------------------------------------
Alliance Data Systems Corp.^* 162,230 $ 6,825,016
Bright Horizons Family Solutions, Inc.^* 180,170 7,084,284
Concur Technologies, Inc.^* 396,340 4,696,629
Corporate Executive Board Co.^ 102,770 8,300,733
CoStar Group, Inc.^* 203,390 9,510,516
Euronet Worldwide, Inc.^* 258,100 7,231,962
Getty Images, Inc.^* 64,840 5,549,656
Harris Interactive, Inc.* 1,708,570 7,175,994
Heartland Payment Systems, Inc.* 250,530 6,358,451
Hewitt Associates, Inc., "A"^* 268,300 7,780,700
SIRVA, Inc.^* 953,990 9,625,759
Stamps.com, Inc.^* 137,040 2,377,644
Ultimate Software Group, Inc.^* 622,610 11,362,633
Universal Technical Institute, Inc.* 368,920 11,809,129
Wright Express Corp.* 411,540 9,053,880
--------------
$ 114,742,986
- ---------------------------------------------------------------------------------------------------
Chemicals - 0.9%
- ---------------------------------------------------------------------------------------------------
Nalco Holding Co.^* 290,400 $ 5,314,320
UAP Holding Corp.^ 212,770 3,651,133
--------------
$ 8,965,453
- ---------------------------------------------------------------------------------------------------
Computer Software - 7.6%
- ---------------------------------------------------------------------------------------------------
Kronos, Inc.^* 170,090 $ 7,370,000
MicroStrategy, Inc., "A"^* 226,280 17,423,560
NAVTEQ Corp.^* 168,920 7,861,537
Open Solutions, Inc.^* 552,190 12,468,450
Opsware, Inc.^* 2,240,170 10,349,585
TIBCO Software, Inc.^* 2,652,300 20,263,572
--------------
$ 75,736,704
- ---------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.3%
- ---------------------------------------------------------------------------------------------------
National Instruments Corp.^ 445,620 $ 12,651,152
- ---------------------------------------------------------------------------------------------------
Construction - 1.3%
- ---------------------------------------------------------------------------------------------------
BlueLinx Holdings, Inc.^ 861,220 $ 9,714,562
Trex Co., Inc.^* 154,100 3,715,351
--------------
$ 13,429,913
- ---------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.8%
- ---------------------------------------------------------------------------------------------------
Career Education Corp.^* 108,280 $ 4,244,576
Corinthian Colleges, Inc.^* 267,797 3,395,666
PlanetOut, Inc.^* 214,130 1,772,996
Strayer Education, Inc.^ 182,280 18,395,698
--------------
$ 27,808,936
- ---------------------------------------------------------------------------------------------------
Containers - 0.6%
- ---------------------------------------------------------------------------------------------------
Sealed Air Corp.^* 118,600 $ 6,018,950
- ---------------------------------------------------------------------------------------------------
Electrical Equipment - 4.0%
- ---------------------------------------------------------------------------------------------------
Dionex Corp.^* 233,170 $ 12,288,059
Littelfuse, Inc.^* 319,740 8,895,167
MSC Industrial Direct Co., Inc., "A"^ 519,870 18,195,450
--------------
$ 39,378,676
- ---------------------------------------------------------------------------------------------------
Electronics - 10.0%
- ---------------------------------------------------------------------------------------------------
American Superconductor Corp.^* 653,020 $ 6,660,804
Amphenol Corp., "A" 117,780 4,995,050
Applied Films Corp.^* 678,530 15,355,134
ARM Holdings PLC 3,641,300 7,581,685
Dolby Laboratories, Inc., "A"* 5,590 89,440
DSP Group, Inc.^* 526,894 13,419,990
DTS, Inc.^* 139,110 2,549,886
Entegris, Inc.* 680,266 7,122,385
FormFactor, Inc.^* 336,130 9,132,652
Lipman Electronic Engineering Ltd.* 217,552 6,946,435
PMC-Sierra, Inc.^* 1,201,090 10,185,243
SanDisk Corp.^* 238,400 9,257,072
Stratasys, Inc.^* 44,400 1,257,852
Volterra Semiconductor Corp.^* 417,990 4,999,160
--------------
$ 99,552,788
- ---------------------------------------------------------------------------------------------------
Energy - Independent - 0.2%
- ---------------------------------------------------------------------------------------------------
Evergreen Solar, Inc.^* 321,080 $ 2,263,614
- ---------------------------------------------------------------------------------------------------
Engineering - Construction - 2.5%
- ---------------------------------------------------------------------------------------------------
InfraSource Services, Inc.^* 901,060 $ 13,515,900
Quanta Services, Inc.^* 918,400 11,020,800
--------------
$ 24,536,700
- ---------------------------------------------------------------------------------------------------
Entertainment - 1.0%
- ---------------------------------------------------------------------------------------------------
DreamWorks Animation, Inc., "A"^* 381,900 $ 9,937,038
- ---------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 1.3%
- ---------------------------------------------------------------------------------------------------
Diamond Foods, Inc.^* 362,290 $ 7,256,669
Reddy Ice Holdings, Inc. 252,830 5,483,883
--------------
$ 12,740,552
- ---------------------------------------------------------------------------------------------------
Furniture & Appliances - 0.8%
- ---------------------------------------------------------------------------------------------------
Tempur-Pedic International, Inc.* 480,030 $ 7,714,082
- ---------------------------------------------------------------------------------------------------
General Merchandise - 0.4%
- ---------------------------------------------------------------------------------------------------
99 Cents Only Stores^* 336,910 $ 3,554,401
- ---------------------------------------------------------------------------------------------------
Insurance - 0.3%
- ---------------------------------------------------------------------------------------------------
Republic Cos. Group, Inc.^* 185,170 $ 2,527,571
- ---------------------------------------------------------------------------------------------------
Leisure & Toys - 4.5%
- ---------------------------------------------------------------------------------------------------
Activision, Inc.^* 785,670 $ 17,559,725
Take-Two Interactive Software, Inc.^* 254,040 6,046,152
THQ, Inc.^* 479,390 16,112,298
Ubisoft Entertainment S.A.* 92,260 4,748,541
--------------
$ 44,466,716
- ---------------------------------------------------------------------------------------------------
Machinery & Tools - 2.1%
- ---------------------------------------------------------------------------------------------------
Cognex Corp.^ 719,510 $ 21,405,423
- ---------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.8%
- ---------------------------------------------------------------------------------------------------
Allion Healthcare, Inc.* 406,530 $ 7,321,605
Allscripts Healthcare Solutions, Inc.^* 99,410 1,767,510
Cerner Corp.^* 62,960 4,958,730
Healthcare Services Group, Inc.^ 194,500 3,588,525
--------------
$ 17,636,370
- ---------------------------------------------------------------------------------------------------
Medical Equipment - 16.9%
- ---------------------------------------------------------------------------------------------------
Adams Respiratory Therapeutics^* 209,210 $ 7,079,666
Adeza Biomedical Corp.^* 224,000 3,852,800
Align Technology, Inc.^* 670,810 4,568,216
Aspect Medical Systems, Inc.^* 803,010 24,379,384
Atricure, Inc.* 450,430 6,125,848
Conceptus, Inc.^* 1,300,330 13,627,458
Cyberonics, Inc.^* 153,240 5,866,027
Cytyc Corp.^* 641,595 16,007,795
DJ Orthopedics, Inc.^* 217,830 6,044,783
Fisher Scientific International, Inc.^* 91,960 5,929,581
IDEXX Laboratories, Inc.^* 184,495 11,815,060
Immucor, Inc.* 148,600 3,517,362
Merit Medical Systems, Inc.^* 413,000 7,215,110
Millipore Corp.^* 193,190 12,354,501
MWI Veterinary Supply, Inc.* 370,240 7,960,160
NeuroMetrix, Inc.^* 304,900 8,491,465
ResMed, Inc.^* 77,500 5,606,350
Thoratec Corp.^* 764,750 12,518,957
Ventana Medical Systems, Inc.^* 111,470 4,513,420
VNUS Medical Technologies, Inc.^* 72,941 743,998
--------------
$ 168,217,941
- ---------------------------------------------------------------------------------------------------
Metals & Mining - 0.9%
- ---------------------------------------------------------------------------------------------------
Aber Diamond Corp.^ 252,750 $ 8,590,973
- ---------------------------------------------------------------------------------------------------
Network & Telecom - 1.1%
- ---------------------------------------------------------------------------------------------------
Foundry Networks, Inc.* 538,800 $ 6,303,960
NeuStar, Inc., "A"* 155,040 4,265,150
--------------
$ 10,569,110
- ---------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.3%
- ---------------------------------------------------------------------------------------------------
ScanSoft, Inc.^* 1,782,029 $ 8,785,403
Zebra Technologies Corp., "A"^* 115,720 4,323,299
--------------
$ 13,108,702
- ---------------------------------------------------------------------------------------------------
Pharmaceuticals - 3.7%
- ---------------------------------------------------------------------------------------------------
Auxilium Pharmaceuticals, Inc.^* 587,712 $ 3,349,958
Endo Pharmaceuticals Holdings, Inc.^* 212,120 6,363,600
Inspire Pharmaceuticals, Inc.^* 342,530 3,065,644
Medicis Pharmaceutical Corp., "A"^ 496,670 16,891,747
NitroMed, Inc.^* 191,800 3,617,348
PRA International* 133,750 3,932,250
--------------
$ 37,220,547
- ---------------------------------------------------------------------------------------------------
Printing & Publishing - 0.3%
- ---------------------------------------------------------------------------------------------------
Playboy Enterprises, Inc., "B"^* 212,330 $ 2,879,195
- ---------------------------------------------------------------------------------------------------
Real Estate - 0.5%
- ---------------------------------------------------------------------------------------------------
CB Richard Ellis Group, Inc., "A"* 95,420 $ 4,652,679
- ---------------------------------------------------------------------------------------------------
Restaurants - 2.1%
- ---------------------------------------------------------------------------------------------------
P.F. Chang's China Bistro, Inc.^* 203,250 $ 10,402,335
Red Robin Gourmet Burgers, Inc.^* 221,200 10,635,296
--------------
$ 21,037,631
- ---------------------------------------------------------------------------------------------------
Specialty Stores - 6.0%
- ---------------------------------------------------------------------------------------------------
A.C. Moore Arts & Crafts, Inc.^* 469,160 $ 10,678,082
Aeropostale, Inc.^* 333,800 8,525,252
Audible, Inc.^* 273,700 3,284,400
CarMax, Inc.^* 184,700 5,884,542
Celebrate Express, Inc.* 109,200 1,401,036
Citi Trends, Inc.* 164,160 4,463,510
Hot Topic, Inc.^* 362,200 5,614,100
Restoration Hardware, Inc.^* 381,060 2,720,768
Sharper Image Corp.^* 366,180 4,921,459
Tuesday Morning Corp.^ 304,790 8,820,623
West Marine, Inc.^* 182,420 3,396,660
--------------
$ 59,710,432
- ---------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $910,334,764) $ 993,881,155
- ---------------------------------------------------------------------------------------------------
Portfolio of Investments - continued
Short-Term Obligation - 0.5%
- ---------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ---------------------------------------------------------------------------------------------------
General Electric Capital Corp., 3.58%, due 9/01/05,
at Amortized Cost< $ 4,812,000 $ 4,812,000
- ---------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 23.5%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ---------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 233,872,635 $ 233,872,635
- ---------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,149,019,399)(S) $1,232,565,790
- ---------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (23.9)% (237,774,908)
- ---------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 994,790,882
- ---------------------------------------------------------------------------------------------------
* 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.
(S) As of August 31, 2005, the fund had two securities representing $12,330,226 and 1.2%
of net assets that were fair valued in accordance with the policies adopted by the
Board of Trustees.
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 the fund.
AT 8/31/05
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $228,028,781 of securities
on loan (identified cost, $1,149,019,399) $1,232,565,790
Cash 1,708,258
Receivable for investments sold 12,071,555
Receivable for fund shares sold 782,795
Interest and dividends receivable 112,829
Other assets 274
- -------------------------------------------------------------------------------------------------------
Total assets $1,247,241,501
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $15,065,689
Payable for fund shares reacquired 2,934,657
Collateral for securities loaned, at value 233,872,635
Payable to affiliates
Management fee 21,495
Shareholder servicing costs 356,165
Distribution and service fees 12,787
Administrative services fee 760
Program manager fees 15
Retirement plan administration and services fees 16
Accrued expenses and other liabilities 186,400
- -------------------------------------------------------------------------------------------------------
Total liabilities $252,450,619
- -------------------------------------------------------------------------------------------------------
Net assets $994,790,882
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in capital $1,182,067,058
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 83,546,565
Accumulated net realized gain (loss) on investments and
foreign currency transactions (270,810,005)
Accumulated net investment loss (12,736)
- -------------------------------------------------------------------------------------------------------
Net assets $994,790,882
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 59,500,945
- -------------------------------------------------------------------------------------------------------
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $603,395,659
Shares outstanding 35,811,266
- -------------------------------------------------------------------------------------------------------
Net asset value per share $16.85
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$16.85) $17.88
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $203,721,513
Shares outstanding 12,577,519
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.20
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $58,454,010
Shares outstanding 3,604,293
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.22
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $107,841,915
Shares outstanding 6,231,683
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $17.31
- -------------------------------------------------------------------------------------------------------
Class R shares (formerly Class R1)
- -------------------------------------------------------------------------------------------------------
Net assets $16,925,562
Shares outstanding 1,008,262
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.79
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $205,960
Shares outstanding 12,729
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.18
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $135,461
Shares outstanding 8,365
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.19
- -------------------------------------------------------------------------------------------------------
Class R3 shares (formerly Class R2)
- -------------------------------------------------------------------------------------------------------
Net assets $1,572,810
Shares outstanding 94,048
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.72
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $333,625
Shares outstanding 19,816
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.84
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $56,055
Shares outstanding 3,325
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.86
- -------------------------------------------------------------------------------------------------------
Class 529A shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,637,349
Shares outstanding 97,863
- -------------------------------------------------------------------------------------------------------
Net asset value per share $16.73
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$16.73) $17.75
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class 529B shares
- -------------------------------------------------------------------------------------------------------
Net assets $177,490
Shares outstanding 11,044
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.07
- -------------------------------------------------------------------------------------------------------
Class 529C shares
- -------------------------------------------------------------------------------------------------------
Net assets $333,473
Shares outstanding 20,732
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.08
- -------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A and Class 529A shares are reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C,
Class 529B, and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Operations
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
YEAR ENDED 8/31/05
NET INVESTMENT LOSS
- ------------------------------------------------------------------------------------------------------
Income
Dividends $3,915,627
Income on securities loaned 547,819
Interest 146,136
Foreign taxes withheld (31,929)
- ------------------------------------------------------------------------------------------------------
Total investment income $4,577,653
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $9,969,091
Distribution and service fees 5,393,020
Program manager fees 4,086
Shareholder servicing costs 2,478,134
Administrative services fee 107,569
Retirement plan administration and services fees 2,689
Trustees' compensation 31,559
Custodian fee 312,073
Printing 94,816
Postage 59,344
Auditing fees 49,092
Legal fees 41,730
Shareholder solicitation expenses 95,210
Miscellaneous 331,476
- ------------------------------------------------------------------------------------------------------
Total expenses $18,969,889
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (127,078)
Reduction of expenses by investment adviser (1,110,472)
- ------------------------------------------------------------------------------------------------------
Net expenses $17,732,339
- ------------------------------------------------------------------------------------------------------
Net investment loss $(13,154,686)
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $148,967,926
Foreign currency transactions (52,072)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $148,915,854
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $113,723,563
Translation of assets and liabilities in foreign currencies 174
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $113,723,737
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $262,639,591
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $249,484,905
- ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statements of Changes in Net Assets
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder
transactions.
FOR YEARS ENDED 8/31 2005 2004
CHANGE IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment loss $(13,154,686) $(20,299,003)
Net realized gain (loss) on investments and foreign
currency transactions 148,915,854 210,953,469
Net unrealized gain (loss) on investments and foreign
currency translation 113,723,737 (288,980,394)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $249,484,905 $(98,325,928)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(489,681,518) $(120,252,572)
- -------------------------------------------------------------------------------------------------------
Redemption fees $12,723 $1,904
- -------------------------------------------------------------------------------------------------------
Total change in net assets $(240,183,890) $(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 $12,736 and $13,706, respectively) $994,790,882 $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 past 5 years (or,
if shorter, the period of the fund's operation). Certain information reflects financial results for a single fund share. The
total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund
(assuming reinvestment of all distributions) held for the entire period. This information has been audited by the fund's
independent registered public accounting firm, whose report, together with the fund's financial statements, are included in
this report.
CLASS A
YEARS ENDED 8/31
--------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of period $13.53 $14.57 $11.99 $16.17 $25.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.16) $(0.18) $(0.13) $(0.18) $(0.20)
Net realized and unrealized gain
(loss) on investments and foreign
currency 3.48 (0.86) 2.71 (4.00) (5.02)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.32 $(1.04) $2.58 $(4.18) $(5.22)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $(0.00)+++ $(3.53)
From paid-in capital -- -- -- -- (0.08)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $-- $-- $-- $(0.00)+++ $(3.61)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital# $0.00+++ $0.00+++ $-- $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.85 $13.53 $14.57 $11.99 $16.17
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 24.54*** (7.14)+*** 21.52 (25.85) (22.37)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.57 1.51 1.58 1.58 1.52
Expenses after expense reductions## 1.47 1.51 1.58 1.58 1.52
Net investment loss (1.05) (1.20) (1.11) (1.21) (1.06)
Portfolio turnover 112 122 104 102 49
Net assets at end of period
(000 Omitted) $603,396 $824,708 $1,004,473 $822,193 $1,050,554
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B
YEARS ENDED 8/31
------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of period $13.09 $14.19 $11.75 $15.95 $24.71
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.25) $(0.27) $(0.21) $(0.28) $(0.32)
Net realized and unrealized gain
(loss) on investments and foreign
currency 3.36 (0.83) 2.65 (3.92) (4.97)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.11 $(1.10) $2.44 $(4.20) $(5.29)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions $-- $-- $-- $(0.00)+++ $(3.39)
From paid-in capital -- -- -- -- (0.08)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $-- $-- $-- $(0.00)+++ $(3.47)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital# $0.00+++ $0.00+++ $-- $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.20 $13.09 $14.19 $11.75 $15.95
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 23.76*** (7.75)+*** 20.77 (26.33) (22.92)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.22 2.15 2.23 2.23 2.17
Expenses after expense reductions## 2.12 2.15 2.23 2.23 2.17
Net investment loss (1.70) (1.84) (1.76) (1.86) (1.70)
Portfolio turnover 112 122 104 102 49
Net assets at end of period
(000 Omitted) $203,722 $231,653 $271,580 $232,792 $352,886
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C
YEARS ENDED 8/31
--------------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of period $13.10 $14.21 $11.77 $15.97 $24.73
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.25) $(0.27) $(0.21) $(0.28) $(0.32)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.37 (0.84) 2.65 (3.92) (4.97)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.12 $(1.11) $2.44 $(4.20) $(5.29)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $-- $-- $-- $(0.00)+++ $(3.39)
From paid-in capital -- -- -- -- (0.08)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $-- $-- $-- $(0.00)+++ $(3.47)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.22 $13.10 $14.21 $11.77 $15.97
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 23.82*** (7.81)+*** 20.73 (26.34) (22.87)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.22 2.15 2.23 2.23 2.17
Expenses after expense reductions## 2.12 2.15 2.23 2.23 2.17
Net investment loss (1.70) (1.84) (1.76) (1.86) (1.70)
Portfolio turnover 112 122 104 102 49
Net assets at end of period
(000 Omitted) $58,454 $67,102 $84,391 $87,271 $136,530
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I
YEARS ENDED 8/31
-----------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of period $13.85 $14.86 $12.19 $16.37 $25.26
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.11) $(0.13) $(0.09) $(0.13) $(0.13)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.57 (0.88) 2.76 (4.05) (5.09)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.46 $(1.01) $2.67 $(4.18) $(5.22)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions $-- $-- $-- $(0.00)+++ $(3.59)
From paid-in capital -- -- -- -- (0.08)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $-- $-- $-- $(0.00)+++ $(3.67)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.31 $13.85 $14.86 $12.19 $16.37
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)& 24.98*** (6.80)+*** 21.90 (25.58) (22.09)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.23 1.16 1.23 1.23 1.17
Expenses after expense reductions## 1.13 1.16 1.23 1.23 1.17
Net investment loss (0.70) (0.84) (0.75) (0.86) (0.71)
Portfolio turnover 112 122 104 102 49
Net assets at end of period (000 Omitted) $107,842 $103,031 $90,872 $47,641 $52,121
- -----------------------------------------------------------------------------------------------------------------------------
CLASS R (FORMERLY CLASS R1)
YEARS ENDED 8/31
-----------------------------------------------
2005 2004 2003**
Net asset value, beginning of period $13.50 $14.57 $11.38###
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.18) $(0.20) $(0.11)
Net realized and unrealized gain (loss) on investments and
foreign currency 3.47 (0.87) 3.30
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.29 $(1.07) $3.19
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.79 $13.50 $14.57
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)& 24.37*** (7.34)+*** 28.03###++
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.73 1.66 1.78+
Expenses after expense reductions## 1.63 1.66 1.78+
Net investment loss (1.17) (1.32) (1.26)+
Portfolio turnover 112 122 104
Net assets at end of period (000 Omitted) $16,926 $7,262 $1,824
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 CLASS R2
YEAR ENDED YEAR ENDED
8/31/05** 8/31/05**
Net asset value, beginning of period $14.50 $14.50
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------
Net investment loss $(0.10) $(0.08)
Net realized and unrealized gain (loss) on investments and
foreign currency 1.78 1.77
- ----------------------------------------------------------------------------------------------------------
Total from investment operations $1.68 $1.69
- ----------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.18 $16.19
- ----------------------------------------------------------------------------------------------------------
Total return (%)& 11.59++*** 11.66++***
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.43+ 2.12+
Expenses after expense reductions## 2.33+ 2.02+
Net investment loss (1.69)+ (1.02)+
Portfolio turnover 112 112
Net assets at end of period (000 Omitted) $206 $135
- ----------------------------------------------------------------------------------------------------------
CLASS R3 (FORMERLY CLASS R2)
YEARS ENDED 8/31
--------------------------------
2005 2004**
Net asset value, beginning of period $13.47 $15.35###
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------
Net investment loss $(0.22) $(0.11)
Net realized and unrealized gain (loss) on investments and
foreign currency 3.47 (1.77)
- ----------------------------------------------------------------------------------------------------------
Total from investment operations $3.25 $(1.88)
- ----------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.72 $13.47
- ----------------------------------------------------------------------------------------------------------
Total return (%)& 24.13*** (12.25)###+++***
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.98 1.73+
Expenses after expense reductions## 1.88 1.73+
Net investment loss (1.42) (1.23)+
Portfolio turnover 112 122
Net assets at end of period (000 Omitted) $1,573 $454
- ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 CLASS R5
YEAR ENDED YEAR ENDED
8/31/05** 8/31/05**
Net asset value, beginning of period $15.04 $15.04
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.04) $(0.04)
Net realized and unrealized gain (loss) on investments and
foreign currency 1.84 1.86
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.80 $1.82
- -----------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.84 $16.86
- -----------------------------------------------------------------------------------------------------------------------
Total return (%)& 11.97++*** 12.10++***
- -----------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.63+ 1.32+
Expenses after expense reductions## 1.53+ 1.22+
Net investment loss (0.66)+ (0.67)+
Portfolio turnover 112 112
Net assets at end of period (000 Omitted) $334 $56
- -----------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
CLASS 529A
YEARS ENDED 8/31
------------------------------------------------------------
2005 2004 2003 2002**
Net asset value, beginning of period $13.47 $14.53 $11.99 $11.95###
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.20) $(0.21) $(0.16) $(0.01)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.46 (0.85) 2.70 0.05
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.26 $(1.06) $2.54 $0.04
- -----------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $--
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.73 $13.47 $14.53 $11.99
- -----------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 24.20*** (7.30)+*** 21.18 0.33###++
- -----------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.83 1.75 1.84 1.83+
Expenses after expense reductions## 1.73 1.75 1.84 1.83+
Net investment loss (1.27) (1.43) (1.35) (1.20)+
Portfolio turnover 112 122 104 102
Net assets at end of period (000 Omitted) $1,637 $390 $180 $10
- -----------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529B
YEARS ENDED 8/31
----------------------------------------------------------------
2005 2004 2003 2002**
Net asset value, beginning of period $13.02 $14.15 $11.75 $11.71###
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.28) $(0.30) $(0.24) $(0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.33 (0.83) 2.64 0.06
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.05 $(1.13) $2.40 $0.04
- -----------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $--
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.07 $13.02 $14.15 $11.75
- -----------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 23.43*** (7.99)+*** 20.43 0.34###++
- -----------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.47 2.40 2.49 2.48+
Expenses after expense reductions## 2.37 2.40 2.49 2.48+
Net investment loss (1.93) (2.07) (1.99) (1.87)+
Portfolio turnover 112 122 104 102
Net assets at end of period (000 Omitted) $177 $135 $84 $6
- -----------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C
YEARS ENDED 8/31
------------------------------------------------------------
2005 2004 2003 2002**
Net asset value, beginning of period $13.03 $14.16 $11.77 $11.73###
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.28) $(0.31) $(0.24) $(0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.33 (0.82) 2.63 0.06
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.05 $(1.13) $2.39 $0.04
- -----------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital# $0.00+++ $0.00+++ $-- $--
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.08 $13.03 $14.16 $11.77
- -----------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 23.41*** (7.98)+*** 20.31 0.34###++
- -----------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.47 2.40 2.50 2.48+
Expenses after expense reductions## 2.37 2.40 2.50 2.48+
Net investment loss (1.93) (2.08) (1.99) (1.88)+
Portfolio turnover 112 122 104 102
Net assets at end of period (000 Omitted) $333 $240 $147 $5
- -----------------------------------------------------------------------------------------------------------------------
** For the period from the class' inception, December 31, 2002 (Class R), July 31, 2002 (Classes 529A, 529B, and 529C),
October 31, 2003 (Class R3) and April 1, 2005 (Classes R1, R2, R4, and R5) through the stated period end.
*** Certain expenses have been reduced without which performance would have been lower.
+ 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 values and total returns previously reported as $11.43 and 27.47% (Class R), $15.23 and (11.56%)
(Class R3), $11.85 and 1.18% (Class 529A), $11.62 and 1.12% (Class 529B), and $11.64 and 1.12% (Class 529C),
respectively, have been revised to reflect the net asset value from the day prior to the class' inception date. The
net asset values and total returns previously reported were from inception date, the date the share classes were
first available to public shareholders.
+ 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. 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 any applicable sales charges.
& 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
(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 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.
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 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 did 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 did 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 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 year ended August 31, 2005, the fund's custodian fees
were reduced by $44,002 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For the year ended August 31, 2005, the fund's miscellaneous expenses
were reduced by $83,076 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, net operating losses, and wash
sales.
The fund paid no distributions for the years ended August 31, 2005 and August
31, 2004.
During the year ended August 31, 2005, accumulated net investment loss
decreased by $13,155,656, accumulated net realized loss on investments and
foreign currency transactions decreased by $52,072, and paid-in capital
decreased by $13,207,728 due to differences between book and tax accounting
for foreign currency transactions and net operating losses. This change had no
effect on the net assets or net asset value per share.
As of August 31, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(269,696,886)
Unrealized appreciation (depreciation) 82,433,272
Other temporary differences (12,562)
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 and Class
529B shares will convert to Class A and Class 529A shares, respectively,
approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.90%
of the fund's average daily net assets. The investment adviser has
contractually agreed to reduce its management fee to 0.80% for the first $1.5
billion of average daily net assets and 0.75% of average daily net assets in
excess of $1.5 billion. This management fee reduction amounted to $1,105,289,
which is shown as a reduction of total expenses in the Statement of
Operations. This reduction in the management fee may be rescinded by MFS only
with the approval of the fund's Board of Trustees. The management fee incurred
for the year ended August 31, 2005 was equivalent to an annual effective rate
of 0.80% of the fund's average daily net assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly owned subsidiary of
MFS, as distributor, received $52,764 and $1,062 for the year ended
August 31, 2005, as its portion of the initial sales charge on sales of Class
A and Class 529A shares of the fund, respectively.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to and retained by MFD. Another component of the
plan is a service fee paid to MFD which subsequently pays a portion of this
fee 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.
Distribution Fee Plan Table:
TOTAL ANNUAL SERVICE FEE DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE RETAINED AND SERVICE
FEE RATE FEE RATE PLAN(1) RATE(2) BY MFD(3) FEE
Class A 0.10% 0.25% 0.35% 0.35% $28,217 $2,432,385
Class B 0.75% 0.25% 1.00% 1.00% 3,587 2,238,347
Class C 0.75% 0.25% 1.00% 1.00% 1,628 643,850
Class R 0.25% 0.25% 0.50% 0.50% -- 64,685
Class R1 0.50% 0.25% 0.75% 0.75% 91 367
Class R2 0.25% 0.25% 0.50% 0.50% 61 170
Class R3 0.25% 0.25% 0.50% 0.50% 18 4,480
Class R4 0.00% 0.25% 0.25% 0.25% 30 120
Class 529A 0.25% 0.25% 0.50% 0.35% 274 4,162
Class 529B 0.75% 0.25% 1.00% 1.00% 15 1,580
Class 529C 0.75% 0.25% 1.00% 1.00% 57 2,874
- ---------------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $5,393,020
(1) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up to
these annual percentage rates of each class' average daily net assets.
(2) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August 31,
2005 based on each class' average daily net assets. 0.10% of the Class 529A distribution fee is currently being paid
by the fund. Payment of the remaining 0.15% of the Class 529A distribution fee is not yet implemented and will
commence on such date as the fund's Board of Trustees may determine.
(3) For the year ended August 31, 2005, MFD retained these service fees.
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 12 months
of purchase. Class B and Class 529B shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within six years of
purchase. MFD retained all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended August 31, 2005 were as
follows:
AMOUNT
Class A $62,354
Class B 341,425
Class C 6,525
Class 529B 113
Class 529C --
The fund has entered into and may from time to time enter into contracts with
program managers and other parties which administer the tuition programs
through which an investment in the fund's 529 share classes is made. The fund
has entered into an agreement with MFD pursuant to which MFD receives an
annual fee of up to 0.35% from the fund based solely upon the value of the
fund's 529 share classes attributable to tuition programs to which MFD, or a
third party which contracts with MFD, provides administrative services. The
current fee has been established at 0.25% annually of average net assets of
the fund's 529 share classes. The fee may only be increased with the approval
of the Board of Trustees who 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. Program manager fees for the year ended August 31, 2005, were as
follows:
AMOUNT
Class 529A $2,973
Class 529B $395
Class 529C $718
----------------------------------------------------------
Total Program Manager Fees $4,086
SHAREHOLDER SERVICING AGENT - The fund pays a portion of shareholder servicing
costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS.
MFSC receives a fee from the fund, for its services as shareholder servicing
agent, set periodically under the supervision of the fund's Board of Trustees.
For the year ended August 31, 2005, the fee was $1,129,346, which equated to
0.1019% annually of the fund's average daily net assets. MFSC also receives
payment from the fund for out-of-pocket and sub-accounting expenses paid by
MFSC on behalf of the fund. For the year ended August 31, 2005, these costs
amounted to $861,808.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. Effective July 1, 2005, the fund's annual fixed amount is $10,000. The
administrative services fee incurred for the year ended August 31, 2005 was
equivalent to an annual effective rate of 0.0097% of the fund's average daily
net assets.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain retirement plan
administration and services with respect to certain Class R shares. These
services include various administrative, recordkeeping, and communication/
educational services with respect to the retirement plans which invest in
these shares, and may be provided directly by MFS or by a third party. For the
year ended August 31, 2005, the fund paid an annual retirement plan
administration and services fee up to the following annual percentage rates of
each class' average daily net assets:
AMOUNT
FEE TOTAL RETAINED
RATE AMOUNT BY MFS
Class R1 0.45% $220 $169
Class R2 0.40% 136 101
Class R3 (formerly Class R2) 0.25% 2,240 1,184
Class R4 0.15% 72 24
Class R5 0.10% 21 19
- -------------------------------------------------------------------------------
Total Retirement Plan Administration and
Services Fees $2,689 $1,497
TRUSTEES' COMPENSATION - The fund pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons. The fund does not pay compensation directly to
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, MFD, and MFSC. The fund has an unfunded, defined benefit plan for retired
Independent Trustees which resulted in a pension expense of $1,179. This
amount is included in Trustees' compensation for the year ended August 31,
2005.
OTHER - 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 the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $5,183, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided 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, was the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales. As a result, proceeds in the amount of $171,376
were paid to the fund on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$1,229,166,337 and $1,695,272,321, 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 $1,150,132,518
----------------------------------------------------------
Gross unrealized appreciation $136,404,989
Gross unrealized depreciation (53,971,717)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $82,433,272
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 8/31/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 11,949,697 $183,836,975 27,881,162 $427,444,261
Shares reacquired (37,108,405) (566,755,888) (35,845,570) (543,460,338)
- -----------------------------------------------------------------------------------------------------------
Net change (25,158,708) $(382,918,913) (7,964,408) $(116,016,077)
CLASS B SHARES
Shares sold 1,638,877 $24,312,243 4,190,532 $62,289,343
Shares reacquired (6,760,662) (100,122,589) (5,630,740) (82,666,681)
- -----------------------------------------------------------------------------------------------------------
Net change (5,121,785) $(75,810,346) (1,440,208) $(20,377,338)
CLASS C SHARES
Shares sold 597,878 $8,856,962 1,285,450 $19,079,978
Shares reacquired (2,114,075) (31,372,384) (2,103,564) (31,044,196)
- -----------------------------------------------------------------------------------------------------------
Net change (1,516,197) $(22,515,422) (818,114) $(11,964,218)
CLASS I SHARES
Shares sold 2,114,298 $33,670,053 4,167,456 $65,121,180
Shares reacquired (3,323,601) (52,205,115) (2,840,698) (44,371,479)
- -----------------------------------------------------------------------------------------------------------
Net change (1,209,303) $(18,535,062) 1,326,758 $20,749,701
CLASS R SHARES (FORMERLY CLASS R1)
Shares sold 823,683 $12,721,175 678,187 $10,521,406
Shares reacquired (353,416) (5,455,149) (265,383) (4,086,141)
- -----------------------------------------------------------------------------------------------------------
Net change 470,267 $7,266,026 412,804 $6,435,265
Period ended 8/31/05*
SHARES AMOUNT
CLASS R1 SHARES
Shares sold 14,762 $221,653
Shares reacquired (2,033) (32,078)
- -------------------------------------------------------------------------
Net change 12,729 $189,575
CLASS R2 SHARES
Shares sold 8,365 $136,805
Shares reacquired -- --
- -------------------------------------------------------------------------
Net change 8,365 $136,805
Year ended 8/31/05 Period ended 8/31/04**
SHARES AMOUNT SHARES AMOUNT
CLASS R3 SHARES (FORMERLY CLASS R2)
Shares sold 91,932 $1,476,280 48,031 $704,104
Shares reacquired (31,541) (507,609) (14,374) (221,632)
- -----------------------------------------------------------------------------------------------------------
Net change 60,391 $968,671 33,657 $482,472
Period ended 8/31/05*
SHARES AMOUNT
CLASS R4 SHARES
Shares sold 19,816 $323,940
Shares reacquired -- --
- -------------------------------------------------------------------------
Net change 19,816 $323,940
CLASS R5 SHARES
Shares sold 3,325 $50,000
Shares reacquired -- --
- -------------------------------------------------------------------------
Net change 3,325 $50,000
Year ended 8/31/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 90,426 $1,445,550 17,857 $272,955
Shares reacquired (21,518) (328,291) (1,267) (18,993)
- -----------------------------------------------------------------------------------------------------------
Net change 68,908 $1,117,259 16,590 $253,962
CLASS 529B SHARES
Shares sold 1,657 $24,184 4,746 $70,399
Shares reacquired (961) (14,285) (316) (4,635)
- -------------------------------------------------------------------------------------------------------------
Net change 696 $9,899 4,430 $65,764
CLASS 529C SHARES
Shares sold 6,597 $99,344 9,841 $145,885
Shares reacquired (4,267) (63,294) (1,827) (27,988)
- -------------------------------------------------------------------------------------------------------------
Net change 2,330 $36,050 8,014 $117,897
* For the period from the inception of Class R1, Class R2, Class R4 and Class R5 shares, April 1, 2005
through August 31, 2005.
** For the period from the inception of Class R3 shares, October 31, 2003 through August 31, 2004.
The fund is one of several mutual funds in which the MFS fund-of-funds may
invest. The MFS fund-of-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
4% of the value of outstanding voting shares.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured line
of credit provided by a syndication of banks under a 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 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the fund for the year ended August 31, 2005 was $6,465, and is
included in miscellaneous expense. The fund had no significant borrowings
during the year ended August 31, 2005.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust I and Shareholders of
MFS New Discovery Fund:
We have audited the accompanying statement of assets and liabilities of MFS
New Discovery Fund (the Fund) (one of the portfolios comprising MFS Series
Trust I), including the portfolio of investments, as of August 31, 2005, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of August 31, 2005, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
New Discovery Fund at August 31, 2005, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the periods
indicated therein, in conformity with U.S. generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 11, 2005
RESULTS OF SHAREHOLDER MEETING (unaudited) - 8/31/05
At a special meeting of shareholders of MFS Series Trust I, which was held on
March 23, 2005, the following action was taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $8,025,286,508.56 $117,939,292.78
- ------------------------------------------------------------------------------
David H. Gunning 8,030,402,677.64 112,823,123.70
- ------------------------------------------------------------------------------
William R. Gutow 8,027,523,726.27 115,702,075.07
- ------------------------------------------------------------------------------
Michael Hegarty 8,021,162,525.49 122,063,275.85
- ------------------------------------------------------------------------------
J. Atwood Ives 8,024,062,680.07 119,163,121.27
- ------------------------------------------------------------------------------
Amy B. Lane 8,019,792,882.59 123,432,918.75
- ------------------------------------------------------------------------------
Robert J. Manning 8,030,980,361.78 112,245,439.56
- ------------------------------------------------------------------------------
Lawrence T. Perera 8,025,935,401.12 117,290,400.22
- ------------------------------------------------------------------------------
Robert C. Pozen 8,031,655,470.25 111,570,331.09
- ------------------------------------------------------------------------------
J. Dale Sherratt 8,027,226,595.42 115,999,205.92
- ------------------------------------------------------------------------------
Laurie J. Thomsen 8,019,388,506.87 123,837,294.47
- ------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2005, are listed
below, together with their principal occupations during the past five years.
(Their titles may have varied during that period.) The address of each Trustee
and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(1) OTHER DIRECTORSHIPS(2)
- ------------------- ---------------- -------------- ----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee and February 2004 Massachusetts Financial Services
(born 10/20/63) President Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School
(education), John Olin Visiting
Professor (since July 2002);
Secretary of Economic Affairs, The
Commonwealth of Massachusetts
(January 2002 to December 2002);
Fidelity Investments, Vice
Chairman (June 2000 to December
2001); Fidelity Management &
Research Company (investment
adviser), President (March 1997 to
July 2001); Bell Canada
Enterprises (telecommunications),
Director; Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 05/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Chief of Cardiac Surgery; Harvard
Medical School, Professor of
Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group (1997 to
February 2001); Borders Group,
Inc. (book and music retailer),
Director; Federal Realty
Investment Trust (real estate
investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 06/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 08/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
OFFICERS
Robert J. Manning(3) President and February 2004 Massachusetts Financial Services
(born 10/20/63) Trustee Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Tracy Atkinson(3) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(3) Assistant July 2005 Massachusetts Financial Services
(born 1/18/74) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003); Nvest Services Company,
Assistant Vice President and
Associate Counsel (prior to
January 2001)
Jeffrey N. Carp(3) Secretary and September 2004 Massachusetts Financial Services
(born 12/01/56) Clerk Company, Executive Vice President,
General Counsel and Secretary
(since April 2004); Hale and Dorr
LLP (law firm), Partner (prior to
April 2004)
Ethan D. Corey(3) Assistant July 2005 Massachusetts Financial Services
(born 11/21/63) Secretary and Company, Special Counsel (since
Assistant Clerk December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
Stephanie A. DeSisto(3) Assistant May 2003 Massachusetts Financial Services
(born 10/01/53) Treasurer Company, Vice President (since
April 2003); Brown Brothers
Harriman & Co., Senior Vice
President (November 2002 to April
2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
David L. DiLorenzo(3) Assistant July 2005 Massachusetts Financial Services
(born 8/10/68) Treasurer Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (January
2001 to June 2005); State Street
Bank, Vice President and Corporate
Audit Manager (prior to January
2001)
Timothy M. Fagan(3) Assistant September 2005 Massachusetts Financial Services
(born 7/10/68) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(3) Assistant July 2005 Massachusetts Financial Services
(born 10/27/70) Treasurer Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian T. Hourihan(3) Assistant September 2004 Massachusetts Financial Services
(born 11/11/64) Secretary and Company, Vice President, Senior
Assistant Clerk Counsel and Assistant Secretary
(since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance
Program (January to April 2004);
Fidelity Research & Management
Company, Assistant General Counsel
(prior to January 2004)
Ellen Moynihan(3) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Vice President
Susan S. Newton(3) Assistant May 2005 Massachusetts Financial Services
(born 03/07/50) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(3) Assistant July 2005 Massachusetts Financial Services
(born 11/05/70) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (January 2001 to June
2004); Preti, Flaherty, Beliveau,
Pachios & Haley, LLC, Associate
(prior to January 2001)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (February
1997 to March 2003)
James O. Yost(3) Assistant September 1990 Massachusetts Financial Services
(born 06/12/60) Treasurer Company, Senior Vice President
- ------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served
continuously since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(3) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940
(referred to as the 1940 Act), which is the principal federal law governing investment companies
like the fund, as a result of position with MFS. The address of MFS is 500 Boylston Street,
Boston, Massachusetts 02116.
Each Trustee has been elected by shareholders and each Trustee and officer holds office until his or
her successor is chosen and qualified or until his or her earlier death, resignation, retirement or
removal. Messrs. Ives and Sherratt and Mses. Lane and Thomsen are members of the Trust's Audit
Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which
MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with
certain affiliates of MFS. As of December 31, 2004, each Trustee served as a board member of 99 funds
within the MFS Family of Funds.
The Trust held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once
every five years thereafter, to elect Trustees.
The Statement of Additional Information contains further information about the Trustees and is
available without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 02110
02116-3741
INDEPENDENT REGISTERED PUBLIC
DISTRIBUTOR ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 200 Clarendon Street, Boston, MA 02116
02116-3741
PORTFOLIO MANAGER
Thomas Wetherald
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment
advisory agreement with MFS. The Trustees consider matters bearing on the Fund
and its advisory arrangements at their meetings throughout the year, including
a review of performance data at each regular meeting. In addition, the
independent Trustees met several times over the course of three months
beginning in May and ending in July, 2005 ("contract review meetings") for the
specific purpose of considering whether to approve the continuation of the
investment advisory agreement for the Fund and the other investment companies
that the Board oversees (the "MFS Funds"). The independent Trustees were
assisted in their evaluation of the Fund's investment advisory agreement by
independent legal counsel, from whom they received separate legal advice and
with whom they met separately from MFS during various contract review
meetings. The independent Trustees were also assisted in this process by the
MFS Funds' Independent Chief Compliance Officer, a full-time senior officer
appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light
of the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2004 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable
funds identified by Lipper (the "Lipper expense group"), as well as the
advisory fees and other expenses of peer funds identified by objective
criteria suggested by MFS, (iii) information provided by MFS on the advisory
fees of comparable portfolios of other clients of MFS, including institutional
separate account and other clients, (iv) information as to whether and to what
extent applicable expense waivers, reimbursements or fee "breakpoints" are
observed for the Fund, (v) information regarding MFS' financial results and
financial condition, including MFS' and certain of its affiliates' estimated
profitability from services performed for the Fund and the MFS Funds as a
whole, (vi) MFS' views regarding the outlook for the mutual fund industry and
the strategic business plans of MFS, (vii) descriptions of various functions
performed by MFS for the Funds, such as compliance monitoring and portfolio
trading practices, and (viii) information regarding the overall organization
of MFS, including information about MFS' senior management and other personnel
providing investment advisory, administrative and other services to the Fund
and the other MFS Funds. The comparative performance, fee and expense
information prepared and provided by Lipper Inc. was not independently
verified and the independent Trustees did not independently verify any
information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than others, and that
the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed
the Fund's total return investment performance as well as the performance of
peer groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2004, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 86th percentile relative to the other funds in the
universe for this three-year period (the 1st percentile being the best
performers and the 100th percentile being the worst performers). The total
return performance of the Fund's Class A shares was in the 75th percentile
for the one-year period and the 51st percentile for the five-year period
ended December 31, 2004 relative to the Lipper performance universe. Because
of the passage of time, these performance results are likely to differ from
the performance results for more recent periods, including those shown
elsewhere in this report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings,
as well as during investment review meetings conducted with portfolio
management personnel during the course of the year, as to MFS' efforts to
improve the Fund's performance, including the assumption of primary portfolio
management responsibilities by one of the Fund's portfolio managers in
February, 2005. After reviewing these and related factors, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that they were satisfied with MFS' responses
and efforts relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
whether the Fund was subject to any fee waivers or reductions or expense
limitations. The Trustees also considered that, according to the Lipper data,
the Fund's effective advisory fee rate and total expense ratio were each
higher than the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information
provided by MFS as to the generally broader scope of services provided by MFS
to the Fund in comparison to institutional accounts, the higher demands placed
on MFS' investment personnel and trading infrastructure as a result of the
daily cash in-flows and out-flows of the Fund, and the impact on MFS and
expenses associated with the more extensive regulatory regime to which the
Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
currently subject to a breakpoint that reduces the Fund's advisory fee rate on
net assets over $1.5 billion. Taking into account fee waivers or reductions or
expense limitations, if any, the Trustees concluded that the existing
breakpoint was sufficient to allow the Fund to benefit from economies of scale
as its assets grow.
The Trustees also considered information prepared by MFS relating to MFS'
costs and profits with respect to the Fund, the MFS Funds considered as a
group, and other investment companies and accounts advised by MFS, as
well as MFS' methodologies used to determine and allocate its costs to the MFS
Funds, the Fund and other accounts and products for purposes of estimating
profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the
financial services industry, including the entry into the industry of large
and well-capitalized companies which are spending, and appear to be prepared
to continue to spend, substantial sums to engage personnel and to provide
services to competing investment companies. In this regard, the Trustees also
considered the financial resources of MFS and its ultimate parent, Sun Life
Financial Inc. The Trustees also considered the advantages and possible
disadvantages to the Fund of having an adviser which also serves other
investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the
Fund by MFS and its affiliates under agreements and plans other than the
investment advisory agreement, including any 12b-1 fees the Fund pays to MFS
Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for research and other similar services
(including MFS' general policy to pay directly for third-party research), and
various other factors. Additionally, the Trustees considered so-called "fall-
out benefits" to MFS such as reputational value derived from serving as
investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material,
including those factors described above, the Board of Trustees, including a
majority of the independent Trustees, concluded that the Fund's investment
advisory agreement with MFS should be continued for an additional one-year
period, commencing August 1, 2005.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement will be available on or before
December 1, 2005 by clicking on the fund's name under "Select a fund" on the
MFS website (mfs.com).
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 Proxy Voting 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.
FEDERAL TAX INFORMATION (unaudited)
In January 2006, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2005.
CONTACT INFORMATION
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
- --------------------------------------------------------------------------------
Share 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-ANN-10/05 86M
MFS(R) RESEARCH INTERNATIONAL FUND 8/31/05
ANNUAL REPORT
- -------------------------------------------------------------------------------
LETTER FROM THE CEO 1
- ---------------------------------------------------
PORTFOLIO COMPOSITION 2
- ---------------------------------------------------
MANAGEMENT REVIEW 3
- ---------------------------------------------------
PERFORMANCE SUMMARY 5
- ---------------------------------------------------
EXPENSE TABLE 8
- ---------------------------------------------------
PORTFOLIO OF INVESTMENTS 10
- ---------------------------------------------------
FINANCIAL STATEMENTS 15
- ---------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 29
- ---------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 40
- ---------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 41
- ---------------------------------------------------
TRUSTEES AND OFFICERS 42
- ---------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 47
- ---------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 51
- ---------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 51
- ---------------------------------------------------
FEDERAL TAX INFORMATION 51
- ---------------------------------------------------
CONTACT INFORMATION BACK COVER
- ---------------------------------------------------
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.
M F S(SM)
INVESTMENT MANAGEMENT(R)
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders,
Most investors are familiar with the basic principles of investing - focus on
the long term and keep your assets diversified across different investment
categories. Still, it is surprising how often we forget these basic lessons.
Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s
had many people hoping they could become millionaires overnight. But the
market decline that started in the spring of 2000 taught everyone how
misguided those hopes had been.
Now, less than five years after the market taught a harsh lesson in the
follies of speculative investing, we are seeing a number of trends that
suggest many investors, including professionals, are hoping for overnight
miracles again. We see a steady stream of market "gurus" on television news
shows, promising to teach amateur investors the strategies that will allow
them to get rich quick. Hedge funds - which by their nature move in and out of
investments rapidly - have soared in popularity over the past five years. We
are reminded every day that we live in a "what have you done for me lately?"
world, but this mindset should not influence how we invest and manage our
money. In fact, investors often fall short of their goals because they trade
in and out of investments too frequently and at inopportune times.
Throughout our entire 80-year history, MFS' money management process has
focused on long-term investment opportunities. We firmly believe that one of
the best ways to realize long-term financial goals - be it a college
education, a comfortable retirement, or a secure family legacy - is to follow
a three-pronged approach that focuses on longer time horizons. Allocate
holdings across the major asset classes - including stocks, bonds, and cash.
Diversify within each class to take advantage of different market segments and
investing styles. And rebalance assets regularly to maintain a desired asset
allocation.*
This long-term approach requires diligence and patience, two traits that in
our experience are essential to capitalizing on the many opportunities the
financial markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 17, 2005
* Asset allocation, diversification, and rebalancing does not guarantee a
profit or protect against a loss. The opinions expressed in this letter are
those of MFS, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 98.4%
Cash & Other Net Assets 1.6%
TOP TEN HOLDINGS
TOTAL S.A. 3.1%
------------------------------------------------
Samsung Electronics Co. 3.0%
------------------------------------------------
Nestle S.A. 2.4%
------------------------------------------------
Roche Holdings 2.3%
------------------------------------------------
Vodafone Group 2.3%
------------------------------------------------
Suez S.A. 2.2%
------------------------------------------------
Mitsui Mining & Smelting Co. 2.0%
------------------------------------------------
Sanofi-Aventis 1.9%
------------------------------------------------
Telefonica S.A. 1.8%
------------------------------------------------
Royal Bank of Scotland Group 1.8%
------------------------------------------------
EQUITY SECTORS
Financial Services 27.1%
------------------------------------------------
Telecom/Utilities 11.9%
------------------------------------------------
Autos/Capital Goods 9.7%
------------------------------------------------
Energy 9.4%
------------------------------------------------
Health Care 8.3%
------------------------------------------------
Basic Materials 7.9%
------------------------------------------------
Technology/Business Services 7.3%
------------------------------------------------
Consumer Staples 6.4%
------------------------------------------------
Leisure/Transportation/Media 6.1%
------------------------------------------------
Retailing 4.3%
------------------------------------------------
COUNTRY WEIGHTINGS
Great Britain 19.5%
------------------------------------------------
Japan 16.4%
------------------------------------------------
France 16.2%
------------------------------------------------
Switzerland 7.8%
------------------------------------------------
South Korea 6.6%
------------------------------------------------
Spain 3.3%
------------------------------------------------
Mexico 3.1%
------------------------------------------------
Brazi l3.1%
------------------------------------------------
Germany 3.1%
------------------------------------------------
Other 20.9%
------------------------------------------------
Percentages are based on net assets as of 8/31/05.
The portfolio is actively managed, and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2005, Class A shares of the MFS
Research International Fund provided a total return of 22.67%, at net asset
value. In comparison, the fund's benchmark, the MSCI EAFE Index,
returned 24.09%.
DETRACTORS FROM PERFORMANCE
Stock selection in the technology/business services and Asian financials
sectors held back relative performance. In the technology/business services
sector, Japanese electronic devices manufacturer Seiko Epson, technology
holding company Softbank*, and consumer electronics manufacturer Funai
Electric*, which is not in the benchmark, were among the fund's top detractors
for the period. In the Asian financials sector, Japanese consumer finance
company Takefuji and real estate financier Leopalace21 detracted from relative
results.
Stock selection in the retailing sector held back relative performance during
the period. Japanese home improvement retailer Sekisui Chemical* and U.K-based
Kingfisher PLC* were among the top detractors.
Stocks in other sectors that hampered relative returns included Japanese game
console maker Nintendo and U.K-based pharmaceutical firm AstraZeneca.
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 equity markets rose measurably, holding any cash
hurt performance relative to our benchmark, the MSCI EAFE Index, which does
not have a cash position.
CONTRIBUTORS TO PERFORMANCE
The energy, European financials, and telecom/utilities sectors were the fund's
most significant contributors to relative performance over the period. Stock
selection was the main driver of positive results in all three sectors.
In the energy sector, steel pipe maker and distributor Tenaris S.A., and oil
and gas companies Statoil of Norway, MOL Magyar* of Hungary, CNOOC of China,
and Lukoil of Russia were among the top contributors. Of the five companies,
Statoil is the only company held in the MSCI EAFE Index. In the European
financials sector, Hungarian finance firm OTP Bank, which is not a benchmark
constituent, was a top performer.
In the telecom/utilities sector, Latin American wireless operations company
America Movil S.A.*, French utility operations firm Suez, and Indian telecom
service company Bharti Tele-Ventures* boosted performance. Of the three
companies in the sector, Suez is the only company held in the index.
Brazilian iron ore producer and distributor Companhia Vale do Rio Doce, which
is not an index constituent, was also among the top contributors for
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 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.
* Security was not held in the portfolio at period-end.
Respectfully,
Thomas Melendez Jose Luis Garcia
Portfolio Manager Portfolio Manager
The fund is managed by a team of Global MFS Equity Research analysts, under
the general supervision of Mr. Melendez and Mr. Garcia.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
PERFORMANCE SUMMARY THROUGH 8/31/05
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR CLASS 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
January 2, 1997, through August 31, 2005. Index information is from
January 1, 1997.)
MFS Research
International Fund --
Class A MSCI EAFE index
1/97 $ 9,425 $10,000
8/97 10,330 10,476
8/98 10,735 10,490
8/99 13,261 13,220
8/00 17,638 14,517
8/01 13,799 11,021
8/02 12,143 9,403
8/03 12,988 10,304
8/04 16,060 12,683
8/05 19,700 15,738
TOTAL RATES OF RETURN THROUGH 8/31/05
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr Life*
- -----------------------------------------------------------------------------
A 1/02/97 22.67% 2.24% 8.89%
- -----------------------------------------------------------------------------
B 1/02/98 21.77% 1.58% 8.30%
- -----------------------------------------------------------------------------
C 1/02/98 21.84% 1.58% 8.29%
- -----------------------------------------------------------------------------
I 1/02/97 23.09% 2.60% 9.25%
- -----------------------------------------------------------------------------
R** 12/31/02 22.40% 2.15% 8.83%
- -----------------------------------------------------------------------------
R1 4/01/05 22.33% 2.18% 8.85%
- -----------------------------------------------------------------------------
R2 4/01/05 22.48% 2.21% 8.87%
- -----------------------------------------------------------------------------
R3** 10/31/03 22.13% 2.08% 8.79%
- -----------------------------------------------------------------------------
R4 4/01/05 22.67% 2.24% 8.89%
- -----------------------------------------------------------------------------
R5 4/01/05 22.81% 2.26% 8.90%
- -----------------------------------------------------------------------------
529A 7/31/02 22.35% 2.09% 8.79%
- -----------------------------------------------------------------------------
529B 7/31/02 21.54% 1.67% 8.54%
- -----------------------------------------------------------------------------
529C 7/31/02 21.53% 1.68% 8.54%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmarks
- -----------------------------------------------------------------------------
Average international multi-cap
core fund+ 24.36% 1.02% 5.97%
- -----------------------------------------------------------------------------
MSCI EAFE Index# 24.09% 1.63% 5.37%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -----------------------------------------------------------------------------
A 15.61% 1.03% 8.14%
- -----------------------------------------------------------------------------
B 17.77% 1.21% 8.30%
- -----------------------------------------------------------------------------
C 20.84% 1.58% 8.29%
- -----------------------------------------------------------------------------
529A 15.31% 0.88% 8.05%
- -----------------------------------------------------------------------------
529B 17.54% 1.30% 8.54%
- -----------------------------------------------------------------------------
529C 20.53% 1.68% 8.54%
- -----------------------------------------------------------------------------
Class I, R, R1, R2, R3, R4, and R5 shares do not have a sales charge. Please
see Notes to Performance Summary for more details.
* For the period from the commencement of the fund's investment operations,
January 2, 1997, through August 31, 2005. Index information is from
January 1, 1997.
** Effective April 1, 2005, Class R1 shares have been renamed "Class R
shares" and Class R2 shares have been renamed "Class R3 shares."
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
MSCI EAFE Index - is a market capitalization index that is designed to measure
developed market equity performance, excluding the U.S. & 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 R
shares have no initial sales charge or CDSC and are available only to existing
Class R shareholders. Class I, R1, R2, R3, R4, and R5 shares have no initial
sales charge or CDSC. Class I shares are only available to certain eligible
investors, and Class R1, R2, R3, R4, and R5 shares are only available to
certain retirement plans. Class 529 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.
EXPENSE TABLE
FUND EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
MARCH 1, 2005 THROUGH AUGUST 31, 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 March 1, 2005 through
August 31, 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 3/01/05-
Share Class Ratio 3/01/05 8/31/05 8/31/05
- -----------------------------------------------------------------------------
Actual 1.54% $1,000.00 $1,025.90 $ 7.86
A ------------------------------------------------------------------
Hypothetical* 1.54% $1,000.00 $1,017.44 $ 7.83
- -----------------------------------------------------------------------------
Actual 2.19% $1,000.00 $1,022.30 $11.16
B -------------------------------------------------------------------
Hypothetical* 2.19% $1,000.00 $1,014.17 $11.12
- -----------------------------------------------------------------------------
Actual 2.19% $1,000.00 $1,022.40 $11.16
C ------------------------------------------------------------------
Hypothetical* 2.19% $1,000.00 $1,014.17 $11.12
- -----------------------------------------------------------------------------
Actual 1.19% $1,000.00 $1,027.80 $ 6.08
I ------------------------------------------------------------------
Hypothetical* 1.19% $1,000.00 $1,019.21 $ 6.06
- -----------------------------------------------------------------------------
R Actual 1.69% $1,000.00 $1,024.80 $ 8.63
(formerly ------------------------------------------------------------------
R1) Hypothetical* 1.69% $1,000.00 $1,016.69 $ 8.59
- -----------------------------------------------------------------------------
Actual 2.40% $1,000.00 $1,023.10 $12.24
R1 ------------------------------------------------------------------
Hypothetical* 2.40% $1,000.00 $1,013.11 $12.18
- -----------------------------------------------------------------------------
Actual 2.08% $1,000.00 $1,024.40 $10.61
R2 ------------------------------------------------------------------
Hypothetical* 2.08% $1,000.00 $1,014.72 $10.56
- -----------------------------------------------------------------------------
R3 Actual 1.95% $1,000.00 $1,023.70 $ 9.95
(formerly ------------------------------------------------------------------
R2) Hypothetical* 1.95% $1,000.00 $1,015.38 $ 9.91
- -----------------------------------------------------------------------------
Actual 1.59% $1,000.00 $1,025.90 $ 8.12
R4 ------------------------------------------------------------------
Hypothetical* 1.59% $1,000.00 $1,017.19 $ 8.08
- -----------------------------------------------------------------------------
Actual 1.29% $1,000.00 $1,027.10 $ 6.59
R5 ------------------------------------------------------------------
Hypothetical* 1.29% $1,000.00 $1,018.70 $ 6.56
- -----------------------------------------------------------------------------
Actual 1.79% $1,000.00 $1,024.80 $ 9.14
529A ------------------------------------------------------------------
Hypothetical* 1.79% $1,000.00 $1,016.18 $ 9.10
- -----------------------------------------------------------------------------
Actual 2.44% $1,000.00 $1,021.20 $12.43
529B ------------------------------------------------------------------
Hypothetical* 2.44% $1,000.00 $1,012.91 $12.38
- -----------------------------------------------------------------------------
Actual 2.44% $1,000.00 $1,021.20 $12.43
529C ------------------------------------------------------------------
Hypothetical* 2.44% $1,000.00 $1,012.91 $12.38
- -----------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class" annualized expense ratio, 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 - 8/31/05
The Portfolio of Investments is a complete list of all securities owned by your fund.
It is categorized by broad-based asset classes.
Stocks - 98.4%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ---------------------------------------------------------------------------------------------------
Airlines - 1.2%
- ---------------------------------------------------------------------------------------------------
easyJet Airline Co. Ltd.* 2,935,720 $ 15,508,916
Grupo Aeroportuario del Sureste S.A. de C.V., ADR^ 123,420 4,578,882
Thai Airways International Public Co. Ltd. 4,848,000 4,363,980
--------------
$ 24,451,778
- ---------------------------------------------------------------------------------------------------
Alcoholic Beverages - 1.2%
- ---------------------------------------------------------------------------------------------------
Diageo PLC 1,779,580 $ 25,530,429
- ---------------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.1%
- ---------------------------------------------------------------------------------------------------
Burberry Group PLC 1,587,250 $ 12,170,692
LVMH Moet Hennessy Louis Vuitton S.A 130,300 10,578,553
--------------
$ 22,749,245
- ---------------------------------------------------------------------------------------------------
Automotive - 2.7%
- ---------------------------------------------------------------------------------------------------
Continental AG 140,059 $ 11,117,349
PSA Peugeot Citroen S.A.^ 228,590 14,267,757
Toyota Motor Corp. 776,600 31,801,849
--------------
$ 57,186,955
- ---------------------------------------------------------------------------------------------------
Banks & Credit Companies - 22.8%
- ---------------------------------------------------------------------------------------------------
Aiful Corp. 320,700 $ 24,708,028
Akbank T.A.S 2,174,060 12,845,617
Anglo Irish Bank Corp. PLC 885,300 11,938,930
Banco Bilbao Vizcaya Argentaria S.A 1,883,710 31,348,322
BNP Paribas^ 458,540 33,528,137
Credit Agricole S.A.^ 857,261 22,934,914
DEPFA Bank PLC 486,930 8,223,273
Erste Bank der oesterreichischen Sparkassen AG^ 400,220 22,176,147
Grupo Financiero Inbursa S.A. de C.V 6,683,370 13,815,030
Hana Bank 631,010 19,048,501
HSBC Holdings PLC 1,852,336 29,888,088
Kookmin Bank 340,580 17,103,196
Mitsubishi Tokyo Financial Group, Inc.^ 2,493 25,666,104
ORIX Corp. 95,700 15,799,386
OTP Bank Ltd., GDR 290,790 22,885,173
Raiffeisen International Bank Holding AG* 220 12,827
Royal Bank of Scotland Group PLC 1,302,471 38,065,752
Shinsei Bank Ltd. 3,458,000 21,427,114
Takefuji Corp. 457,840 32,124,209
UBS AG 460,335 37,771,618
Unibanco - Uniao de Bancos Brasileiros S.A., GDR^ 421,720 18,859,318
UniCredito Italiano S.p.A.^ 3,780,210 21,602,356
--------------
$ 481,772,040
- ---------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 1.3%
- ---------------------------------------------------------------------------------------------------
Grupo Televisa S.A., ADR 434,330 $ 27,275,924
- ---------------------------------------------------------------------------------------------------
Chemicals - 1.2%
- ---------------------------------------------------------------------------------------------------
Hanwha Chemical Corp. 757,710 $ 8,928,264
Syngenta AG 160,634 17,137,774
--------------
$ 26,066,038
- ---------------------------------------------------------------------------------------------------
Computer Software - 0.5%
- ---------------------------------------------------------------------------------------------------
Business Objects S.A.^* 322,490 $ 10,763,132
- ---------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.8%
- ---------------------------------------------------------------------------------------------------
LG Philips LCD Co. Ltd.* 350,950 $ 15,933,145
- ---------------------------------------------------------------------------------------------------
Construction - 1.0%
- ---------------------------------------------------------------------------------------------------
Consorcio ARA S.A. de C.V 2,069,720 $ 6,941,369
Italcementi S.p.A 481,000 5,576,985
Italcementi S.p.A. - Ordinary^ 238,090 3,869,465
Urbi Desarrollos Urbanos S.A. de C.V.* 907,690 5,734,199
--------------
$ 22,122,018
- ---------------------------------------------------------------------------------------------------
Consumer Goods & Services - 1.3%
- ---------------------------------------------------------------------------------------------------
Natura Cosmeticos S.A 127,380 $ 4,323,462
Reckitt Benckiser PLC 741,460 23,047,113
--------------
$ 27,370,575
- ---------------------------------------------------------------------------------------------------
Electrical Equipment - 1.8%
- ---------------------------------------------------------------------------------------------------
Schneider Electric S.A.^ 480,113 $ 37,868,401
- ---------------------------------------------------------------------------------------------------
Electronics - 4.5%
- ---------------------------------------------------------------------------------------------------
Ricoh Co. Ltd. 558,000 $ 8,695,089
Royal Philips Electronics N.V 862,380 22,685,622
Samsung Electronics Co. Ltd. 119,050 62,788,436
Seiko Epson Corp. 7,800 243,348
--------------
$ 94,412,495
- ---------------------------------------------------------------------------------------------------
Energy - Independent - 1.3%
- ---------------------------------------------------------------------------------------------------
Canadian Natural Resources Ltd. 107,730 $ 5,302,612
CNOOC Ltd. 30,380,500 21,854,539
--------------
$ 27,157,151
- ---------------------------------------------------------------------------------------------------
Energy - Integrated - 7.6%
- ---------------------------------------------------------------------------------------------------
BP PLC 2,943,160 $ 33,536,233
LUKOIL, ADR 413,470 20,135,989
Petroleo Brasileiro S.A., ADR 142,760 8,931,066
Statoil A.S.A.^ 1,266,640 31,112,209
TOTAL S.A.^ 249,730 65,742,175
--------------
$ 159,457,672
- ---------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.9%
- ---------------------------------------------------------------------------------------------------
Carrefour S.A.^ 341,900 $ 15,916,673
Tesco PLC 3,950,710 23,312,584
--------------
$ 39,229,257
- ---------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 3.1%
- ---------------------------------------------------------------------------------------------------
China Mengniu Dairy Co. Ltd. 21,401,000 $ 16,831,126
Nestle S.A.^ 176,906 49,712,015
--------------
$ 66,543,141
- ---------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.8%
- ---------------------------------------------------------------------------------------------------
Hilton Group PLC 3,110,830 $ 17,728,579
- ---------------------------------------------------------------------------------------------------
Insurance - 2.8%
- ---------------------------------------------------------------------------------------------------
Aviva PLC 2,697,090 $ 29,905,971
AXA^ 1,115,450 29,813,260
--------------
$ 59,719,231
- ---------------------------------------------------------------------------------------------------
Leisure & Toys - 0.5%
- ---------------------------------------------------------------------------------------------------
Nintendo Co. Ltd. 110,300 $ 11,621,827
- ---------------------------------------------------------------------------------------------------
Machinery & Tools - 5.2%
- ---------------------------------------------------------------------------------------------------
Fanuc Ltd. 268,600 $ 20,389,040
Hyundai Mobis 221,780 15,902,201
Mitsui Mining & Smelting Co. Ltd. 8,326,000 41,495,764
Sandvik AB^ 706,470 31,390,934
--------------
$ 109,177,939
- ---------------------------------------------------------------------------------------------------
Medical Equipment - 0.6%
- ---------------------------------------------------------------------------------------------------
Synthes, Inc. 99,960 $ 12,023,707
- ---------------------------------------------------------------------------------------------------
Metals & Mining - 3.8%
- ---------------------------------------------------------------------------------------------------
Aber Diamond Corp. 613,500 $ 20,792,583
Anglo American PLC 577,150 14,627,461
BHP Billiton PLC 802,090 11,961,046
Companhia Siderurgica Nacional S.A., ADR^ 373,980 7,240,253
Companhia Vale do Rio Doce, ADR 752,940 25,893,607
--------------
$ 80,514,950
- ---------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 1.4%
- ---------------------------------------------------------------------------------------------------
Gaz de France 318,000 $ 10,623,167
Tokyo Gas Co. Ltd.^ 5,029,390 18,821,519
--------------
$ 29,444,686
- ---------------------------------------------------------------------------------------------------
Network & Telecom - 1.5%
- ---------------------------------------------------------------------------------------------------
Nokia Oyj 1,666,340 $ 26,214,536
ZTE Corp. 1,791,000 5,006,615
--------------
$ 31,221,151
- ---------------------------------------------------------------------------------------------------
Oil Services - 0.5%
- ---------------------------------------------------------------------------------------------------
Tenaris S.A., ADR^ 53,720 $ 6,149,866
Vallourec S.A 8,380 3,512,211
--------------
$ 9,662,077
- ---------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.7%
- ---------------------------------------------------------------------------------------------------
Astellas Pharma, Inc. 436,100 $ 15,563,915
AstraZeneca PLC 649,220 29,757,833
Chugai Pharmaceutical Co. Ltd.^ 1,477,210 27,941,820
Roche Holdings AG 349,910 48,479,136
Sanofi-Aventis^ 475,092 40,738,793
--------------
$ 162,481,497
- ---------------------------------------------------------------------------------------------------
Printing & Publishing - 1.8%
- ---------------------------------------------------------------------------------------------------
Reed Elsevier PLC 1,386,600 $ 13,069,490
Yell Group PLC 3,104,550 25,361,985
--------------
$ 38,431,475
- ---------------------------------------------------------------------------------------------------
Real Estate - 1.5%
- ---------------------------------------------------------------------------------------------------
Hypo Real Estate Holding AG 318,140 $ 15,667,246
Leopalace21 Corp.^ 630,500 11,802,775
Macquarie Goodman Group^ 1,269,150 4,096,212
--------------
$ 31,566,233
- ---------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.9%
- ---------------------------------------------------------------------------------------------------
Asahi Glass Co. Ltd. 1,801,000 $ 18,556,791
Kaneka Corp. 1,786,000 21,534,209
--------------
$ 40,091,000
- ---------------------------------------------------------------------------------------------------
Specialty Stores^ - 1.3%
- ---------------------------------------------------------------------------------------------------
Grupo Elektra S.A. de C.V 1,033,130 $ 7,380,871
NEXT PLC 752,560 20,541,382
--------------
$ 27,922,253
- ---------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 2.3%
- ---------------------------------------------------------------------------------------------------
Vodafone Group PLC 17,598,200 $ 48,380,446
- ---------------------------------------------------------------------------------------------------
Telephone Services - 6.0%
- ---------------------------------------------------------------------------------------------------
Deutsche Telekom AG^ 1,556,490 $ 29,616,732
FastWeb S.p.A.^* 446,835 19,223,400
Royal KPN N.V.^ 2,093,810 19,814,999
Singapore Telecommunications Ltd. 12,746,000 19,586,449
Telefonica S.A.^ 2,308,211 38,234,337
--------------
$ 126,475,917
- ---------------------------------------------------------------------------------------------------
Tobacco - 0.8%
- ---------------------------------------------------------------------------------------------------
Swedish Match AB^ 1,325,420 $ 16,871,338
- ---------------------------------------------------------------------------------------------------
Trucking - 0.5%
- ---------------------------------------------------------------------------------------------------
TNT N.V.^ 430,980 $ 11,086,117
- ---------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.2%
- ---------------------------------------------------------------------------------------------------
Suez S.A.^ 1,569,510 $ 45,737,157
- ---------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,814,065,983) $2,076,046,976
- ---------------------------------------------------------------------------------------------------
Short-Term Obligation - 1.3%
- ---------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ---------------------------------------------------------------------------------------------------
General Electric Capital Corp., 3.58%, due 9/01/05,
at Amortized Cost< $ 27,774,000 $ 27,774,000
- ---------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 23.7%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ---------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 498,699,585 $ 498,699,585
- ---------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $2,340,539,568)(S) $2,602,520,561
- ---------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (23.4)% (492,796,859)
- ---------------------------------------------------------------------------------------------------
Net Assets - 100.0% $2,109,723,702
- ---------------------------------------------------------------------------------------------------
* 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.
(S) As of August 31, 2005, the fund had 70 securities representing $1,597,736,097 and 75.7% of net
assets that were fair valued in accordance with the policies adopted by the Board of Trustees.
ADR = American Depository Receipt
GDR = Global Depository Receipt
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 the fund.
AT 8/31/05
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $476,629,569 of securities
on loan (identified cost, $2,340,539,568) $2,602,520,561
Receivable for investments sold 8,592,290
Receivable for fund shares sold 3,766,941
Interest and dividends receivable 2,638,347
Other assets 17
- -------------------------------------------------------------------------------------------------------
Total assets $2,617,518,156
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable to custodian $4,764,976
Payable for investments purchased 375,520
Payable for fund shares reacquired 2,871,077
Collateral for securities loaned, at value* 498,699,585
Payable to affiliates
Management fee 48,020
Shareholder servicing costs 349,829
Distribution and service fees 17,717
Administrative services fee 696
Program manager fees 8
Retirement plan administration and services fees 19
Accrued expenses and other liabilities 667,007
- -------------------------------------------------------------------------------------------------------
Total liabilities $507,794,454
- -------------------------------------------------------------------------------------------------------
Net assets $2,109,723,702
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in capital $1,721,890,007
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies
(net of $57,340 deferred country tax) 261,927,645
Accumulated undistributed net realized gain on investments
and foreign currency transactions 112,866,138
Accumulated undistributed net investment income 13,039,912
- -------------------------------------------------------------------------------------------------------
Net assets $2,109,723,702
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 126,229,482
- -------------------------------------------------------------------------------------------------------
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $958,877,717
Shares outstanding 57,589,528
- -------------------------------------------------------------------------------------------------------
Net asset value per share $16.65
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$16.65) $17.67
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $141,514,837
Shares outstanding 8,831,455
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.02
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $109,346,517
Shares outstanding 6,842,190
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.98
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $851,483,608
Shares outstanding 50,031,111
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $17.02
- -------------------------------------------------------------------------------------------------------
Class R shares (formerly Class R1)
- -------------------------------------------------------------------------------------------------------
Net assets $44,299,702
Shares outstanding 2,677,997
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.54
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $171,049
Shares outstanding 10,680
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.02
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $178,221
Shares outstanding 11,113
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.04
- -------------------------------------------------------------------------------------------------------
Class R3 shares (formerly Class R2)
- -------------------------------------------------------------------------------------------------------
Net assets $2,356,901
Shares outstanding 143,412
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.43
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $53,299
Shares outstanding 3,201
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.65
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $53,366
Shares outstanding 3,201
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $16.67
- -------------------------------------------------------------------------------------------------------
Class 529A shares
- -------------------------------------------------------------------------------------------------------
Net assets $760,452
Shares outstanding 46,010
- -------------------------------------------------------------------------------------------------------
Net asset value per share $16.53
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$16.53) $17.54
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class 529B shares
- -------------------------------------------------------------------------------------------------------
Net assets $173,616
Shares outstanding 10,930
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.88
- -------------------------------------------------------------------------------------------------------
Class 529C shares
- -------------------------------------------------------------------------------------------------------
Net assets $454,417
Shares outstanding 28,654
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $15.86
- -------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A and Class 529A shares are reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class
529B and Class 529C shares.
* Non-cash collateral not included.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Operations
This statement describes how much your fund received in investment income and paid in expenses. It
also describes any gains and/or losses generated by fund operations.
YEAR ENDED 8/31/05
NET INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------
Income
Dividends $41,782,137
Interest 2,252,277
Foreign taxes withheld (3,968,715)
- ------------------------------------------------------------------------------------------------------
Total investment income $40,065,699
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $14,632,787
Distribution and service fees 5,203,349
Program manager fees 2,721
Shareholder servicing costs 2,667,090
Administrative services fee 181,608
Retirement plan administration and services fees 3,277
Trustees' compensation 34,589
Custodian fee 1,861,778
Printing 91,806
Postage 83,056
Auditing fees 53,234
Legal fees 54,441
Shareholder solicitation expenses 92,096
Miscellaneous 240,543
Reimbursement of expenses to investment adviser 449,724
- ------------------------------------------------------------------------------------------------------
Total expenses $25,652,099
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (58,648)
Reduction of expenses by investment adviser (5,899)
- ------------------------------------------------------------------------------------------------------
Net expenses $25,587,552
- ------------------------------------------------------------------------------------------------------
Net investment income $14,478,147
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions (net of $1,095,382 country tax) $145,882,191
Foreign currency transactions (694,685)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $145,187,506
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments (net of $57,340 decrease in deferred
country tax) $171,389,187
Translation of assets and liabilities in foreign currencies 38,342
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $171,427,529
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $316,615,035
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $331,093,182
- ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statements of Changes in Net Assets
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2005 2004
CHANGE IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income $14,478,147 $8,679,536
Net realized gain (loss) on investments and foreign
currency transactions 145,187,506 153,965,405
Net unrealized gain (loss) on investments and foreign
currency translation 171,427,529 40,974,661
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $331,093,182 $203,619,602
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A $(3,826,893) $(259,483)
Class B (10,565) --
Class C (77,330) --
Class I (4,400,339) (782,661)
Class R (170,724) (13,715)
Class R3 (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 R (1,210,411) --
- -------------------------------------------------------------------------------------------------------
Class R3 (24,101) --
- -------------------------------------------------------------------------------------------------------
Class 529A (18,925) --
- -------------------------------------------------------------------------------------------------------
Class 529B (6,169) --
- -------------------------------------------------------------------------------------------------------
Class 529C (14,528) --
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(73,967,408) $(1,055,994)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $577,345,880 $313,361,923
- -------------------------------------------------------------------------------------------------------
Redemption fees $3,533 $19,901
- -------------------------------------------------------------------------------------------------------
Total change in net assets $834,475,187 $515,945,432
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period $1,275,248,515 $759,303,083
At end of period (including accumulated undistributed net
investment income of $13,039,912 and $8,304,426,
respectively) $2,109,723,702 $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 past 5 years
(or, if shorter, the period of the fund's operation). Certain information reflects financial results for a single fund
share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an
investment in the fund (assuming reinvestment of all distributions) held for the entire period. This information has
been audited by the fund's independent registered public accounting firm, whose report, together with the fund's
financial statements, are included in this report.
CLASS A
YEARS ENDED 8/31
-------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $14.25 $11.53 $10.78 $12.25 $16.19
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $0.12 $0.10 $0.04 $(0.00)+++ $(0.00)+++
Net realized and unrealized gain
(loss) on investments and foreign
currency 3.04 2.63 0.71 (1.47) (3.44)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.16 $2.73 $0.75 $(1.47) $(3.44)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.08) $(0.01) $-- $-- $(0.09)
From net realized gain on investments
and foreign currency transactions (0.68) -- -- -- (0.41)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(0.76) $(0.01) $-- $-- $(0.50)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.65 $14.25 $11.53 $10.78 $12.25
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 22.67 23.65 6.96*** (12.00)*** (21.76)***
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.52 1.61 1.80 1.86 1.84
Expenses after expense reductions## 1.55^^ 1.67^^ 1.75 1.77 1.76
Net investment income (loss) 0.80 0.75 0.36 (0.02) (0.02)
Portfolio turnover 79 102 96 153 131
Net assets at end of period
(000 Omitted) $958,878 $593,574 $387,732 $313,418 $240,231
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B
YEARS ENDED 8/31
--------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $13.76 $11.19 $10.54 $12.04 $15.98
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $0.01 $0.02 $(0.03) $(0.08) $(0.10)
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.93 2.55 0.68 (1.42) (3.39)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.94 $2.57 $0.65 $(1.50) $(3.49)
- ----------------------------------------------------------------------------------------------------------------------------
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) -- -- -- (0.41)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(0.68) $-- $-- $-- $(0.45)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.02 $13.76 $11.19 $10.54 $12.04
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 21.77 22.97 6.17*** (12.46)*** (22.27)***
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.17 2.25 2.45 2.51 2.49
Expenses after expense reductions## 2.20^^ 2.31^^ 2.40 2.42 2.41
Net investment income (loss) 0.08 0.12 (0.32) (0.69) (0.71)
Portfolio turnover 79 102 96 153 131
Net assets at end of period
(000 Omitted) $141,515 $116,165 $88,177 $82,659 $82,135
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C
YEARS ENDED 8/31
--------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $13.73 $11.17 $10.52 $12.02 $15.97
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $0.02 $0.02 $(0.03) $(0.08) $(0.09)
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.92 2.54 0.68 (1.42) (3.40)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.94 $2.56 $0.65 $(1.50) $(3.49)
- ----------------------------------------------------------------------------------------------------------------------------
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) -- -- -- (0.41)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(0.69) $-- $-- $-- $(0.46)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.98 $13.73 $11.17 $10.52 $12.02
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 21.84 22.92 6.18*** (12.48)*** (22.27)***
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.17 2.25 2.45 2.51 2.49
Expenses after expense reductions## 2.20^^ 2.31^^ 2.40 2.42 2.41
Net investment income (loss) 0.13 0.15 (0.32) (0.09) (0.10)
Portfolio turnover 79 102 96 153 131
Net assets at end of period
(000 Omitted) $109,347 $75,580 $46,022 $43,046 $47,375
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I
YEARS ENDED 8/31
--------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $14.54 $11.75 $10.95 $12.39 $16.33
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.19 $0.16 $0.10 $0.04 $0.03
Net realized and unrealized gain
(loss) on investments and foreign
currency 3.10 2.66 0.70 (1.48) (3.46)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.29 $2.82 $0.80 $(1.44) $(3.43)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.13) $(0.03) $-- $-- $(0.10)
From net realized gain on investments
and foreign currency transactions (0.68) -- -- -- (0.41)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(0.81) $(0.03) $-- $-- $(0.51)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.02 $14.54 $11.75 $10.95 $12.39
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)& 23.09 24.05 7.31*** (11.62)*** (21.49)***
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.17 1.26 1.45 1.51 1.49
Expenses after expense reductions## 1.20^^ 1.32^^ 1.40 1.42 1.41
Net investment income 1.18 1.18 0.95 0.38 0.25
Portfolio turnover 79 102 96 153 131
Net assets at end of period
(000 Omitted) $851,484 $469,181 $232,328 $18,207 $10,150
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R (FORMERLY CLASS R1)
YEARS ENDED 8/31
-------------------------------------------------
2005= 2004= 2003**
Net asset value, beginning of period $14.20 $11.52 $10.32###
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $0.11 $0.09 $(0.01)
Net realized and unrealized gain (loss) on investments
and foreign currency 3.01 2.61 1.21
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.12 $2.70 $1.20
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
From net investment income $(0.10) $(0.02) $--
- --------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency
transactions (0.68) -- --
- --------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.78) $(0.02) $--
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.54 $14.20 $11.52
- --------------------------------------------------------------------------------------------------------------------
Total return (%)& 22.40 23.50 11.63++###***
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.66 1.75 1.95+
Expenses after expense reductions## 1.69^^ 1.81^^ 1.90+
Net investment income (loss) 0.73 0.69 (0.09)+
Portfolio turnover 79 102 96
Net assets at end of period (000 Omitted) $44,300 $19,596 $4,810
- --------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 CLASS R2
YEAR ENDED YEAR ENDED
8/31/05** 8/31/05**
Net asset value, beginning of period $15.07 $15.07
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------
Net investment income $0.03 $0.06
Net realized and unrealized gain (loss) on investments
and foreign currency 0.92 0.91
- --------------------------------------------------------------------------------------------------------
Total from investment operations $0.95 $0.97
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.02 $16.04
- --------------------------------------------------------------------------------------------------------
Total return (%)& 6.30++ 6.44++
- --------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.36+ 2.04+
Expenses after expense reductions## 2.39^^+ 2.07^^+
Net investment income 0.46+ 1.12+
Portfolio turnover 79 79
Net assets at end of period (000 Omitted) $171 $178
- --------------------------------------------------------------------------------------------------------
CLASS R3 (FORMERLY CLASS R2)
YEARS ENDED 8/31
-------------------------------------
2005= 2004**=
Net asset value, beginning of period $14.16 $12.71###
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------
Net investment income $0.11 $0.02
Net realized and unrealized gain (loss) on investments
and foreign currency 2.96 1.46
- --------------------------------------------------------------------------------------------------------
Total from investment operations $3.07 $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)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.43 $14.16
- --------------------------------------------------------------------------------------------------------
Total return (%)& 22.13 11.69###++
- --------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.92 2.01+
Expenses after expense reductions## 1.95^^ 2.07^^+
Net investment income 0.74 0.18+
Portfolio turnover 79 102
Net assets at end of period (000 Omitted) $2,357 $431
- --------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 CLASS R5
YEAR ENDED YEAR ENDED
8/31/05** 8/31/05**
Net asset value, beginning of period $15.62 $15.62
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------------------------
Net investment income $0.12 $0.14
Net realized and unrealized gain (loss) on investments
and foreign currency 0.91 0.91
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.03 $1.05
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.65 $16.67
- --------------------------------------------------------------------------------------------------------------------------
Total return (%)& 6.59++ 6.72++
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.55+ 1.25+
Expenses after expense reductions## 1.58^^+ 1.28^^+
Net investment income 1.79+ 2.09+
Portfolio turnover 79 79
Net assets at end of period (000 Omitted) $53 $53
- --------------------------------------------------------------------------------------------------------------------------
CLASS 529A
YEARS ENDED 8/31
----------------------------------------------------------------------
2005= 2004= 2003 2002**
Net asset value, beginning of period $14.18 $11.50 $10.78 $10.66
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $0.10 $0.08 $0.03 $(0.00)+++
Net realized and unrealized gain (loss) on
investments and foreign currency 3.01 2.61 0.69 0.12
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.11 $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) $(0.01) $-- $----
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.53 $14.18 $11.50 $10.78
- --------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 22.35 23.39 6.68*** 1.13++***
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.76 1.85 2.05 2.11+
Expenses after expense reductions## 1.79^^ 1.91^^ 2.00 2.02+
Net investment income (loss) 0.65 0.62 0.30 (0.20)+
Portfolio turnover 79 102 96 153
Net assets at end of period (000 Omitted) $760 $332 $112 $11
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529B
YEARS ENDED 8/31
------------------------------------------------------------------
2005= 2004= 2003 2002**
Net asset value, beginning of period $13.68 $11.17 $10.54 $10.42
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.02) $(0.00)+++ $(0.05) $(0.00)+++
Net realized and unrealized gain (loss) on
investments and foreign currency 2.91 2.51 0.68 0.12
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.89 $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) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.88 $13.68 $11.17 $10.54
- -------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 21.54 22.47 5.98*** 1.15++***
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.42 2.50 2.70 2.76+
Expenses after expense reductions## 2.45^^ 2.56^^ 2.65 2.67+
Net investment loss (0.13) (0.03) (0.43) (0.45)+
Portfolio turnover 79 102 96 153
Net assets at end of period (000 Omitted) $174 $110 $41 $5
- -------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C
YEARS ENDED 8/31
---------------------------------------------------------------
2005= 2004= 2003 2002**
Net asset value, beginning of period $13.66 $11.14 $10.52 $10.40
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.01) $(0.00)+++ $(0.04) $(0.00)+++
Net realized and unrealized gain (loss) on
investments and foreign currency 2.90 2.52 0.66 0.12
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.89 $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) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.86 $13.66 $11.14 $10.52
- -------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 21.53 22.62 5.89*** 1.15++***
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.42 2.49 2.70 2.76+
Expenses after expense reductions## 2.45^^ 2.55^^ 2.65 2.67+
Net investment loss (0.07) (0.02) (0.36) (0.45)+
Portfolio turnover 79 102 96 153
Net assets at end of period (000 Omitted) $454 $280 $81 $5
- -------------------------------------------------------------------------------------------------------------------------
** For the period from the class' inception, December 31, 2002 (Class R), July 31, 2002 (Classes 529A, 529B, and 529C),
October 31, 2003 (Class R3), and April 1, 2005 (Classes R1, R2, R4, and R5) through the stated period end.
*** Certain expenses have been reduced without which performance would have been lower.
+ 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 values and total returns previously reported as $10.38 and 10.98% (Class R), and $12.56 and 13.03%
(Class R3), respectively, have been revised to reflect the net asset value from the day prior to the class'
inception date. The net asset values and total returns previously reported were from inception date, the date the
share classes were first available to public shareholders.
^^ Ratio includes a reimbursement fee for expenses borne by MFS in prior years under the then existing expense
reimbursement agreement.
(+) Total returns do not include any applicable sales charges.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
= Redemption fees charged by the fund during this period resulted in a per share impact of less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Research International Fund (the fund) is a diversified series of MFS
Series Trust I (the trust). The trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the fund with indemnification against Borrower default. The
fund bears the risk of loss with respect to the investment of cash collateral.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or short-term securities. A portion of the income generated upon
investment of the collateral is remitted to the Borrowers, and the remainder
is allocated between the fund and the lending agent. On loans collateralized
by U.S. Treasury securities, a fee is received from the Borrower, and is
allocated between the fund and the lending agent. Income from securities
lending is included in interest income on the Statement of Operations. The
dividend and interest income earned on the securities loaned is accounted for
in the same manner as other dividend and interest income. At August 31, 2005,
the value of securities loaned was $476,629,569. These loans were
collateralized by cash of $498,699,585 and non-cash U.S. Treasury obligations
of $1,084,126.
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 did 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 year ended August 31, 2005, the fund's custodian fees
were reduced by $58,648 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For the year ended August 31, 2005, there were no commissions
recaptured. 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, foreign taxes,
passive foreign investment companies and by treating a portion of the proceeds
from redemptions as a distribution from realized gains for tax purposes.
The tax character of distributions declared for the years ended
August 31, 2005 and August 31, 2004 was as follows:
8/31/05 8/31/04
Distributions declared from:
Ordinary income $8,492,426 $1,055,994
Long-term capital gain 65,474,982 --
---------------------------------------------------------------
$73,967,408 $1,055,994
During the year ended August 31, 2005, accumulated undistributed net
investment income decreased by $1,250,235, and accumulated undistributed net
realized gain on investments and foreign currency transactions decreased by
$8,714,623, and paid-in capital increased by $9,964,858 due to differences
between book and tax accounting for foreign currency transactions, foreign
taxes, passive foreign investment companies and by treating a portion of the
proceeds from redemptions as a distribution from realized gains for tax
purposes. This change had no effect on the net assets or net asset value
per share.
As of August 31, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $79,481,267
Undistributed long-term capital gain 50,399,955
Unrealized appreciation (depreciation) 258,125,779
Other temporary differences (173,306)
Realized gain is reported net of any foreign capital gains tax in the
Statement of Operations.
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 daily net assets 0.90%
Next $1.0 billion of average daily net assets 0.80%
Average daily net assets in excess of $2.0 billion 0.70%
The management fee incurred for the year ended August 31, 2005, was equivalent
to an annual effective rate of 0.86% of the fund's average daily
net assets.
MFS contractually agreed, subject to reimbursement, to bear a portion of the
fund's operating expenses, exclusive of management, distribution and service,
retirement plan administration and services, program manager, and certain
other fees and expenses, such that these operating expenses did not exceed
0.40% of the fund's average daily net assets annually. To the extent that the
fund's actual operating expenses were below 0.40%, the excess was applied to
unreimbursed amounts paid by MFS under the current agreement. This
reimbursement agreement terminated on December 31, 2004. During the year ended
August 31, 2005, the fund reimbursed MFS for a portion of the expenses borne
by MFS, which is reflected as a reimbursement of expenses to investment
adviser on the Statement of Operations. The fund will not be required to
reimburse MFS $175,232 for unreimbursed expenses. Effective January 1, 2005,
the fund has contractually agreed to limit the fund's operating expenses and
to pay the fund's operating expenses, exclusive of management, distribution
and service, retirement plan administration and services, program manager, and
certain other fees and expenses, such that the fund's operating expenses do
not exceed 0.40% of the fund's average daily net assets annually. This new
arrangement will be in effect until January 1, 2006, unless the fund's Board
of Trustees consents to an earlier revision or termination of this agreement.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly owned subsidiary of
MFS, as distributor, received $122,115 and $1,241 for the year ended
August 31, 2005, as its portion of the initial sales charge on sales of Class
A and Class 529A shares of the fund, respectively.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to and retained by MFD. Another component of the
plan is a service fee paid to MFD which subsequently pays a portion of this
fee 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.
Distribution Fee Plan Table:
TOTAL ANNUAL SERVICE FEE DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE RETAINED AND SERVICE
FEE RATE FEE RATE PLAN(1) RATE(2) BY MFD(3) FEE
Class A 0.10% 0.25% 0.35% 0.35% $62,974 $2,743,743
Class B 0.75% 0.25% 1.00% 1.00% 1,044 1,336,341
Class C 0.75% 0.25% 1.00% 1.00% 754 941,668
Class R 0.25% 0.25% 0.50% 0.50% 91 168,064
Class R1 0.50% 0.25% 0.75% 0.75% 61 257
Class R2 0.25% 0.25% 0.50% 0.50% 22 114
Class R3 0.25% 0.25% 0.50% 0.50% 28 5,959
Class R4 -- 0.25% 0.25% 0.25% 30 52
Class 529A 0.25% 0.25% 0.50% 0.35% 266 2,010
Class 529B 0.75% 0.25% 1.00% 1.00% 17 1,473
Class 529C 0.75% 0.25% 1.00% 1.00% 68 3,668
- --------------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $5,203,349
(1) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up to
these annual percentage rates of each class' average daily net assets.
(2) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August 31,
2005 based on each class' average daily net assets. 0.10% of the Class 529A distribution fee is currently being paid
by the fund. Payment of the remaining 0.15% of the Class 529A distribution fee is not yet implemented and will
commence on such date as the fund's Board of Trustees may determine.
(3) For the year ended August 31, 2005, MFD retained these service fees.
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 12 months
of purchase. Class B and Class 529B shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within six years of
purchase. MFD retained all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended August 31, 2005, were as
follows:
AMOUNT
Class A $13,817
Class B 174,428
Class C 10,431
Class 529B --
Class 529C --
The fund has entered into and may from time to time enter into contracts with
program managers and other parties which administer the tuition programs
through which an investment in the fund's 529 share classes is made. The fund
has entered into an agreement with MFD pursuant to which MFD receives an
annual fee of up to 0.35% from the fund based solely upon the value of the
fund's 529 share classes attributable to tuition programs to which MFD, or a
third party which contracts with MFD, provides administrative services. The
current fee has been established at 0.25% annually of average net assets of
the fund's 529 share classes. The fee may only be increased with the approval
of the Board of Trustees who 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. Program manager fees for the year ended August 31, 2005, were as
follows:
AMOUNT
Class 529A $1,436
Class 529B 368
Class 529C 917
----------------------------------------------------------
Total Program Manager Fees $2,721
SHAREHOLDER SERVICING AGENT - The fund pays a portion of shareholder servicing
costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS.
MFSC receives a fee from the fund, for its services as shareholder servicing
agent, set periodically under the supervision of the fund's Board of Trustees.
For the year ended August 31, 2005, the fee was $1,796,616, which equated to
0.1054% annually of the fund's average daily net assets. MFSC also receives
payment from the fund for out-of-pocket and sub-accounting expenses paid by
MFSC on behalf of the fund. For the year ended August 31, 2005, these costs
amounted to $655,555.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. Effective July 1, 2005, the fund's annual fixed amount is $10,000.
The administrative services fee incurred for the year ended August 31, 2005
was equivalent to an annual effective rate of 0.0107% of the fund's average
daily net assets.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain retirement plan
administration and services with respect to certain Class R shares. These
services include various administrative, recordkeeping, and communication/
educational services with respect to the retirement plans which invest in these
shares, and may be provided directly by MFS or by a third party. For the year
ended August 31, 2005, the fund paid an annual retirement plan administration
and services fee up to the following annual percentage rates of each class'
average daily net assets:
AMOUNT
FEE TOTAL RETAINED
RATE AMOUNT BY MFS
Class R1 0.45% $154 $26
Class R2 0.40% 89 3
Class R3 (formerly Class R2) 0.25% 2,981 757
Class R4 0.15% 32 --
Class R5 0.10% 21 --
- -------------------------------------------------------------------------------
Total Retirement Plan Administration and
Services Fees $3,277 $786
TRUSTEES' COMPENSATION - The fund pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons. The fund does not pay compensation directly to
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, MFD, and MFSC.
The fund has an unfunded, defined benefit plan for retired Independent
Trustees which resulted in a pension expense of $2,412. The fund also has an
unfunded retirement benefit deferral plan for certain current Independent
Trustees which resulted in a net decrease of $584. Both amounts are included
in Trustees compensation for the year ended August 31, 2005.
OTHER - 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 the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $5,899, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided 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, was the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales. As a result, proceeds in the amount of $8,010 were
paid to the fund on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$1,838,543,763 and $1,318,680,977, 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 $2,344,394,782
----------------------------------------------------------
Gross unrealized appreciation $267,991,297
Gross unrealized depreciation (9,865,518)
----------------------------------------------------------
Net unrealized appreciation $258,125,779
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 8/31/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 28,794,080 $449,353,092 25,499,429 $340,976,897
Shares issued to shareholders in
reinvestment of distributions 1,587,913 24,279,191 14,847 197,567
Shares reacquired (14,437,115) (224,139,499) (17,498,280) (239,404,354)
- ------------------------------------------------------------------------------------------------------------
Net change 15,944,878 $249,492,784 8,015,996 $101,770,110
CLASS B SHARES
Shares sold 2,362,199 $35,339,373 2,527,350 $33,384,413
Shares issued to shareholders in
reinvestment of distributions 340,629 5,034,486 -- --
Shares reacquired (2,316,453) (34,824,715) (1,959,753) (25,909,743)
- ------------------------------------------------------------------------------------------------------------
Net change 386,375 $5,549,144 567,597 $7,474,670
CLASS C SHARES
Shares sold 2,336,111 $34,976,257 2,467,171 $32,082,699
Shares issued to shareholders in
reinvestment of distributions 208,302 3,070,381 -- --
Shares reacquired (1,206,741) (17,997,574) (1,081,531) (14,358,259)
- ------------------------------------------------------------------------------------------------------------
Net change 1,337,672 $20,049,064 1,385,640 $17,724,440
CLASS I SHARES
Shares sold 19,429,388 $307,426,523 14,828,774 $204,201,804
Shares issued to shareholders in
reinvestment of distributions 1,781,510 27,773,750 57,562 771,329
Shares reacquired (3,443,470) (55,618,095) (2,402,041) (32,740,066)
- ------------------------------------------------------------------------------------------------------------
Net change 17,767,428 $279,582,178 12,484,295 $172,233,067
CLASS R SHARES (FORMERLY CLASS R1)
Shares sold 1,840,882 $28,392,688 1,482,311 $20,401,641
Shares issued to shareholders in
reinvestment of distributions 86,925 1,321,265 1,036 13,608
Shares reacquired (630,288) (9,740,922) (520,404) (7,092,308)
- ------------------------------------------------------------------------------------------------------------
Net change 1,297,519 $19,973,031 962,943 $13,322,941
Period ended 8/31/05*
SHARES AMOUNT
CLASS R1 SHARES
Shares sold 10,752 $164,313
Shares reacquired (72) (1,129)
- --------------------------------------------------------------------------
Net change 10,680 $163,184
CLASS R2 SHARES
Shares sold 11,113 $173,543
Year ended 8/31/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS R3 SHARES (FORMERLY CLASS R2)
Shares sold 133,725 $2,068,055 53,628 $745,402
Shares issued to shareholders in
reinvestment of distributions 1,871 28,303 -- --
Shares reacquired (22,619) (345,295) (23,193) (321,470)
- ------------------------------------------------------------------------------------------------------------
Net change 112,977 $1,751,063 30,435 $423,932
Period ended 8/31/05*
SHARES AMOUNT
CLASS R4 SHARES
Shares sold 3,201 $50,000
CLASS R5 SHARES
Shares sold 3,201 $50,000
Year ended 8/31/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 25,961 $402,042 14,375 $195,143
Shares issued to shareholders in
reinvestment of distributions 1,383 21,032 9 122
Shares reacquired (4,742) (74,061) (767) (10,500)
- ------------------------------------------------------------------------------------------------------------
Net change 22,602 $349,013 13,617 $184,765
CLASS 529B SHARES
Shares sold 3,708 $53,775 5,351 $69,686
Shares issued to shareholders in
reinvestment of distributions 428 6,284 -- --
Shares reacquired (1,242) (18,403) (988) (13,139)
- ------------------------------------------------------------------------------------------------------------
Net change 2,894 $41,656 4,363 $56,547
CLASS 529C SHARES
Shares sold 8,456 $126,224 14,470 $187,605
Shares issued to shareholders in
reinvestment of distributions 1,002 14,679 -- --
Shares reacquired (1,323) (19,683) (1,192) (16,154)
- ------------------------------------------------------------------------------------------------------------
Net change 8,135 $121,220 13,278 $171,451
* For the period from the inception of Class R1, R2, R4 and R5 shares, April 1, 2005 through
August 31, 2005.
The fund is one of several mutual funds in which the MFS fund-of-funds may
invest. The MFS fund-of-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 International Diversification Fund, and MFS
Moderate Allocation Fund were the owners of record of approximately 3.83%,
1.44%, 12.73%, 7.16%, and 8.31% respectively, of the value of outstanding
voting shares.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured line
of credit provided by a syndication of banks under a 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 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the fund for the year ended August 31, 2005 was $11,876, and is
included in miscellaneous expense. The fund had no significant borrowings
during the year ended August 31, 2005.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust I and Shareholders of
MFS Research International Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Research International Fund (the Fund) (one of the portfolios comprising MFS
Series Trust I), including the portfolio of investments, as of August 31,
2005, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Fund's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of August 31, 2005, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Research International Fund at August 31, 2005, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for each of the
periods indicated therein, in conformity with U.S. generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 11, 2005
RESULTS OF SHAREHOLDER MEETING (unaudited) - 8/31/05
At a special meeting of shareholders of MFS Series Trust I, which was held on
March 23, 2005, the following action was taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $8,025,286,508.56 $117,939,292.78
- -----------------------------------------------------------------------------
David H. Gunning 8,030,402,677.64 112,823,123.70
- -----------------------------------------------------------------------------
William R. Gutow 8,027,523,726.27 115,702,075.07
- -----------------------------------------------------------------------------
Michael Hegarty 8,021,162,525.49 122,063,275.85
- -----------------------------------------------------------------------------
J. Atwood Ives 8,024,062,680.07 119,163,121.27
- -----------------------------------------------------------------------------
Amy B. Lane 8,019,792,882.59 123,432,918.75
- -----------------------------------------------------------------------------
Robert J. Manning 8,030,980,361.78 112,245,439.56
- -----------------------------------------------------------------------------
Lawrence T. Perera 8,025,935,401.12 117,290,400.22
- -----------------------------------------------------------------------------
Robert C. Pozen 8,031,655,470.25 111,570,331.09
- -----------------------------------------------------------------------------
J. Dale Sherratt 8,027,226,595.42 115,999,205.92
- -----------------------------------------------------------------------------
Laurie J. Thomsen 8,019,388,506.87 123,837,294.47
- -----------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2005, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.)
The address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(1) OTHER DIRECTORSHIPS(2)
- ------------------- ---------------- --------------- ----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee and February 2004 Massachusetts Financial Services
(born 10/20/63) President Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School
(education), John Olin Visiting
Professor (since July 2002);
Secretary of Economic Affairs, The
Commonwealth of Massachusetts
(January 2002 to December 2002);
Fidelity Investments, Vice
Chairman (June 2000 to December
2001); Fidelity Management &
Research Company (investment
adviser), President (March 1997 to
July 2001); Bell Canada
Enterprises (telecommunications),
Director; Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 05/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Chief of Cardiac Surgery; Harvard
Medical School, Professor of
Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group (1997 to
February 2001); Borders Group,
Inc. (book and music retailer),
Director; Federal Realty
Investment Trust (real estate
investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 06/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 08/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
OFFICERS
Robert J. Manning(3) President and February 2004 Massachusetts Financial Services
(born 10/20/63) Trustee Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Tracy Atkinson(3) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(3) Assistant July 2005 Massachusetts Financial Services
(born 1/18/74) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003); Nvest Services Company,
Assistant Vice President and
Associate Counsel (prior to
January 2001)
Jeffrey N. Carp(3) Secretary and September 2004 Massachusetts Financial Services
(born 12/01/56) Clerk Company, Executive Vice President,
General Counsel and Secretary
(since April 2004); Hale and Dorr
LLP (law firm), Partner (prior to
April 2004)
Ethan D. Corey(3) Assistant July 2005 Massachusetts Financial Services
(born 11/21/63) Secretary and Company, Special Counsel (since
Assistant Clerk December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
Stephanie A. DeSisto(3) Assistant May 2003 Massachusetts Financial Services
(born 10/01/53) Treasurer Company, Vice President (since
April 2003); Brown Brothers
Harriman & Co., Senior Vice
President (November 2002 to April
2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
David L. DiLorenzo(3) Assistant July 2005 Massachusetts Financial Services
(born 8/10/68) Treasurer Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (January
2001 to June 2005); State Street
Bank, Vice President and Corporate
Audit Manager (prior to January
2001)
Timothy M. Fagan(3) Assistant September 2005 Massachusetts Financial Services
(born 7/10/68) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(3) Assistant July 2005 Massachusetts Financial Services
(born 10/27/70) Treasurer Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian T. Hourihan(3) Assistant September 2004 Massachusetts Financial Services
(born 11/11/64) Secretary and Company, Vice President, Senior
Assistant Clerk Counsel and Assistant Secretary
(since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance
Program (January to April 2004);
Fidelity Research & Management
Company, Assistant General Counsel
(prior to January 2004)
Ellen Moynihan(3) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Vice President
Susan S. Newton(3) Assistant May 2005 Massachusetts Financial Services
(born 03/07/50) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(3) Assistant July 2005 Massachusetts Financial Services
(born 11/05/70) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (January 2001 to June
2004); Preti, Flaherty, Beliveau,
Pachios & Haley, LLC, Associate
(prior to January 2001)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (February
1997 to March 2003)
James O. Yost(3) Assistant September 1990 Massachusetts Financial Services
(born 06/12/60) Treasurer Company, Senior Vice President
- ------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served
continuously since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(3) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940
(referred to as the 1940 Act), which is the principal federal law governing investment companies
like the fund, as a result of position with MFS. The address of MFS is 500 Boylston Street,
Boston, Massachusetts 02116.
Each Trustee has been elected by shareholders and each Trustee and officer holds office until his or
her successor is chosen and qualified or until his or her earlier death, resignation, retirement or
removal. Messrs. Ives and Sherratt and Mses. Lane and Thomsen are members of the Trust's Audit
Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which
MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with
certain affiliates of MFS. As of December 31, 2004, each Trustee served as a board member of 99 funds
within the MFS Family of Funds.
The Trust held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once
every five years thereafter, to elect Trustees.
The Statement of Additional Information contains further information about the Trustees and is
available without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 02110
02116-3741
INDEPENDENT REGISTERED PUBLIC
DISTRIBUTOR ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 200 Clarendon Street, Boston, MA 02116
02116-3741
PORTFOLIO MANAGERS
Jose Luis Garcia
Thomas Melendez
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment
advisory agreement with MFS. The Trustees consider matters bearing on the Fund
and its advisory arrangements at their meetings throughout the year, including
a review of performance data at each regular meeting. In addition, the
independent Trustees met several times over the course of three months
beginning in May and ending in July, 2005 ("contract review meetings") for the
specific purpose of considering whether to approve the continuation of the
investment advisory agreement for the Fund and the other investment companies
that the Board oversees (the "MFS Funds"). The independent Trustees were
assisted in their evaluation of the Fund's investment advisory agreement by
independent legal counsel, from whom they received separate legal advice and
with whom they met separately from MFS during various contract review
meetings. The independent Trustees were also assisted in this process by the
MFS Funds' Independent Chief Compliance Officer, a full-time senior officer
appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light
of the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2004 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable
funds identified by Lipper (the "Lipper expense group"), as well as the
advisory fees and other expenses of peer funds identified by objective
criteria suggested by MFS, (iii) information provided by MFS on the advisory
fees of comparable portfolios of other clients of MFS, including institutional
separate account and other clients, (iv) information as to whether and to what
extent applicable expense waivers, reimbursements or fee "breakpoints" are
observed for the Fund, (v) information regarding MFS' financial results and
financial condition, including MFS' and certain of its affiliates' estimated
profitability from services performed for the Fund and the MFS Funds as a
whole, (vi) MFS' views regarding the outlook for the mutual fund industry and
the strategic business plans of MFS, (vii) descriptions of various functions
performed by MFS for the Funds, such as compliance monitoring and portfolio
trading practices, and (viii) information regarding the overall organization
of MFS, including information about MFS' senior management and other personnel
providing investment advisory, administrative and other services to the Fund
and the other MFS Funds. The comparative performance, fee and expense
information prepared and provided by Lipper Inc. was not independently
verified and the independent Trustees did not independently verify any
information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than others, and that
the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed
the Fund's total return investment performance as well as the performance of
peer groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2004, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 31st percentile relative to the other funds in the
universe for this three-year period (the 1st percentile being the best
performers and the 100th percentile being the worst performers). The total
return performance of the Fund's Class A shares was in the 26th percentile
for each of the one and five-year periods ended December 31, 2004 relative to
the Lipper performance universe. Because of the passage of time, these
performance results are likely to differ from the performance results for more
recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings,
as well as during investment review meetings conducted with portfolio
management personnel during the course of the year regarding the Fund's
performance. After reviewing these and related factors, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that they were satisfied with MFS' responses
and efforts relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
whether the Fund was subject to any fee waivers or reductions or expense
limitations. The Trustees also considered that, according to the Lipper data,
the Fund's effective advisory fee rate and total expense ratio were each
approximately at the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information
provided by MFS as to the generally broader scope of services provided by MFS
to the Fund in comparison to institutional accounts, the higher demands placed
on MFS' investment personnel and trading infrastructure as a result of the
daily cash in-flows and out-flows of the Fund, and the impact on MFS and
expenses associated with the more extensive regulatory regime to which the
Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
currently subject to breakpoints that reduce the Fund's advisory fee rate on
net assets over $1 billion and $2 billion. Taking into account fee waivers or
reductions or expense limitations, if any, the Trustees concluded that the
existing breakpoints were sufficient to allow the Fund to benefit from
economies of scale as its assets grow.
The Trustees also considered information prepared by MFS relating to MFS'
costs and profits with respect to the Fund, the MFS Funds considered as a
group, and other investment companies and accounts advised by MFS, as
well as MFS' methodologies used to determine and allocate its costs to the MFS
Funds, the Fund and other accounts and products for purposes of estimating
profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the
financial services industry, including the entry into the industry of large
and well-capitalized companies which are spending, and appear to be prepared
to continue to spend, substantial sums to engage personnel and to provide
services to competing investment companies. In this regard, the Trustees also
considered the financial resources of MFS and its ultimate parent, Sun Life
Financial Inc. The Trustees also considered the advantages and possible
disadvantages to the Fund of having an adviser which also serves other
investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the
Fund by MFS and its affiliates under agreements and plans other than the
investment advisory agreement, including any 12b-1 fees the Fund pays to MFS
Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for research and other similar services
(including MFS' general policy to pay directly for third-party research), and
various other factors. Additionally, the Trustees considered so-called "fall-
out benefits" to MFS such as reputational value derived from serving as
investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material,
including those factors described above, the Board of Trustees, including a
majority of the independent Trustees, concluded that the Fund's investment
advisory agreement with MFS should be continued for an additional one-year
period, commencing August 1, 2005.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement will be available on or before
December 1, 2005 by clicking on the fund's name under "Select a fund" on the
MFS website (mfs.com).
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 Proxy Voting 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.
FEDERAL TAX INFORMATION (unaudited)
In January 2006, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2005.
The fund has designated $75,439,840 as a capital gain dividend for the year
ended August 31, 2005.
For the year ended August 31, 2005, income from foreign sources was
$33,981,511, and the fund designated a foreign tax credit of $3,987,788.
CONTACT INFORMATION
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
- --------------------------------------------------------------------------------
Share 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-ANN-10/05 106M
MFS(R) TECHNOLOGY FUND 8/31/05
ANNUAL REPORT
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LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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MANAGEMENT REVIEW 3
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PERFORMANCE SUMMARY 5
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EXPENSE TABLE 8
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PORTFOLIO OF INVESTMENTS 10
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FINANCIAL STATEMENTS 13
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NOTES TO FINANCIAL STATEMENTS 23
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 33
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RESULTS OF SHAREHOLDER MEETING 34
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TRUSTEES AND OFFICERS 35
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 40
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PROXY VOTING POLICIES AND INFORMATION 44
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QUARTERLY PORTFOLIO DISCLOSURE 44
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FEDERAL TAX INFORMATION 44
- ---------------------------------------------------
CONTACT INFORMATION BACK COVER
- ---------------------------------------------------
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.
M F S(SM)
INVESTMENT MANAGEMENT(R)
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders,
Most investors are familiar with the basic principles of investing - focus on
the long term and keep your assets diversified across different investment
categories. Still, it is surprising how often we forget these basic lessons.
Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s
had many people hoping they could become millionaires overnight. But the
market decline that started in the spring of 2000 taught everyone how
misguided those hopes had been.
Now, less than five years after the market taught a harsh lesson in the
follies of speculative investing, we are seeing a number of trends that
suggest many investors, including professionals, are hoping for overnight
miracles again. We see a steady stream of market "gurus" on television news
shows, promising to teach amateur investors the strategies that will allow
them to get rich quick. Hedge funds - which by their nature move in and out of
investments rapidly - have soared in popularity over the past five years. We
are reminded every day that we live in a "what have you done for me lately?"
world, but this mindset should not influence how we invest and manage our
money. In fact, investors often fall short of their goals because they trade
in and out of investments too frequently and at inopportune times.
Throughout our entire 80-year history, MFS' money management process has
focused on long-term investment opportunities. We firmly believe that one of
the best ways to realize long-term financial goals - be it a college
education, a comfortable retirement, or a secure family legacy - is to follow
a three-pronged approach that focuses on longer time horizons. Allocate
holdings across the major asset classes - including stocks, bonds, and cash.
Diversify within each class to take advantage of different market segments and
investing styles. And rebalance assets regularly to maintain a desired asset
allocation.*
This long-term approach requires diligence and patience, two traits that in
our experience are essential to capitalizing on the many opportunities the
financial markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 17, 2005
* Asset allocation, diversification, and rebalancing does not guarantee a
profit or protect against a loss. The opinions expressed in this letter are
those of MFS, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 99.3%
Cash & Other Net Assets 0.7%
TOP TEN HOLDINGS
Samsung Electronics Co. Ltd. 5.4%
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Dell, Inc. 5.2%
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Cisco Systems, Inc. 4.9%
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Symantec Corp. 4.1%
------------------------------------------------
MicroStrategy, Inc., "A" 4.0%
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Oracle Corp. 3.9%
------------------------------------------------
Nokia Corp. 3.9%
------------------------------------------------
QUALCOMM, Inc. 3.8%
------------------------------------------------
Amdocs Ltd. 3.7%
------------------------------------------------
LG Philips LCD Co. Ltd. 3.6%
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TOP FIVE EQUITY INDUSTRIES
Computer Software 22.9%
------------------------------------------------
Electronics 19.8%
------------------------------------------------
Network & Telecom 14.3%
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Computer Systems 11.4%
------------------------------------------------
PC & Peripherals 6.9%
------------------------------------------------
Percentages are based on net assets as of 8/31/05.
The portfolio is actively managed, and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2005, Class A shares of the MFS
Technology Fund had a total return of 14.81%, at net asset value. In
comparison, the fund's benchmark, the Goldman Sachs Technology Industry
Composite Index, returned 16.48%.
DETRACTORS FROM PERFORMANCE
PC and peripherals, electronics, and leisure and toys were the greatest
detracting industries from relative performance during the reporting period.
Stock selection and our overweighted position in the weak-performing PC
and peripherals industry hindered results. Within this industry, our
positioning in Internet storage company Network Appliance was a drag on
relative performance.
For the electronics industry, security selection hurt returns with
semiconductor company Integrated Circuit Systems* among the fund's top
detractors. Our positioning in the leisure and toys industry also held back
performance. Within leisure and toys, our holdings in Electronic Arts
detracted from results.
Elsewhere, our positioning in computer company Hewlett-Packard*, business to
business and e-commerce software vendor Ariba, telecommunication equipment
maker Motorola*, software firm Mercury Interactive, network computing company
Sun Microsystems*, and human resources service provider Hewitt Associates*
dampened relative results. Not owning benchmark constituent Corning also held
back performance as the stock outperformed the benchmark over the period.
CONTRIBUTORS TO PERFORMANCE
During the reporting period, stock selection in the computer systems,
Internet, and computer software industries significantly boosted relative
performance.
The computer systems industry led performance as our positioning in IBM* and
Apple Computer significantly aided relative results. In the Internet industry,
online search provider Google, which had a dramatic run-up in share price, was
the fund's greatest individual contributor to relative performance.
The fund also benefited from strong returns in several of its computer
software holdings including business software firm MicroStrategy and
network security company Blue Coat Systems*, neither of which are
benchmark constituents.
In other industries, networking chip company Marvell Technology*, flash memory
storage products maker SanDisk, interactive media and marketing company
Digitas*, and Internet products and services firm F5 Networks* had significant
positive impacts on relative performance.
*Security was not held in the portfolio at period-end.
Respectfully,
Telis D. Bertsekas
Portfolio Manager
Note to Shareholders: Telis Bertsekas became the Portfolio Manager of the fund
in March 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 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 8/31/05
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR CLASS 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
January 2, 1997, through August 31, 2005. Index information is from January 1,
1997.)
Goldman Sachs
MFS Technology Technology Industry
Fund -- Class A Composite Index
1/97 $ 9,425 $10,000
8/97 11,810 13,559
8/98 11,738 13,114
8/99 19,397 27,523
8/00 36,453 44,919
8/01 14,211 16,464
8/02 8,309 10,420
8/03 11,034 14,421
8/04 10,236 13,989
8/05 11,752 16,293
TOTAL RATES OF RETURN THROUGH 8/31/05
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr Life*
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A 1/02/97 14.81% -20.26% 2.58%
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B 4/14/00 14.00% -20.78% 2.16%
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C 4/14/00 14.17% -20.79% 2.15%
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I 1/02/97 15.16% -19.92% 2.86%
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R** 12/31/02 14.73% -20.33% 2.53%
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R1 4/01/05 14.50% -20.30% 2.55%
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R2 4/01/05 14.64% -20.28% 2.56%
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R3** 10/31/03 14.36% -20.37% 2.50%
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R4 4/01/05 14.94% -20.24% 2.59%
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R5 4/01/05 15.06% -20.22% 2.61%
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AVERAGE ANNUAL
Comparative benchmarks
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Average science and technology fund+ 20.65% -19.35% 5.68%
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Goldman Sachs Technology Industry
Composite Index# 16.48% -18.36% 5.79%
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AVERAGE ANNUAL WITH SALES CHARGE
Share class
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A 8.20% -21.20% 1.88%
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B 10.00% -21.09% 2.16%
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C 13.17% -20.79% 2.15%
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Class I, R, R1, R2, R3, R4, and R5 shares do not have a sales charge. Please
see Notes to Performance Summary for more details.
* For the period from the commencement of the fund's investment operations,
January 2, 1997, through
August 31, 2005. Index information is from January 1, 1997.
** Effective April 1, 2005, Class R1 shares have been renamed "Class R shares"
and Class R2 shares have been renamed "Class R3 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 R shares have no initial
sales charge or CDSC and are available only to existing Class R shareholders.
Class I, R1, R2, R3, R4, and R5 shares have no initial sales charge or CDSC.
Class I shares are only available to certain eligible investors, and Class R1,
R2, R3, R4, and R5 shares are only available 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.
EXPENSE TABLE
FUND EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
MARCH 1, 2005 THROUGH AUGUST 31, 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 March 1, 2005 through
August 31, 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.
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Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 3/01/05-
Share Class Ratio 3/01/05 8/31/05 8/31/05
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Actual 1.50% $1,000.00 $1,025.50 $7.66
A ---------------------------------------------------------------------
Hypothetical* 1.50% $1,000.00 $1,017.64 $7.63
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Actual 2.15% $1,000.00 $1,022.70 $10.96
B ----------------------------------------------------------------------
Hypothetical* 2.15% $1,000.00 $1,014.37 $10.92
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Actual 2.15% $1,000.00 $1,022.80 $10.96
C ---------------------------------------------------------------------
Hypothetical* 2.15% $1,000.00 $1,014.37 $10.92
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Actual 1.17% $1,000.00 $1,028.40 $5.98
I ---------------------------------------------------------------------
Hypothetical* 1.17% $1,000.00 $1,019.31 $5.96
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R Actual 1.65% $1,000.00 $1,026.80 $8.43
(formerly ---------------------------------------------------------------------
R1) Hypothetical* 1.65% $1,000.00 $1,016.89 $8.39
- --------------------------------------------------------------------------------
Actual 2.34% $1,000.00 $1,022.80 $11.93
R1 ---------------------------------------------------------------------
Hypothetical* 2.34% $1,000.00 $1,013.41 $11.88
- --------------------------------------------------------------------------------
Actual 2.04% $1,000.00 $1,024.00 $10.41
R2 ---------------------------------------------------------------------
Hypothetical* 2.04% $1,000.00 $1,014.92 $10.36
- --------------------------------------------------------------------------------
R3 Actual 1.90% $1,000.00 $1,024.60 $9.70
(formerly ---------------------------------------------------------------------
R2) Hypothetical* 1.90% $1,000.00 $1,015.63 $9.65
- --------------------------------------------------------------------------------
Actual 1.54% $1,000.00 $1,026.70 $7.87
R4 ---------------------------------------------------------------------
Hypothetical* 1.54% $1,000.00 $1,017.44 $7.83
- --------------------------------------------------------------------------------
Actual 1.24% $1,000.00 $1,027.80 $6.34
R5 ---------------------------------------------------------------------
Hypothetical* 1.24% $1,000.00 $1,018.95 $6.31
- --------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, 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 - 8/31/05
The Portfolio of Investments is a complete list of all securities owned by your fund.
It is categorized by broad-based asset classes.
Stocks - 99.3%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ---------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.6%
- ---------------------------------------------------------------------------------------------------
XM Satellite Radio Holdings, Inc., "A"^* 81,670 $ 2,878,868
- ---------------------------------------------------------------------------------------------------
Business Services - 7.6%
- ---------------------------------------------------------------------------------------------------
Amdocs Ltd.* 141,630 $ 4,156,841
Getty Images, Inc.^* 23,250 1,989,967
Infosys Technologies Ltd., ADR 33,030 2,338,194
--------------
$ 8,485,002
- ---------------------------------------------------------------------------------------------------
Computer Software - 22.9%
- ---------------------------------------------------------------------------------------------------
Adobe Systems, Inc. 81,550 $ 2,205,112
Compuware Corp.* 208,590 1,889,825
Mercury Interactive Corp.* 46,350 1,699,654
MicroStrategy, Inc., "A"^* 57,270 4,409,790
Opsware, Inc.^* 632,230 2,920,903
Oracle Corp.* 333,618 4,327,025
Symantec Corp.* 216,801 4,548,485
TIBCO Software, Inc.^* 451,260 3,447,626
--------------
$ 25,448,420
- ---------------------------------------------------------------------------------------------------
Computer Software - Systems - 11.4%
- ---------------------------------------------------------------------------------------------------
Apple Computer, Inc.* 63,190 $ 2,965,507
Dell, Inc.* 162,423 5,782,259
LG Philips LCD Co. Ltd.* 87,740 3,983,400
--------------
$ 12,731,166
- ---------------------------------------------------------------------------------------------------
Electronics - 19.8%
- ---------------------------------------------------------------------------------------------------
AU Optronics Corp., ADR 151,735 $ 2,244,161
Chartered Semiconductor Manufacturing Ltd., ADR^* 167,540 1,114,141
KLA-Tencor Corp. 55,750 2,829,870
Novellus Systems, Inc.* 46,240 1,239,694
PMC-Sierra, Inc.* 167,980 1,424,470
Samsung Electronics Co. Ltd., GDR## 22,955 6,019,949
SanDisk Corp.^* 81,070 3,147,948
Taiwan Semiconductor Manufacturing Co. Ltd., ADR 217,074 1,786,519
Texas Instruments, Inc. 67,660 2,211,129
--------------
$ 22,017,881
- ---------------------------------------------------------------------------------------------------
Energy - Independent - 0.6%
- ---------------------------------------------------------------------------------------------------
Evergreen Solar, Inc.^* 103,110 $ 726,925
- ---------------------------------------------------------------------------------------------------
Internet - 6.4%
- ---------------------------------------------------------------------------------------------------
Amazon.com, Inc.* 39,060 $ 1,667,862
Ariba, Inc.^* 259,480 1,541,311
Google, Inc., "A"* 13,690 3,915,340
--------------
$ 7,124,513
- ---------------------------------------------------------------------------------------------------
Leisure & Toys - 1.1%
- ---------------------------------------------------------------------------------------------------
Electronic Arts, Inc.* 20,590 $ 1,179,395
- ---------------------------------------------------------------------------------------------------
Machinery & Tools - 1.2%
- ---------------------------------------------------------------------------------------------------
Cognex Corp.^ 45,740 $ 1,360,765
- ---------------------------------------------------------------------------------------------------
Network & Telecom - 14.3%
- ---------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 307,833 $ 5,424,017
Juniper Networks, Inc.* 85,010 1,933,127
Nokia Corp., ADR 272,580 4,298,587
QUALCOMM, Inc. 107,850 4,282,724
--------------
$ 15,938,455
- ---------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 6.9%
- ---------------------------------------------------------------------------------------------------
EMC Corp.* 272,340 $ 3,502,292
Hon Hai Precision Industry Co. Ltd. 258,000 1,334,694
Network Appliance, Inc.* 118,490 2,812,953
--------------
$ 7,649,939
- ---------------------------------------------------------------------------------------------------
Specialty Stores - 3.6%
- ---------------------------------------------------------------------------------------------------
Circuit City Stores, Inc. 234,330 $ 3,957,834
- ---------------------------------------------------------------------------------------------------
Telephone Services - 0.9%
- ---------------------------------------------------------------------------------------------------
Sprint Nextel Corp. 37,100 $ 962,003
- ---------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $107,192,871) $ 110,461,166
- ---------------------------------------------------------------------------------------------------
Short-Term Obligation - 0.9%
- ---------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ---------------------------------------------------------------------------------------------------
General Electric Capital Corp., 3.58%, due 9/01/05,
at Amortized Cost< $ 970,000 $ 970,000
- ---------------------------------------------------------------------------------------------------
Portfolio of Investments - continued
Collateral for Securities Loaned - 8.9%
- ---------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ---------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Cost and Net Asset Value 9,924,816 $ 9,924,816
- ---------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $118,087,687)(S) $ 121,355,982
- ---------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (9.1)% (10,117,247)
- ---------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 111,238,735
- ---------------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
(S) As of August 31, 2005, the fund had two securities representing $5,318,094 and 4.8% of net
assets that were fair valued in accordance with the policies adopted by the Board of Trustees.
## SEC Rule 144A restriction.
< The rate shown represents an annualized yield at time of purchase.
Abbreviations:
ADR = American Depository Receipt
GDR = Global Depository Receipt
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 the fund.
AT 8/31/05
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $9,625,384 of securities on
loan (identified cost, $118,087,687) $121,355,982
Cash 3,014
Foreign currency, at value (identified cost, $356,630) 340,678
Receivable for fund shares sold 74,948
Receivable from investment adviser 18,142
Interest and dividends receivable 42,227
Other assets 16
- -------------------------------------------------------------------------------------------------------
Total assets $121,835,007
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $197,868
Payable for fund shares reacquired 234,976
Collateral for securities loaned, at value 9,924,816
Payable to affiliates
Management fee 2,274
Shareholder servicing costs 86,768
Distribution and service fees 2,528
Administrative services fee 63
Retirement plan administration and services fees 3
Accrued expenses and other liabilities 146,976
- -------------------------------------------------------------------------------------------------------
Total liabilities $10,596,272
- -------------------------------------------------------------------------------------------------------
Net assets $111,238,735
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in capital $450,135,559
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 3,252,344
Accumulated net realized gain (loss) on investments and
foreign currency transactions (342,149,168)
- -------------------------------------------------------------------------------------------------------
Net assets $111,238,735
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 12,789,215
- -------------------------------------------------------------------------------------------------------
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $48,944,507
Shares outstanding 5,534,196
- -------------------------------------------------------------------------------------------------------
Net asset value per share $8.84
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$8.84) $9.38
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $43,764,851
Shares outstanding 5,116,249
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.55
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $12,413,506
Shares outstanding 1,453,472
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.54
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $3,384,228
Shares outstanding 374,226
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $9.04
- -------------------------------------------------------------------------------------------------------
Class R shares (formerly Class R1)
- -------------------------------------------------------------------------------------------------------
Net assets $2,283,049
Shares outstanding 259,581
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $8.80
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $64,139
Shares outstanding 7,502
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $8.55
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $85,454
Shares outstanding 9,983
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $8.56
- -------------------------------------------------------------------------------------------------------
Class R3 shares (formerly Class R2)
- -------------------------------------------------------------------------------------------------------
Net assets $191,832
Shares outstanding 21,900
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $8.76
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $53,551
Shares outstanding 6,053
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $8.85
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $53,618
Shares outstanding 6,053
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $8.86
- -------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred
sales charge may be imposed on redemptions of Class A, Class B and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Operations
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
YEAR ENDED 8/31/05
NET INVESTMENT LOSS:
- ----------------------------------------------------------------------------------------------------------------
Income
Dividends $1,317,421
Interest 61,579
Foreign taxes withheld (35,939)
- ----------------------------------------------------------------------------------------------------------------
Total investment income $1,343,061
- ----------------------------------------------------------------------------------------------------------------
Expenses
Management fee $1,078,068
Distribution and service fees 897,977
Shareholder servicing costs 610,448
Administrative services fee 15,129
Retirement plan administration and services fees 680
Trustees' compensation 12,373
Custodian fee 61,352
Printing 60,338
Postage 15,480
Auditing fees 43,630
Legal fees 4,447
Shareholder solicitation expenses 34,339
Registration fees 99,791
Miscellaneous 28,644
- ------------------------------------------------------------------------------------------------------
Total expenses $2,962,696
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (21,686)
Reduction of expenses by investment adviser (410,318)
- ------------------------------------------------------------------------------------------------------
Net expenses $2,530,692
- ------------------------------------------------------------------------------------------------------
Net investment loss $(1,187,631)
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
- ------------------------------------------------------------------------------------------------------
Investment transactions $26,403,744
- ------------------------------------------------------------------------------------------------------
Written options transactions (55,971)
- ------------------------------------------------------------------------------------------------------
Foreign currency transactions (33,833)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency
transactions $26,313,940
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- ------------------------------------------------------------------------------------------------------
Investments $(3,569,581)
- ------------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (15,974)
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(3,585,555)
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $22,728,385
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $21,540,754
- ------------------------------------------------------------------------------------------------------
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 and any shareholder transactions.
FOR YEARS ENDED 8/31 2005 2004
CHANGE IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment loss $(1,187,631) $(2,724,957)
Net realized gain (loss) on investments and foreign
currency transactions 26,313,940 13,664,197
Net unrealized gain (loss) on investments and foreign
currency translation (3,585,555) (23,010,134)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $21,540,754 $(12,070,894)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(67,156,944) $(18,052,412)
- -------------------------------------------------------------------------------------------------------
Redemption fees $4,244 $44
- -------------------------------------------------------------------------------------------------------
Total change in net assets $(45,611,946) $(30,123,262)
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period $156,850,681 $186,973,943
At end of period $111,238,735 $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 past 5 years
(or, if shorter, the period of the fund's operation). Certain information reflects financial results for a single fund
share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment
in the fund (assuming reinvestment of all distributions) held for the entire period. This information has been audited by
the fund's independent registered public accounting firm, whose report, together with the fund's financial statements, are
included in this report.
CLASS A
YEARS ENDED 8/31
----------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $7.70 $8.30 $6.25 $10.70 $28.03
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.05) $(0.10) $(0.07) $(0.11) $(0.14)
Net realized and unrealized gain (loss)
on investments and foreign currency 1.19 (0.50) 2.12 (4.34) (16.69)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.14 $(0.60) $2.05 $(4.45) $(16.83)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions $-- $-- $-- $-- (0.50)
From paid-in capital -- -- -- -- (0.00)+++
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $-- $-- $-- $-- $(0.50)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.84 $7.70 $8.30 $6.25 $10.70
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&*** 14.81 (7.23)+ 32.80 (41.53) (61.02)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.79 1.60 1.76 1.74 1.55
Expenses after expense reductions## 1.51 1.50 1.52 1.51 1.52
Net investment loss (0.56) (1.10) (1.05) (1.22) (0.87)
Portfolio turnover (%) 163 141 162 210 413
Net assets at end of period
(000 Omitted) $48,945 $75,786 $101,059 $53,142 $66,358
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B
YEARS ENDED 8/31
-------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $7.50 $8.13 $6.16 $10.61 $27.95
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.10) $(0.15) $(0.11) $(0.17) $(0.25)
Net realized and unrealized gain
(loss) on investments and foreign
currency 1.15 (0.48) 2.08 (4.28) (16.64)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.05 $(0.63) $1.97 $(4.45) $(16.89)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions $-- $-- $-- $-- $(0.45)
From paid-in capital -- -- -- -- (0.00)+++
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $-- $-- $-- $-- $(0.45)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.55 $7.50 $8.13 $6.16 $10.61
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&*** 14.00 (7.75)+ 31.98 (41.94) (61.28)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.44 2.25 2.42 2.39 2.20
Expenses after expense reductions## 2.16 2.15 2.18 2.16 2.17
Net investment loss (1.24) (1.74) (1.71) (1.87) (1.52)
Portfolio turnover (%) 163 141 162 210 413
Net assets at end of period
(000 Omitted) $43,765 $50,896 $61,353 $25,997 $44,369
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C
YEARS ENDED 8/31
----------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $7.48 $8.12 $6.16 $10.61 $27.95
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.10) $(0.15) $(0.11) $(0.17) $(0.25)
Net realized and unrealized gain (loss)
on investments and foreign currency 1.16 (0.49) 2.07 (4.28) (16.64)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.06 $(0.64) $1.96 $(4.45) $(16.89)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $-- $-- $-- $-- $(0.45)
From paid-in capital -- -- -- -- (0.00)+++
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $-- $-- $-- $-- $(0.45)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.54 $7.48 $8.12 $6.16 $10.61
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&*** 14.17 (7.88)+ 31.82 (41.94) (61.27)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.44 2.25 2.42 2.39 2.20
Expenses after expense reductions## 2.16 2.15 2.18 2.16 2.17
Net investment loss (1.22) (1.74) (1.71) (1.87) (1.52)
Portfolio turnover (%) 163 141 162 210 413
Net assets at end of period
(000 Omitted) $12,414 $15,367 $20,210 $10,476 $17,298
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I
YEARS ENDED 8/31
--------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $7.85 $8.43 $6.33 $10.79 $28.08
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $0.01 $(0.06) $(0.05) $(0.08) $(0.09)
Net realized and unrealized gain (loss)
on investments and foreign currency 1.18 (0.52) 2.15 (4.38) (16.68)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.19 $(0.58) $2.10 $(4.46) $(16.77)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions $-- $-- $-- $-- $(0.52)
From paid-in capital -- -- -- -- (0.00)+++
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $-- $-- $-- $-- $(0.52)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.04 $7.85 $8.43 $6.33 $10.79
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)&*** 15.16 (6.88)+ 33.18 (41.33) (60.69)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.44 1.26 1.41 1.39 1.20
Expenses after expense reductions## 1.16 1.16 1.17 1.16 1.17
Net investment income (loss) 0.17 (0.70) (0.71) (0.87) (0.53)
Portfolio turnover (%) 163 141 162 210 413
Net assets at end of period
(000 Omitted) $3,384 $13,404 $4,179 $3,045 $5,357
- ----------------------------------------------------------------------------------------------------------------------------
CLASS R (FORMERLY CLASS R1)
YEARS ENDED 8/31
------------------------------ PERIOD ENDED
2005= 2004= 8/31/03**
Net asset value, beginning of period $7.67 $8.28 $6.16###
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.07) $(0.10) $(0.08)
Net realized and unrealized gain (loss) on investments and
foreign currency 1.20 (0.51) 2.20
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.13 $(0.61) $2.12
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.80 $7.67 $8.28
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)&*** 14.73 (7.37)+ 34.42###++
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.94 1.76 1.88+
Expenses after expense reductions## 1.66 1.66 1.64+
Net investment loss (0.79) (1.21) (1.22)+
Portfolio turnover (%) 163 141 162
Net assets at end of period (000 Omitted) $2,283 $1,266 $173
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 CLASS R2
PERIOD ENDED PERIOD ENDED
8/31/05**= 8/31/05**=
Net asset value, beginning of period $8.01 $8.01
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------
Net investment loss $(0.07) $(0.05)
Net realized and unrealized gain (loss) on investments and
foreign currency 0.61^ 0.60^
- --------------------------------------------------------------------------------------------------------
Total from investment operations $0.54 $0.55
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.55 $8.56
- --------------------------------------------------------------------------------------------------------
Total return (%)&*** 6.74++ 6.87++
- --------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.62+ 2.32+
Expenses after expense reductions## 2.34+ 2.04+
Net investment loss (1.90)+ (1.60)+
Portfolio turnover (%) 163 163
Net assets at end of period (000 Omitted) $64 $85
- --------------------------------------------------------------------------------------------------------
CLASS R3 (FORMERLY CLASS R2)
YEAR ENDED PERIOD ENDED
8/31/05= 8/31/04**=
Net asset value, beginning of period $7.66 $8.79###
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------
Net investment loss $(0.09) $(0.09)
Net realized and unrealized gain (loss) on investments and
foreign currency 1.19 (1.04)
- --------------------------------------------------------------------------------------------------------
Total from investment operations $1.10 $(1.13)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.76 $7.66
- --------------------------------------------------------------------------------------------------------
Total return (%)&*** 14.36 (12.86)###+++
- --------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.19 2.01+
Expenses after expense reductions## 1.91 1.91+
Net investment loss (1.07) (1.47)+
Portfolio turnover (%) 163 141
Net assets at end of period (000 Omitted) $192 $132
- --------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 CLASS R5
PERIOD ENDED PERIOD ENDED
8/31/05**= 8/31/05**=
Net asset value, beginning of period $8.26 $8.26
- --------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------
Net investment loss $(0.04) $(0.03)
Net realized and unrealized gain (loss) on investments and
foreign currency 0.63^ 0.63^
- --------------------------------------------------------------------------------------------------------
Total from investment operations $0.59 $0.60
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.85 $8.86
- --------------------------------------------------------------------------------------------------------
Total return (%)&*** 7.14++ 7.26++
- --------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.82+ 1.52+
Expenses after expense reductions## 1.54+ 1.24+
Net investment loss (1.10)+ (0.79)+
Portfolio turnover (%) 163 163
Net assets at end of period (000 Omitted) $54 $54
- --------------------------------------------------------------------------------------------------------
** For the period from the class' inception, December 31, 2002 (Class R), October 31, 2003 (Class R3)
and April 1, 2005 (Classes R1, R2, R4, and R5) through the stated period end.
*** Certain expenses have been reduced without which performance would have been lower.
+ 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 values and total returns previously reported as $6.17 and 34.20% (Class R), $8.74
and (12.36%) (Class R3), respectively, have been revised to reflect the net asset value from the
day prior to the class' inception date. The net asset values and total returns previously reported
were from inception date, the date the share classes were first available to public shareholders.
+ 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. 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 do not include any applicable sales charges.
^ 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.
= Redemption fees charged by the fund during this period resulted in a per share impact of less than
$0.01.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Technology Fund (the fund) is a diversified series of MFS Series Trust I
(the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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 charged a 2% redemption fee (which was 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 charged 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 year ended August 31, 2005, the fund's custodian fees
were reduced by $6,673 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For the year ended August 31, 2005, the fund's miscellaneous expenses
were reduced by $15,013 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, non-taxable
distributions and net operating losses.
The fund paid no distributions for the years ended August 31, 2005 and August
31, 2004.
During the year ended August 31, 2005, accumulated net investment loss
decreased by $1,187,631, accumulated net realized loss on investments and
foreign currency transactions decreased by $47,459, and paid-in capital
decreased by $1,235,090 due to differences between book and tax accounting for
foreign currency transactions, non-taxable distribution and net operating
losses. This change had no effect on the net assets or net asset value
per share.
As of August 31, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(341,525,032)
Unrealized appreciation (depreciation) 2,644,159
Other temporary differences (15,951)
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 $(1,684,872)
August 31, 2008 (7,671,099)
August 31, 2009 (113,374,272)
August 31, 2010 (139,439,925)
August 31, 2011 (74,891,618)
August 31, 2012 (4,463,246)
---------------------------------------------------------
Total $(341,525,032)
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. At the
beginning of the period, the management fee was computed daily and paid
monthly at an annual rate of 0.75% of the fund's average daily net assets.
Effective August 1, 2005, the management fee is computed daily and paid
monthly at an annual rate of 0.75% of the fund's average daily net assets up
to $1 billion and 0.70% of the fund's average daily net assets in excess of
$1 billion. The management fee incurred for the year ended August 31, 2005,
was equivalent to an annual effective rate of 0.75% of the fund's average
daily net assets.
MFS contractually agreed, subject to reimbursement, to bear a portion of
the fund's operating expenses, exclusive of management, distribution and
service, retirement plan administration and services, and certain other fees
and expenses, such that these operating expenses did not exceed 0.40% of the
fund's average daily net assets annually. To the extent that the fund's
actual operating expenses were below 0.40%, the excess was applied to
unreimbursed amounts paid by MFS under the current agreement. This
reimbursement agreement terminated on December 31, 2004. The fund will not be
required to reimburse MFS $150,885 for unreimbursed expenses. Effective
January 1, 2005, the fund has contractually agreed to limit the fund's
operating expenses and to pay the fund's operating expenses, exclusive of
management, distribution and service, retirement plan administration and
services, and certain other fees and expenses, such that the fund's operating
expenses do not exceed 0.40% of the fund's average daily net assets annually.
This new arrangement will be in effect until December 31, 2005, unless the
fund's Board of Trustees consents to an earlier revision or termination of
this agreement.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly owned subsidiary of
MFS, as distributor, received $9,612 for the year ended August 31, 2005, as
its portion of the initial sales charge on sales of Class A shares of the
fund.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to and retained by MFD. Another component of the
plan is a service fee paid to MFD which subsequently pays a portion of this
fee 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.
DISTRIBUTION FEE PLAN TABLE:
TOTAL ANNUAL SERVICE FEE DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE RETAINED AND SERVICE
FEE RATE FEE RATE PLAN(1) RATE(2) BY MFD(3) FEE
Class A 0.10% 0.25% 0.35% 0.35% $8,471 $245,172
Class B 0.75% 0.25% 1.00% 1.00% 1,916 496,897
Class C 0.75% 0.25% 1.00% 1.00% 627 145,270
Class R 0.25% 0.25% 0.50% 0.50% 16 9,436
Class R1 0.50% 0.25% 0.75% 0.75% 93 174
Class R2 0.25% 0.25% 0.50% 0.50% 62 116
Class R3 0.25% 0.25% 0.50% 0.50% 22 858
Class R4 0.00% 0.25% 0.25% 0.25% 31 54
- ---------------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $897,977
(1) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up to
these annual percentage rates of each class' average daily net assets.
(2) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August 31,
2005 based on each class' average daily net assets.
(3) For the year ended August 31, 2005, MFD retained these service fees.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months following the
purchase. Class B shares are subject to a contingent deferred sales charge in
the event of a shareholder redemption within six years of purchase. MFD
retained all contingent deferred sales charges. Contingent deferred sales
charges imposed during the year ended August 31, 2005 were as follows:
AMOUNT
Class A $4,496
Class B $188,797
Class C $2,908
SHAREHOLDER SERVICING AGENT - The fund pays a portion of shareholder servicing
costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS.
MFSC receives a fee from the fund, for its services as shareholder servicing
agent, set periodically under the supervision of the fund's Board of Trustees.
For the year ended August 31, 2005, the fee was $145,947, which equated to
0.1014% annually of the fund's average daily net assets. MFSC also receives
payment from the fund for out-of-pocket and sub-accounting expenses paid by
MFSC on behalf of the fund. For the year ended August 31, 2005, these costs
amounted to $303,666.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. Effective July 1, 2005, the fund's annual fixed amount is $10,000.
The administrative services fee incurred for the year ended August 31, 2005
was equivalent to an annual effective rate of 0.0105% of the fund's average
daily net assets.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain retirement plan
administration and services with respect to certain Class R shares. These
services include various administrative, recordkeeping, and communication/
educational services with respect to the retirement plans which invest in
these shares, and may be provided directly by MFS or by a third party. For the
year ended August 31, 2005, the fund paid an annual retirement plan
administration and services fee up to the following annual percentage rates of
each class' average daily net assets:
AMOUNT
FEE TOTAL RETAINED
RATE AMOUNT BY MFS
Class R1 0.45% $104 $81
Class R2 0.40% 92 69
Class R3 (formerly Class R2) 0.25% 429 230
Class R4 0.15% 33 11
Class R5 0.10% 22 19
- ------------------------------------------------------------------------------
Total Retirement Plan Administration and
Services Fees $680 $410
TRUSTEES' COMPENSATION - The fund pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons. The fund does not pay compensation directly to
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, MFD, and MFSC. The fund has an unfunded, defined benefit plan for retired
Independent Trustees which resulted in a pension expense of $580. The fund
also has an unfunded retirement benefit deferral plan for certain current
Independent Trustees which resulted in an expense of $4,846. Both amounts are
included in Trustees compensation for the year ended August 31, 2005.
OTHER - 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 the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $673, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided 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, was the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales. As a result, proceeds in the amount of $102,085
were paid to the fund on February 16, 2005.
The investment adviser reimbursed the fund $546,559 for a trade correction.
This amount is included in the realized loss on written options transactions
on the Statement of Operations.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$229,733,892 and $297,808,075, 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 $118,711,823
--------------------------------------------------------
Gross unrealized appreciation $7,184,428
Gross unrealized depreciation (4,540,269)
--------------------------------------------------------
Net unrealized appreciation (depreciation) $2,644,159
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 8/31/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 1,841,301 $15,794,906 7,992,949 $70,472,191
Shares reacquired (6,148,566) (52,768,987) (10,325,346) (90,616,338)
- ------------------------------------------------------------------------------------------------------------
Net change (4,307,265) $(36,974,081) (2,332,397) $(20,144,147)
CLASS B SHARES
Shares sold 601,987 $5,034,688 1,756,482 $15,095,885
Shares reacquired (2,275,531) (18,989,310) (2,510,934) (21,488,750)
- ------------------------------------------------------------------------------------------------------------
Net change (1,673,544) $(13,954,622) (754,452) $(6,392,865)
CLASS C SHARES
Shares sold 230,424 $1,904,542 583,813 $5,022,408
Shares reacquired (830,211) (6,910,220) (1,018,503) (8,740,462)
- ------------------------------------------------------------------------------------------------------------
Net change (599,787) $(5,005,678) (434,690) $(3,718,054)
CLASS I SHARES
Shares sold 153,317 $1,351,997 1,423,278 $12,599,165
Shares reacquired (1,486,367) (13,661,239) (211,528) (1,856,276)
- ------------------------------------------------------------------------------------------------------------
Net change (1,333,050) $(12,309,242) 1,211,750 $10,742,889
CLASS R SHARES (FORMERLY CLASS R1)
Shares sold 203,930 $1,740,254 173,130 $1,566,350
Shares reacquired (109,402) (937,454) (28,965) (259,610)
- ------------------------------------------------------------------------------------------------------------
Net change 94,528 $802,800 144,165 $1,306,740
Period ended 8/31/05*
SHARES AMOUNT
CLASS R1 SHARES
Shares sold 7,503 $61,010
Shares reacquired (1) (17)
- --------------------------------------------------------------------------
Net change 7,502 $60,993
CLASS R2 SHARES
Shares sold 9,983 $82,697
Year ended 8/31/05 Period ended 8/31/04**
SHARES AMOUNT SHARES AMOUNT
CLASS R3 SHARES (FORMERLY CLASS R2)
Shares sold 11,651 $100,006 25,552 $219,603
Shares reacquired (7,034) (59,817) (8,269) (66,578)
- ------------------------------------------------------------------------------------------------------------
Net change 4,617 $40,189 17,283 $153,025
Period ended 8/31/05*
SHARES AMOUNT
CLASS R4 SHARES
Shares sold 6,053 $50,000
CLASS R5 SHARES
Shares sold 6,053 $50,000
* For the period from the inception of Class R1, Class R2, Class R4, and Class R5 shares, April 1, 2005,
through August 31, 2005.
** For the period from the inception of Class R3 shares, October 31, 2003, through August 31, 2004.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured line
of credit provided by a syndication of banks under a 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 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the fund for the year ended August 31, 2005 was $865, and is
included in miscellaneous expense. The fund had no significant borrowings
during the year ended August 31, 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.
Written Option Transactions
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
Outstanding, beginning of period -- $--
Options written 4 211,638
Options terminated in closing
transactions (4) (211,638)
-------------------------------------------------------------
Outstanding, end of period -- $--
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust I and Shareholders of
MFS Technology Fund:
We have audited the accompanying statement of assets and liabilities of
MFS Technology Fund (the Fund) (one of the portfolios comprising MFS Series
Trust I), including the portfolio of investments, as of August 31, 2005, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Fund's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of August 31, 2005, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Technology Fund at August 31, 2005, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and its financial highlights for each of the periods
indicated therein, in conformity with U.S. generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 11, 2005
RESULTS OF SHAREHOLDER MEETING (unaudited) - 8/31/05
At a special meeting of shareholders of MFS Series Trust I, which was held on
March 23, 2005, the following action was taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $8,025,286,508.56 $117,939,292.78
- -------------------------------------------------------------------------------
David H. Gunning 8,030,402,677.64 112,823,123.70
- -------------------------------------------------------------------------------
William R. Gutow 8,027,523,726.27 115,702,075.07
- -------------------------------------------------------------------------------
Michael Hegarty 8,021,162,525.49 122,063,275.85
- -------------------------------------------------------------------------------
J. Atwood Ives 8,024,062,680.07 119,163,121.27
- -------------------------------------------------------------------------------
Amy B. Lane 8,019,792,882.59 123,432,918.75
- -------------------------------------------------------------------------------
Robert J. Manning 8,030,980,361.78 112,245,439.56
- -------------------------------------------------------------------------------
Lawrence T. Perera 8,025,935,401.12 117,290,400.22
- -------------------------------------------------------------------------------
Robert C. Pozen 8,031,655,470.25 111,570,331.09
- -------------------------------------------------------------------------------
J. Dale Sherratt 8,027,226,595.42 115,999,205.92
- -------------------------------------------------------------------------------
Laurie J. Thomsen 8,019,388,506.87 123,837,294.47
- -------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2005, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.)
The address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(1) OTHER DIRECTORSHIPS(2)
- ------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee and February 2004 Massachusetts Financial Services
(born 10/20/63) President Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School
(education), John Olin Visiting
Professor (since July 2002);
Secretary of Economic Affairs, The
Commonwealth of Massachusetts
(January 2002 to December 2002);
Fidelity Investments, Vice
Chairman (June 2000 to December
2001); Fidelity Management &
Research Company (investment
adviser), President (March 1997 to
July 2001); Bell Canada
Enterprises (telecommunications),
Director; Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 05/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Chief of Cardiac Surgery; Harvard
Medical School, Professor of
Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group (1997 to
February 2001); Borders Group,
Inc. (book and music retailer),
Director; Federal Realty
Investment Trust (real estate
investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 06/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 08/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
OFFICERS
Robert J. Manning(3) President and February 2004 Massachusetts Financial Services
(born 10/20/63) Trustee Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Tracy Atkinson(3) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(3) Assistant July 2005 Massachusetts Financial Services
(born 1/18/74) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003); Nvest Services Company,
Assistant Vice President and
Associate Counsel (prior to
January 2001)
Jeffrey N. Carp(3) Secretary and September 2004 Massachusetts Financial Services
(born 12/01/56) Clerk Company, Executive Vice President,
General Counsel and Secretary
(since April 2004); Hale and Dorr
LLP (law firm), Partner (prior to
April 2004)
Ethan D. Corey(3) Assistant July 2005 Massachusetts Financial Services
(born 11/21/63) Secretary and Company, Special Counsel (since
Assistant Clerk December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
Stephanie A. DeSisto(3) Assistant May 2003 Massachusetts Financial Services
(born 10/01/53) Treasurer Company, Vice President (since
April 2003); Brown Brothers
Harriman & Co., Senior Vice
President (November 2002 to April
2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
David L. DiLorenzo(3) Assistant July 2005 Massachusetts Financial Services
(born 8/10/68) Treasurer Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (January
2001 to June 2005); State Street
Bank, Vice President and Corporate
Audit Manager (prior to January
2001)
Timothy M. Fagan(3) Assistant September 2005 Massachusetts Financial Services
(born 7/10/68) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(3) Assistant July 2005 Massachusetts Financial Services
(born 10/27/70) Treasurer Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian T. Hourihan(3) Assistant September 2004 Massachusetts Financial Services
(born 11/11/64) Secretary and Company, Vice President, Senior
Assistant Clerk Counsel and Assistant Secretary
(since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance
Program (January to April 2004);
Fidelity Research & Management
Company, Assistant General Counsel
(prior to January 2004)
Ellen Moynihan(3) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Vice President
Susan S. Newton(3) Assistant May 2005 Massachusetts Financial Services
(born 03/07/50) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(3) Assistant July 2005 Massachusetts Financial Services
(born 11/05/70) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (January 2001 to June
2004); Preti, Flaherty, Beliveau,
Pachios & Haley, LLC, Associate
(prior to January 2001)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (February
1997 to March 2003)
James O. Yost(3) Assistant September 1990 Massachusetts Financial Services
(born 06/12/60) Treasurer Company, Senior Vice President
- ------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served
continuously since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(3) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940
(referred to as the 1940 Act), which is the principal federal law governing investment companies like
the fund, as a result of position with MFS. The address of MFS is 500 Boylston Street, Boston,
Massachusetts 02116.
Each Trustee has been elected by shareholders and each Trustee and officer holds office until his or
her successor is chosen and qualified or until his or her earlier death, resignation, retirement or
removal. Messrs. Ives and Sherratt and Mses. Lane and Thomsen are members of the Trust's Audit
Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which
MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with
certain affiliates of MFS. As of December 31, 2004, each Trustee served as a board member of 99 funds
within the MFS Family of Funds.
The Trust held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once
every five years thereafter, to elect Trustees.
The Statement of Additional Information contains further information about the Trustees and is
available without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 02110
02116-3741
INDEPENDENT REGISTERED PUBLIC
DISTRIBUTOR ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 200 Clarendon Street, Boston, MA 02116
02116-3741
PORTFOLIO MANAGER
Telis D. Bertsekas
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment
advisory agreement with MFS. The Trustees consider matters bearing on the Fund
and its advisory arrangements at their meetings throughout the year, including
a review of performance data at each regular meeting. In addition, the
independent Trustees met several times over the course of three months
beginning in May and ending in July, 2005 ("contract review meetings") for the
specific purpose of considering whether to approve the continuation of the
investment advisory agreement for the Fund and the other investment companies
that the Board oversees (the "MFS Funds"). The independent Trustees were
assisted in their evaluation of the Fund's investment advisory agreement by
independent legal counsel, from whom they received separate legal advice and
with whom they met separately from MFS during various contract review
meetings. The independent Trustees were also assisted in this process by the
MFS Funds' Independent Chief Compliance Officer, a full-time senior officer
appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light
of the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2004 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable
funds identified by Lipper (the "Lipper expense group"), as well as the
advisory fees and other expenses of peer funds identified by objective
criteria suggested by MFS, (iii) information provided by MFS on the advisory
fees of comparable portfolios of other clients of MFS, including institutional
separate account and other clients, (iv) information as to whether and to what
extent applicable expense waivers, reimbursements or fee "breakpoints" are
observed for the Fund, (v) information regarding MFS' financial results and
financial condition, including MFS' and certain of its affiliates' estimated
profitability from services performed for the Fund and the MFS Funds as a
whole, (vi) MFS' views regarding the outlook for the mutual fund industry and
the strategic business plans of MFS, (vii) descriptions of various functions
performed by MFS for the Funds, such as compliance monitoring and portfolio
trading practices, and (viii) information regarding the overall organization
of MFS, including information about MFS' senior management and other personnel
providing investment advisory, administrative and other services to the Fund
and the other MFS Funds. The comparative performance, fee and expense
information prepared and provided by Lipper Inc. was not independently
verified and the independent Trustees did not independently verify any
information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than others, and that
the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed
the Fund's total return investment performance as well as the performance of
peer groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2004, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 75th percentile relative to the other funds in the
universe for this three-year period (the 1st percentile being the best
performers and the 100th percentile being the worst performers). The total
return performance of the Fund's Class A shares was in the 57th percentile
for the one-year period and the 40th percentile for the five-year period
ended December 31, 2004 relative to the Lipper performance universe. Because
of the passage of time, these performance results are likely to differ from
the performance results for more recent periods, including those shown
elsewhere in this report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings,
as well as during investment review meetings conducted with portfolio
management personnel during the course of the year, as to MFS' efforts to
improve the Fund's performance, including assigning a new primary portfolio
manager for the Fund in March of 2005. After reviewing these and related
factors, the Trustees concluded, within the context of their overall
conclusions regarding the investment advisory agreement, that they were
satisfied with MFS' responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
whether the Fund was subject to any fee waivers or reductions or expense
limitations. The Trustees also considered that, according to the Lipper data,
the Fund's effective advisory fee rate and total expense ratio were each lower
than the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information
provided by MFS as to the generally broader scope of services provided by MFS
to the Fund in comparison to institutional accounts, the higher demands placed
on MFS' investment personnel and trading infrastructure as a result of the
daily cash in-flows and out-flows of the Fund, and the impact on MFS and
expenses associated with the more extensive regulatory regime to which the
Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
not currently subject to any breakpoints. Based on these considerations, at
the request of the Trustees, MFS agreed to implement an advisory fee
breakpoint to reduce the Fund's annual advisory fee rate by 0.05% on net
assets over $1 billion, effective August 1, 2005.
The Trustees also considered information prepared by MFS relating to MFS'
costs and profits with respect to the Fund, the MFS Funds considered as a
group, and other investment companies and accounts advised by MFS, as
well as MFS' methodologies used to determine and allocate its costs to the MFS
Funds, the Fund and other accounts and products for purposes of estimating
profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the
financial services industry, including the entry into the industry of large
and well-capitalized companies which are spending, and appear to be prepared
to continue to spend, substantial sums to engage personnel and to provide
services to competing investment companies. In this regard, the Trustees also
considered the financial resources of MFS and its ultimate parent, Sun Life
Financial Inc. The Trustees also considered the advantages and possible
disadvantages to the Fund of having an adviser which also serves other
investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the
Fund by MFS and its affiliates under agreements and plans other than the
investment advisory agreement, including any 12b-1 fees the Fund pays to MFS
Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for research and other similar services
(including MFS' general policy to pay directly for third-party research), and
various other factors. Additionally, the Trustees considered so-called "fall-
out benefits" to MFS such as reputational value derived from serving as
investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material,
including those factors described above, the Board of Trustees, including a
majority of the independent Trustees, concluded that the Fund's investment
advisory agreement with MFS should be continued for an additional one-year
period, commencing August 1, 2005.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement will be available on or before
December 1, 2005 by clicking on the fund's name under "Select a fund" on the
MFS website (mfs.com).
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 Proxy Voting 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.
FEDERAL TAX INFORMATION (unaudited)
In January 2006, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2005.
CONTACT INFORMATION
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
- --------------------------------------------------------------------------------
Share 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-ANN-10/05 48M
MFS(R) VALUE FUND 8/31/05
ANNUAL REPORT
- -------------------------------------------------------------------------------
LETTER FROM THE CEO 1
- --------------------------------------------------
PORTFOLIO COMPOSITION 2
- --------------------------------------------------
MANAGEMENT REVIEW 3
- --------------------------------------------------
PERFORMANCE SUMMARY 5
- --------------------------------------------------
EXPENSE TABLE 8
- --------------------------------------------------
PORTFOLIO OF INVESTMENTS 10
- --------------------------------------------------
FINANCIAL STATEMENTS 15
- --------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 28
- --------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 38
- --------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 39
- --------------------------------------------------
TRUSTEES AND OFFICERS 40
- --------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 45
- --------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 49
- --------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 49
- --------------------------------------------------
FEDERAL TAX INFORMATION 49
- --------------------------------------------------
CONTACT INFORMATION BACK COVER
- --------------------------------------------------
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.
M F S(SM)
INVESTMENT MANAGEMENT(R)
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders,
Most investors are familiar with the basic principles of investing - focus on
the long term and keep your assets diversified across different investment
categories. Still, it is surprising how often we forget these basic lessons.
Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s had
many people hoping they could become millionaires overnight. But the market
decline that started in the spring of 2000 taught everyone how misguided those
hopes had been.
Now, less than five years after the market taught a harsh lesson in the follies
of speculative investing, we are seeing a number of trends that suggest many
investors, including professionals, are hoping for overnight miracles again. We
see a steady stream of market "gurus" on television news shows, promising to
teach amateur investors the strategies that will allow them to get rich quick.
Hedge funds - which by their nature move in and out of investments rapidly -
have soared in popularity over the past five years. We are reminded every day
that we live in a "what have you done for me lately?" world, but this mindset
should not influence how we invest and manage our money. In fact, investors
often fall short of their goals because they trade in and out of investments too
frequently and at inopportune times.
Throughout our entire 80-year history, MFS' money management process has focused
on long-term investment opportunities. We firmly believe that one of the best
ways to realize long-term financial goals - be it a college education, a
comfortable retirement, or a secure family legacy - is to follow a three-pronged
approach that focuses on longer time horizons. Allocate holdings across the
major asset classes - including stocks, bonds, and cash. Diversify within each
class to take advantage of different market segments and investing styles. And
rebalance assets regularly to maintain a desired asset allocation.*
This long-term approach requires diligence and patience, two traits that in our
experience are essential to capitalizing on the many opportunities the financial
markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 17, 2005
*Asset allocation, diversification, and rebalancing does not guarantee a profit
or protect against a loss. The opinions expressed in this letter are those of
MFS, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 97.7%
Cash & Other Net Assets 2.3%
TOP TEN HOLDINGS
Bank of America Corp. 3.9%
------------------------------------------------
Altria Group, Inc. 3.3%
------------------------------------------------
ConocoPhillips 3.1%
------------------------------------------------
Citigroup, Inc. 3.1%
------------------------------------------------
Goldman Sachs Group, Inc. 2.8%
------------------------------------------------
MetLife, Inc. 2.7%
------------------------------------------------
Sprint Nextel Corp. 2.5%
------------------------------------------------
TOTAL S.A., ADR 2.4%
------------------------------------------------
Dominion Resources, Inc. 2.4%
------------------------------------------------
Allstate Corp. 2.1%
------------------------------------------------
SECTOR WEIGHTINGS
Financial Services 28.0%
------------------------------------------------
Energy 12.4%
------------------------------------------------
Utilities & Communications 10.3%
------------------------------------------------
Industrial Goods & Services 10.2%
------------------------------------------------
Consumer Staples 10.0%
------------------------------------------------
Basic Materials 7.5%
------------------------------------------------
Health Care 6.6%
------------------------------------------------
Leisure 4.3%
------------------------------------------------
Retailing 2.5%
------------------------------------------------
Special Products & Services 1.6%
------------------------------------------------
Autos & Housing 1.6%
------------------------------------------------
Technology 1.4%
------------------------------------------------
Transportation 1.3%
------------------------------------------------
Percentages are based on net assets as of 8/31/05.
The portfolio is actively managed, and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2005, Class A shares of the MFS Value
Fund provided a total return of 15.36%, at net asset value. In comparison, the
fund's benchmark, the Russell 1000 Value Index returned 16.86%.
DETRACTORS FROM PERFORMANCE
A combination of stock selection and allocation in the retailing, basic
materials, and technology sectors held back results in comparison to the Russell
1000 Value Index. Although retailing was the largest detracting sector, no
individual securities were among the fund's top detractors over the period. In
the basic materials sector our positioning in paper and packaging concern
International Paper held back relative results as the stock underperformed the
broad equity index. Our positioning in technology firm Hewlett-Packard* also
hurt results.
Stocks in other sectors that dampened investment results included financial
services firm Fannie Mae. Avoiding or underweighting certain firms in the strong
performing energy sector such as Exxon Mobil, Valero Energy, Chevron Corp., and
Burlington Resources also hurt relative returns. Our positioning in personal
care firm Kimberly-Clark and management consulting firm Accenture Ltd. held back
relative results as well.
The fund's cash position also detracted from relative performance during the
period ended August 31, 2005. The fund holds cash to buy new holdings and to
provide liquidity. In a period when equity markets outperformed cash, holding
any cash hurt performance against the fund's benchmark, which has no cash
position.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the utilities and communications sector contributed to
relative performance. Our holdings in electricity provider TXU Corp. added to
results as that stock more than doubled over the period.
Overall, our stock selection in the energy sector also boosted the fund's
relative performance. Our investments in integrated energy firm ConocoPhillips
and independent oil and gas exploration and production company Unocal* proved
positive as both stocks performed well over the period. Elsewhere in the energy
sector, our positioning in oil driller Noble Corp, and oil and gas producer
TOTAL S.A (not index constituents) aided relative results. Additionally our
position in exploration firm EOG Resources also bolstered results.
In addition, our positioning in agricultural commodities firm Archer Daniels
Midland positively impacted relative performance.
Respectfully,
Steven Gorham
Portfolio Manager
* Security was not held in the portfolio at period-end.
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any MFS
Fund's current or future investments.
PERFORMANCE SUMMARY THROUGH 8/31/05
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results include
the deduction of the maximum applicable sales charge and reflect the percentage
change in net asset value, including reinvestment of dividends and capital gains
distributions. Benchmark comparisons are unmanaged and do not reflect any fees
or expenses. The performance of other share classes will be greater than or less
than the line shown. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR CLASS 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
January 2, 1996, through August 31, 2005. Index information is from January 2,
1996.)
MFS Value Fund Russell 1000
- Class A Value Index
1/96 $ 9,425 $10,000
8/96 10,433 10,638
8/97 14,403 14,844
8/98 15,772 15,421
8/99 19,601 20,060
8/00 22,727 20,893
8/01 23,451 20,660
8/02 21,190 17,946
8/03 22,508 20,033
8/04 26,364 23,542
8/05 30,413 27,511
TOTAL RATES OF RETURN THROUGH 8/31/05
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr Life*
- ---------------------------------------------------------------------------
A 1/02/96 15.36% 6.00% 12.89%
- ---------------------------------------------------------------------------
B 11/04/97 14.61% 5.32% 12.30%
- ---------------------------------------------------------------------------
C 11/05/97 14.63% 5.31% 12.31%
- ---------------------------------------------------------------------------
I 1/02/97 15.78% 6.37% 13.16%
- ---------------------------------------------------------------------------
R** 12/31/02 15.21% 5.92% 12.85%
- ---------------------------------------------------------------------------
R1 4/01/05 14.98% 5.93% 12.85%
- ---------------------------------------------------------------------------
R2 4/01/05 15.13% 5.96% 12.87%
- ---------------------------------------------------------------------------
R3** 10/31/03 14.91% 5.85% 12.81%
- ---------------------------------------------------------------------------
R4 4/01/05 15.34% 6.00% 12.89%
- ---------------------------------------------------------------------------
R5 4/01/05 15.52% 6.03% 12.91%
- ---------------------------------------------------------------------------
529A 7/31/02 15.09% 5.81% 12.78%
- ---------------------------------------------------------------------------
529B 7/31/02 14.32% 5.41% 12.56%
- ---------------------------------------------------------------------------
529C 7/31/02 14.32% 5.42% 12.57%
- ---------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmarks
- ---------------------------------------------------------------------------
Average equity income fund+ 14.28% 4.08% 8.72%
- ---------------------------------------------------------------------------
Russell 1000 Value Index# 16.86% 5.66% 11.04%
- ---------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- ---------------------------------------------------------------------------
A 8.72% 4.75% 12.20%
- ---------------------------------------------------------------------------
B 10.61% 4.99% 12.30%
- ---------------------------------------------------------------------------
C 13.63% 5.31% 12.31%
- ---------------------------------------------------------------------------
529A 8.47% 4.56% 12.10%
- ---------------------------------------------------------------------------
529B 10.32% 5.09% 12.56%
- ---------------------------------------------------------------------------
529C 13.32% 5.42% 12.57%
- ---------------------------------------------------------------------------
Class I, R, R1, R2, R3, R4, and R5 shares do not have a sales charge. Please see
Notes to Performance Summary for more details.
* For the period from the commencement of the fund's investment operations,
January 2, 1996, through August 31, 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."
+ 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 R shares have no
initial sales charge or CDSC and are available only to existing Class R
shareholders. Class I, R1, R2, R3, R4, and R5 shares have no initial sales
charge or CDSC. Class I shares are only available to certain eligible investors,
and Class R1, R2, R3, R4, and R5 shares are only available to certain retirement
plans. Class 529 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.
EXPENSE TABLE
FUND EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD, MARCH 1, 2005 THROUGH
AUGUST 31, 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, March 1, 2005 through August 31, 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 3/01/05-
Share Class Ratio 3/01/05 8/31/05 8/31/05
- --------------------------------------------------------------------------------
Actual 1.18% $1,000.00 $1,017.20 $6.00
A ---------------------------------------------------------------------
Hypothetical* 1.18% $1,000.00 $1,019.26 $6.01
- --------------------------------------------------------------------------------
Actual 1.83% $1,000.00 $1,013.70 $9.29
B ----------------------------------------------------------------------
Hypothetical* 1.83% $1,000.00 $1,015.98 $9.30
- --------------------------------------------------------------------------------
Actual 1.83% $1,000.00 $1,013.80 $9.29
C ---------------------------------------------------------------------
Hypothetical* 1.83% $1,000.00 $1,015.98 $9.30
- --------------------------------------------------------------------------------
Actual 0.83% $1,000.00 $1,019.10 $4.22
I ---------------------------------------------------------------------
Hypothetical* 0.83% $1,000.00 $1,021.02 $4.23
- --------------------------------------------------------------------------------
R Actual 1.33% $1,000.00 $1,016.60 $6.76
(formerly ---------------------------------------------------------------------
R1) Hypothetical* 1.33% $1,000.00 $1,018.50 $6.77
- --------------------------------------------------------------------------------
Actual 2.04% $1,000.00 $1,013.90 $10.36
R1 ---------------------------------------------------------------------
Hypothetical* 2.04% $1,000.00 $1,014.92 $10.36
- --------------------------------------------------------------------------------
Actual 1.73% $1,000.00 $1,015.20 $8.79
R2 ---------------------------------------------------------------------
Hypothetical* 1.73% $1,000.00 $1,016.48 $8.79
- --------------------------------------------------------------------------------
R3 Actual 1.58% $1,000.00 $1,015.00 $8.02
(formerly ---------------------------------------------------------------------
R2) Hypothetical* 1.58% $1,000.00 $1,017.24 $8.03
- --------------------------------------------------------------------------------
Actual 1.23% $1,000.00 $1,017.10 $6.25
R4 ---------------------------------------------------------------------
Hypothetical* 1.23% $1,000.00 $1,019.00 $6.26
- --------------------------------------------------------------------------------
Actual 0.92% $1,000.00 $1,018.60 $4.68
R5 ---------------------------------------------------------------------
Hypothetical* 0.92% $1,000.00 $1,020.57 $4.69
- --------------------------------------------------------------------------------
Actual 1.43% $1,000.00 $1,016.10 $7.27
529A ---------------------------------------------------------------------
Hypothetical* 1.43% $1,000.00 $1,018.00 $7.27
- --------------------------------------------------------------------------------
Actual 2.08% $1,000.00 $1,012.40 $10.55
529B ---------------------------------------------------------------------
Hypothetical* 2.08% $1,000.00 $1,014.72 $10.56
- --------------------------------------------------------------------------------
Actual 2.08% $1,000.00 $1,012.70 $10.55
529C ---------------------------------------------------------------------
Hypothetical* 2.08% $1,000.00 $1,014.72 $10.56
- --------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, 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 - 8/31/05
The Portfolio of Investments is a complete list of all securities owned by your
fund. It is categorized by broad-based asset classes.
Stocks - 97.7%
- --------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- --------------------------------------------------------------------------------------------------
Aerospace - 4.9%
- --------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 2,499,910 $ 155,594,398
Northrop Grumman Corp. 2,241,240 125,711,152
United Technologies Corp. 1,831,090 91,554,500
--------------
$ 372,860,050
- --------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.4%
- --------------------------------------------------------------------------------------------------
Diageo PLC 2,395,263 $ 34,363,217
- --------------------------------------------------------------------------------------------------
Banks & Credit Companies - 15.6%
- --------------------------------------------------------------------------------------------------
American Express Co. 1,471,160 $ 81,266,878
Bank of America Corp.^ 6,980,794 300,383,566
Citigroup, Inc. 5,439,260 238,076,410
Fannie Mae 2,389,700 121,970,288
Freddie Mac 623,640 37,655,383
J.P. Morgan Chase & Co. 540,596 18,320,798
MBNA Corp. 1,500,940 37,823,688
PNC Financial Services Group, Inc.^ 1,773,040 99,698,039
SunTrust Banks, Inc.^ 2,237,030 157,218,468
UBS AG 467,833 38,386,847
Wells Fargo & Co. 1,074,390 64,055,132
--------------
$1,194,855,497
- --------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.0%
- --------------------------------------------------------------------------------------------------
Time Warner, Inc.^ 831,670 $ 14,903,526
Viacom, Inc., "B" 2,995,563 101,819,186
Walt Disney Co. 1,313,760 33,093,614
--------------
$ 149,816,326
- --------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 5.3%
- --------------------------------------------------------------------------------------------------
Franklin Resources, Inc.^ 402,630 $ 32,387,557
Goldman Sachs Group, Inc. 1,947,000 216,467,460
Lehman Brothers Holdings, Inc.^ 432,270 45,673,648
Mellon Financial Corp. 2,408,440 78,153,878
Merrill Lynch & Co., Inc. 658,510 37,640,432
--------------
$ 410,322,975
- --------------------------------------------------------------------------------------------------
Business Services - 1.6%
- --------------------------------------------------------------------------------------------------
Accenture Ltd., "A"^* 4,910,090 $ 119,806,196
- --------------------------------------------------------------------------------------------------
Chemicals - 4.5%
- --------------------------------------------------------------------------------------------------
Dow Chemical Co. 1,542,650 $ 66,642,480
E.I. du Pont de Nemours & Co. 2,087,530 82,603,562
Nalco Holding Co.* 1,000,960 18,317,568
PPG Industries, Inc. 1,781,920 112,225,322
Syngenta AG 596,560 63,645,992
--------------
$ 343,434,924
- --------------------------------------------------------------------------------------------------
Computer Software - 0.8%
- --------------------------------------------------------------------------------------------------
Oracle Corp.* 2,105,350 $ 27,306,390
Symantec Corp.* 1,716,990 36,022,450
--------------
$ 63,328,840
- --------------------------------------------------------------------------------------------------
Construction - 1.6%
- --------------------------------------------------------------------------------------------------
Masco Corp.^ 4,070,700 $ 124,889,076
- --------------------------------------------------------------------------------------------------
Consumer Goods & Services - 1.3%
- --------------------------------------------------------------------------------------------------
Kimberly-Clark Corp. 1,585,590 $ 98,813,969
- --------------------------------------------------------------------------------------------------
Containers - 0.2%
- --------------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp.* 1,567,770 $ 17,308,181
- --------------------------------------------------------------------------------------------------
Electrical Equipment - 2.1%
- --------------------------------------------------------------------------------------------------
Cooper Industries Ltd., "A" 856,660 $ 56,916,490
Emerson Electric Co. 681,930 45,880,250
Tyco International Ltd. 683,870 19,032,102
W.W. Grainger, Inc. 613,850 39,482,832
--------------
$ 161,311,674
- --------------------------------------------------------------------------------------------------
Electronics - 0.4%
- --------------------------------------------------------------------------------------------------
Analog Devices, Inc. 935,110 $ 34,084,760
- --------------------------------------------------------------------------------------------------
Energy - Independent - 1.5%
- --------------------------------------------------------------------------------------------------
Devon Energy Corp. 965,300 $ 58,661,281
EOG Resources, Inc.^ 901,960 57,572,107
--------------
$ 116,233,388
- --------------------------------------------------------------------------------------------------
Energy - Integrated - 10.1%
- --------------------------------------------------------------------------------------------------
Amerada Hess Corp. 93,700 $ 11,909,270
BP PLC, ADR^ 1,532,400 104,785,512
Chevron Corp. 1,162,244 71,361,782
ConocoPhillips 3,653,360 240,902,558
Exxon Mobil Corp. 2,725,940 163,283,806
TOTAL S.A., ADR^ 1,400,850 184,688,064
--------------
$ 776,930,992
- --------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 5.0%
- --------------------------------------------------------------------------------------------------
Archer Daniels Midland Co.^ 2,631,715 $ 59,239,905
Coca-Cola Co. 445,300 19,593,200
H.J. Heinz Co.^ 1,527,140 54,854,869
Kellogg Co. 2,482,970 112,553,030
Nestle S.A 154,327 43,367,133
PepsiCo, Inc. 835,826 45,845,056
Sara Lee Corp. 2,618,030 49,742,570
--------------
$ 385,195,763
- --------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.2%
- --------------------------------------------------------------------------------------------------
Bowater, Inc.^ 574,000 $ 17,811,220
International Paper Co.^ 2,461,330 75,932,031
--------------
$ 93,743,251
- --------------------------------------------------------------------------------------------------
Insurance - 7.1%
- --------------------------------------------------------------------------------------------------
AFLAC, Inc. 859,980 $ 37,168,336
Allstate Corp. 2,915,390 163,874,072
Chubb Corp. 458,650 39,884,204
Hartford Financial Services Group, Inc. 938,545 68,560,712
Lincoln National Corp. 466,400 23,128,776
MetLife, Inc. 4,306,040 210,909,839
--------------
$ 543,525,939
- --------------------------------------------------------------------------------------------------
Leisure & Toys - 0.4%
- --------------------------------------------------------------------------------------------------
Hasbro, Inc. 1,437,080 $ 29,747,556
- --------------------------------------------------------------------------------------------------
Machinery & Tools - 3.2%
- --------------------------------------------------------------------------------------------------
Deere & Co.^ 2,207,396 $ 144,319,551
Finning International, Inc. 276,570 8,986,953
Illinois Tool Works, Inc.^ 796,500 67,129,020
Sandvik AB^ 551,020 24,483,747
--------------
$ 244,919,271
- --------------------------------------------------------------------------------------------------
Medical Equipment - 0.4%
- --------------------------------------------------------------------------------------------------
Baxter International, Inc. 789,430 $ 31,837,712
- --------------------------------------------------------------------------------------------------
Network & Telecom - 0.2%
- --------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 1,082,700 $ 19,077,174
- --------------------------------------------------------------------------------------------------
Oil Services - 0.8%
- --------------------------------------------------------------------------------------------------
Noble Corp.^ 835,940 $ 59,602,522
- --------------------------------------------------------------------------------------------------
Pharmaceuticals - 6.2%
- --------------------------------------------------------------------------------------------------
Abbott Laboratories 1,837,940 $ 82,946,232
Eli Lilly & Co. 291,500 16,038,330
Johnson & Johnson 2,299,390 145,758,332
Merck & Co., Inc. 3,582,000 101,119,860
Novartis AG 233,000 11,326,586
Pfizer, Inc. 888,350 22,626,275
Wyeth 2,092,860 95,832,059
--------------
$ 475,647,674
- --------------------------------------------------------------------------------------------------
Printing & Publishing - 1.4%
- --------------------------------------------------------------------------------------------------
Reed Elsevier PLC 5,989,700 $ 56,456,314
Tribune Co. 1,317,514 49,499,001
--------------
$ 105,955,315
- --------------------------------------------------------------------------------------------------
Railroad & Shipping - 1.1%
- --------------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 1,550,890 $ 82,228,188
- --------------------------------------------------------------------------------------------------
Restaurants - 0.5%
- --------------------------------------------------------------------------------------------------
McDonald's Corp.^ 1,151,580 $ 37,368,771
- --------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.6%
- --------------------------------------------------------------------------------------------------
Air Products & Chemicals, Inc. 1,448,108 $ 80,225,183
L'Air Liquide S.A.^ 127,130 22,154,820
Praxair, Inc. 497,240 24,016,692
--------------
$ 126,396,695
- --------------------------------------------------------------------------------------------------
Specialty Stores - 2.5%
- --------------------------------------------------------------------------------------------------
Gap, Inc. 4,436,400 $ 84,335,964
Lowe's Cos., Inc. 812,630 52,260,235
TJX Cos., Inc. 2,490,670 52,079,910
--------------
$ 188,676,109
- --------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.5%
- --------------------------------------------------------------------------------------------------
Vodafone Group PLC 41,343,720 $ 113,660,923
- --------------------------------------------------------------------------------------------------
Telephone Services - 4.0%
- --------------------------------------------------------------------------------------------------
Sprint Nextel Corp. 7,335,140 $ 190,200,180
Verizon Communications, Inc. 3,595,350 117,603,899
--------------
$ 307,804,079
- --------------------------------------------------------------------------------------------------
Tobacco - 3.3%
- --------------------------------------------------------------------------------------------------
Altria Group, Inc. 3,583,560 $ 253,357,692
- --------------------------------------------------------------------------------------------------
Trucking - 0.2%
- --------------------------------------------------------------------------------------------------
CNF, Inc. 331,870 $ 16,749,479
- --------------------------------------------------------------------------------------------------
Utilities - Electric Power - 4.8%
- --------------------------------------------------------------------------------------------------
Dominion Resources, Inc. 2,377,220 $ 181,809,786
Entergy Corp. 426,030 31,913,907
Exelon Corp. 502,220 27,064,636
FPL Group, Inc. 302,910 13,052,392
PPL Corp.^ 1,330,020 42,507,439
Public Service Enterprise Group, Inc.^ 535,180 34,545,869
TXU Corp. 404,950 39,288,249
--------------
$ 370,182,278
- --------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $6,255,839,264) $7,504,036,456
- --------------------------------------------------------------------------------------------------
Short-Term Obligation - 0.1%
- --------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- --------------------------------------------------------------------------------------------------
SBC Communications, Inc., 3.54%, due 9/26/05,
at Amortized Cost<@ $ 10,000,000 $ 9,975,417
- --------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 3.9%
- --------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- --------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 297,589,583 $ 297,589,583
- --------------------------------------------------------------------------------------------------
Repurchase Agreement - 1.8%
- --------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- --------------------------------------------------------------------------------------------------
Goldman Sachs, 3.56%, dated 8/31/05, due 9/01/05,
total to be received $139,211,765 (secured by
various U.S. Treasury and Federal Agency obligations
in a jointly traded account), at Cost $ 139,198,000 $ 139,198,000
- --------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $6,702,602,264)(+) $7,950,799,456
- --------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (3.5)% (271,139,782)
- --------------------------------------------------------------------------------------------------
Net Assets - 100.0% $7,679,659,674
- --------------------------------------------------------------------------------------------------
(+) As of August 31, 2005 the fund had nine securities representing $407,845,579 and 5.3% of net
assets that were fair valued in accordance with the policies adopted by the Board of Trustees.
@ Security exempt from registration under Section 4(2) of the Securities Act of 1933. *
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.
Abbreviations:
ADR = American Depository Receipt
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 the fund.
AT 8/31/05
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $290,986,469 of securities
on loan (identified cost, $6,702,602,264) $7,950,799,456
Cash 67
Receivable for investments sold 23,051,042
Receivable for fund shares sold 14,307,715
Interest and dividends receivable 21,683,507
- -------------------------------------------------------------------------------------------------------
Total assets $8,009,841,787
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $15,370,092
Payable for fund shares reacquired 14,230,109
Collateral for securities loaned, at value 297,589,583
Payable to affiliates
Management fee 124,797
Shareholder servicing costs 1,824,250
Distribution and service fees 102,242
Administrative services fee 881
Program manager fees 31
Retirement plan administration and services fees 71
Accrued expenses and other liabilities 940,057
- -------------------------------------------------------------------------------------------------------
Total liabilities $330,182,113
- -------------------------------------------------------------------------------------------------------
Net assets $7,679,659,674
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in capital $6,125,471,089
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 1,248,194,609
Accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions 288,471,770
Accumulated undistributed net investment income 17,522,206
- -------------------------------------------------------------------------------------------------------
Net assets $7,679,659,674
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 323,013,919
- -------------------------------------------------------------------------------------------------------
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $4,554,484,392
Shares outstanding 191,302,410
- -------------------------------------------------------------------------------------------------------
Net asset value per share $23.81
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$23.81) $25.26
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,262,028,623
Shares outstanding 53,339,465
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $23.66
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $863,486,020
Shares outstanding 36,529,490
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $23.64
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $899,654,308
Shares outstanding 37,631,414
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $23.91
- -------------------------------------------------------------------------------------------------------
Class R shares (formerly Class R1)
- -------------------------------------------------------------------------------------------------------
Net assets $85,302,331
Shares outstanding 3,590,331
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $23.76
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $573,760
Shares outstanding 24,285
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $23.63
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $731,874
Shares outstanding 30,925
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $23.67
- -------------------------------------------------------------------------------------------------------
Class R3 shares (formerly Class R2)
- -------------------------------------------------------------------------------------------------------
Net assets $8,316,243
Shares outstanding 350,730
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $23.71
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $399,863
Shares outstanding 16,793
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $23.81
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $51,331
Shares outstanding 2,154
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $23.83
- -------------------------------------------------------------------------------------------------------
Class 529A shares
- -------------------------------------------------------------------------------------------------------
Net assets $2,914,073
Shares outstanding 122,907
- -------------------------------------------------------------------------------------------------------
Net asset value per share $23.71
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$23.71) $25.16
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class 529B shares
- -------------------------------------------------------------------------------------------------------
Net assets $655,321
Shares outstanding 27,861
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $23.52
- -------------------------------------------------------------------------------------------------------
Class 529C shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,061,535
Shares outstanding 45,154
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $23.51
- -------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A and Class 529A shares
are reduced. A contingent deferred sales charge may be imposed on redemptions of
Class A, Class B, Class C, Class 529B, and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Operations
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
YEAR ENDED 8/31/05
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Income
Dividends $164,752,823
Interest 4,389,350
Foreign taxes withheld (1,253,119)
- -------------------------------------------------------------------------------------------------------
Total investment income $167,889,054
- -------------------------------------------------------------------------------------------------------
Expenses
Management fee $42,071,384
Distribution and service fees 35,683,883
Program manager fees 9,425
Shareholder servicing costs 11,868,286
Administrative services fee 396,838
Retirement plan administration and services fees 9,299
Trustees' compensation 107,092
Custodian fee 1,545,203
Printing 254,682
Postage 386,174
Auditing fees 64,325
Legal fees 248,655
Miscellaneous 199,909
- -------------------------------------------------------------------------------------------------------
Total expenses $92,845,155
- -------------------------------------------------------------------------------------------------------
Fees paid indirectly (275,933)
Reduction of expenses by investment adviser (32,710)
- -------------------------------------------------------------------------------------------------------
Net expenses $92,536,512
- -------------------------------------------------------------------------------------------------------
Net investment income $75,352,542
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $376,077,350
Foreign currency transactions (254,475)
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $375,822,875
- -------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $503,437,521
Translation of assets and liabilities in foreign currencies 2,709
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $503,440,230
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $879,263,105
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $954,615,647
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statements of Changes in Net Assets
This statement describes the increases and/or decreases in net assets resulting
from operations, any distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2005 2004
CHANGE IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income $75,352,542 $55,965,886
Net realized gain (loss) on investments and foreign
currency transactions 375,822,875 292,885,791
Net unrealized gain (loss) on investments and foreign
currency translation 503,440,230 532,786,973
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $954,615,647 $881,638,650
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A $(46,363,055) $(38,194,792)
Class B (7,662,195) (5,722,598)
Class C (5,049,720) (3,678,255)
Class I (10,452,013) (6,552,178)
Class R (695,925) (311,260)
Class R1 (235) --
Class R2 (89) --
Class R3 (25,014) (32)
Class R4 (145) --
Class R5 (180) --
Class 529A (21,518) (10,857)
Class 529B (2,457) (843)
Class 529C (3,600) (1,583)
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(70,276,146) $(54,472,398)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $662,205,274 $236,254,134
- -------------------------------------------------------------------------------------------------------
Redemption fees $15,186 $4,175
- -------------------------------------------------------------------------------------------------------
Total change in net assets $1,546,559,961 $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 $17,522,206 and $12,700,285,
respectively) $7,679,659,674 $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 past 5 years (or,
if shorter, the period of the fund's operation). Certain information reflects financial results for a single fund share. The
total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund
(assuming reinvestment of all distributions) held for the entire period. This information has been audited by the fund's
independent registered public accounting firm, whose report, together with the fund's financial statements, are included in
this report.
CLASS A
YEARS ENDED 8/31
---------------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning
of period $20.88 $18.03 $17.21 $19.28 $19.38
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.28 $0.23 $0.24 $0.20 $0.20
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.91 2.84 0.81 (2.05) 0.44
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.19 $3.07 $1.05 $(1.85) $0.64
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.26) $(0.22) $(0.23) $(0.15) $(0.19)
From net realized gain on
investments and foreign currency
transactions -- -- -- (0.07) (0.55)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.26) $(0.22) $(0.23) $(0.22) $(0.74)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.81 $20.88 $18.03 $17.21 $19.28
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 15.36*** 17.13***+ 6.22 (9.64) 3.19
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.16 1.18 1.20 1.25 1.21
Expenses after expense reductions## 1.16 1.18 1.20 1.25 1.21
Net investment income 1.23 1.14 1.41 1.05 1.00
Portfolio turnover (%) 24 42 55 48 63
Net assets at end of period
(000 Omitted) $4,554,484 $3,527,854 $3,039,085 $1,820,568 $981,373
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B
YEARS ENDED 8/31
--------------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning
of period $20.77 $17.94 $17.13 $19.19 $19.30
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.13 $0.10 $0.12 $0.07 $0.07
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.90 2.83 0.81 (2.02) 0.45
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.03 $2.93 $0.93 $(1.95) $0.52
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.14) $(0.10) $(0.12) $(0.04) $(0.08)
From net realized gain on
investments and foreign currency
transactions -- -- -- (0.07) (0.55)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.14) $(0.10) $(0.12) $(0.11) $(0.63)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.66 $20.77 $17.94 $17.13 $19.19
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 14.61*** 16.35***+ 5.50 (10.20) 2.55
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.81 1.82 1.85 1.90 1.86
Expenses after expense reductions## 1.81 1.82 1.85 1.90 1.86
Net investment income 0.58 0.49 0.76 0.40 0.35
Portfolio turnover (%) 24 42 55 48 63
Net assets at end of period
(000 Omitted) $1,262,029 $1,199,074 $1,069,389 $923,330 $698,338
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C
YEARS ENDED 8/31
-----------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $20.75 $17.93 $17.12 $19.18 $19.30
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.13 $0.10 $0.12 $0.07 $0.07
Net realized and unrealized gain (loss)
on investments and foreign currency 2.90 2.82 0.81 (2.02) 0.44
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.03 $2.92 $0.93 $(1.95) $0.51
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.14) $(0.10) $(0.12) $(0.04) $(0.08)
From net realized gain on investments
and foreign currency transactions -- -- -- (0.07) (0.55)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.14) $(0.10) $(0.12) $(0.11) $(0.63)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.64 $20.75 $17.93 $17.12 $19.18
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 14.63*** 16.32***+ 5.52 (10.21) 2.52
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.81 1.82 1.85 1.90 1.86
Expenses after expense reductions## 1.81 1.82 1.85 1.90 1.86
Net investment income 0.58 0.49 0.76 0.40 0.35
Portfolio turnover (%) 24 42 55 48 63
Net assets at end of period
(000 Omitted) $863,486 $761,669 $648,318 $473,537 $366,154
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I
YEARS ENDED 8/31
-----------------------------------------------------------------------------------
2005= 2004= 2003 2002 2001
Net asset value, beginning of period $20.95 $18.10 $17.27 $19.35 $19.47
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.37 $0.30 $0.30 $0.27 $0.28
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.91 2.84 0.82 (2.06) 0.44
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.28 $3.14 $1.12 $(1.79) $0.72
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.32) $(0.29) $(0.29) $(0.22) $(0.29)
From net realized gain on investments
and foreign currency transactions -- -- -- (0.07) (0.55)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.32) $(0.29) $(0.29) $(0.29) $(0.84)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.91 $20.95 $18.10 $17.27 $19.35
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)& 15.78*** 17.47***+ 6.61 (9.35) 3.58
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.81 0.83 0.85 0.90 0.86
Expenses after expense reductions## 0.81 0.83 0.85 0.90 0.86
Net investment income 1.59 1.50 1.76 1.40 1.35
Portfolio turnover (%) 24 42 55 48 63
Net assets at end of period
(000 Omitted) $899,654 $593,364 $296,961 $76,932 $45,849
- -----------------------------------------------------------------------------------------------------------------------------
CLASS R (FORMERLY CLASS R1)
YEARS ENDED 8/31
-----------------------------------------------------
2005= 2004= 2003**
Net asset value, beginning of period $20.84 $18.01 $16.53###
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------------------
Net investment income $0.25 $0.21 $0.15
Net realized and unrealized gain (loss) on investments
and foreign currency 2.90 2.82 1.45
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.15 $3.03 $1.60
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
From net investment income $(0.23) $(0.20) $(0.12)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.76 $20.84 $18.01
- --------------------------------------------------------------------------------------------------------------------
Total return (%)& 15.21*** 16.92***+ 9.76###++
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.31 1.33 1.42+
Expenses after expense reductions## 1.31 1.33 1.42+
Net investment income 1.10 1.02 1.26+
Portfolio turnover (%) 24 42 55
Net assets at end of period (000 Omitted) $85,302 $47,970 $14,583
- --------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 CLASS R2
YEAR ENDED YEAR ENDED
8/31/05** 8/31/05**
Net asset value, beginning of period $23.17 $23.17
- -------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------
Net investment income $0.09 $0.11
Net realized and unrealized gain (loss) on investments
and foreign currency 0.42^ 0.43^
- -------------------------------------------------------------------------------------------------------
Total from investment operations $0.51 $0.54
- -------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income $(0.05) $(0.04)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.63 $23.67
- -------------------------------------------------------------------------------------------------------
Total return (%)&*** 2.21++ 2.34++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.04+ 1.73+
Expenses after expense reductions## 2.04+ 1.73+
Net investment income 0.89+ 1.49+
Portfolio turnover (%) 24 24
Net assets at end of period (000 Omitted) $574 $732
- -------------------------------------------------------------------------------------------------------
CLASS R3 (FORMERLY CLASS R2)
YEARS ENDED 8/31
--------------------------------
2005= 2004=**
Net asset value, beginning of period $20.84 $18.73###
- -------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------
Net investment income $0.21 $0.11
Net realized and unrealized gain (loss) on investments
and foreign currency 2.88 2.12
- -------------------------------------------------------------------------------------------------------
Total from investment operations $3.09 $2.23
- -------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income $(0.22) $(0.12)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.71 $20.84
- -------------------------------------------------------------------------------------------------------
Total return (%)&*** 14.91 11.93###+++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.57 1.59+
Expenses after expense reductions## 1.57 1.59+
Net investment income 0.93 0.80+
Portfolio turnover (%) 24 42
Net assets at end of period (000 Omitted) $8,316 $414
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 CLASS R5
YEAR ENDED YEAR ENDED
8/31/05** 8/31/05**
Net asset value, beginning of period $23.29 $23.29
- -------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------
Net investment income $0.15 $0.15
Net realized and unrealized gain (loss) on investments
and foreign currency 0.44^ 0.47^
- -------------------------------------------------------------------------------------------------------
Total from investment operations $0.59 $0.62
- -------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income $(0.07) $(0.08)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.81 $23.83
- -------------------------------------------------------------------------------------------------------
Total return (%)&*** 2.53++ 2.68++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.23+ 0.92+
Expenses after expense reductions## 1.23+ 0.92+
Net investment income 1.94+ 1.57+
Portfolio turnover (%) 24 24
Net assets at end of period (000 Omitted) $400 $51
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529A
YEARS ENDED 8/31
------------------------------------------------------------------
2005= 2004= 2003 2002**
Net asset value, beginning of period $20.80 $18.00 $17.21 $16.84###
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------
Net investment income $0.23 $0.18 $0.20 $0.03
Net realized and unrealized gain (loss) on
investments and foreign currency 2.90 2.80 0.81 0.34
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.13 $2.98 $1.01 $0.37
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.22) $(0.18) $(0.22) $--
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.71 $20.80 $18.00 $17.21
- -------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 15.09*** 16.63***+ 5.98 2.20###++
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.41 1.43 1.48 1.50+
Expenses after expense reductions## 1.41 1.43 1.48 1.50+
Net investment income 0.99 0.91 1.20 2.23+
Portfolio turnover (%) 24 42 55 48
Net assets at end of period (000 Omitted) $2,914 $1,673 $806 $10
- -------------------------------------------------------------------------------------------------------------------------
CLASS 529B
YEARS ENDED 8/31
------------------------------------------------------------------
2005= 2004= 2003 2002**
Net asset value, beginning of period $20.67 $17.87 $17.12 $16.76###
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------
Net investment income $0.08 $0.05 $0.09 $0.02
Net realized and unrealized gain (loss) on
investments and foreign currency 2.87 2.81 0.80 0.34
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.95 $2.86 $0.89 $0.36
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.10) $(0.06) $(0.14) $--
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.52 $20.67 $17.87 $17.12
- -------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 14.32*** 16.03***+ 5.29 2.15###++
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.06 2.07 2.13 2.15+
Expenses after expense reductions## 2.06 2.07 2.13 2.15+
Net investment income 0.34 0.27 0.52 1.33+
Portfolio turnover (%) 24 42 55 48
Net assets at end of period (000 Omitted) $655 $439 $181 $6
- -------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C
YEARS ENDED 8/31
------------------------------------------------------------------
2005= 2004= 2003 2002**
Net asset value, beginning of period $20.66 $17.86 $17.11 $16.75###
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------
Net investment income $0.08 $0.05 $0.09 $0.02
Net realized and unrealized gain (loss) on
investments and foreign currency 2.87 2.81 0.80 0.34
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.95 $2.86 $0.89 $0.36
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.10) $(0.06) $(0.14) $--
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.51 $20.66 $17.86 $17.11
- -------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 14.32*** 16.03***+ 5.31 2.15###++
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.06 2.07 2.13 2.15+
Expenses after expense reductions## 2.06 2.07 2.13 2.15+
Net investment income 0.36 0.26 0.55 1.75+
Portfolio turnover (%) 24 42 55 48
Net assets at end of period (000 Omitted) $1,062 $643 $352 $21
- -------------------------------------------------------------------------------------------------------------------------
** For the period from the class' inception, December 31, 2002 (Class R), July 31, 2002 (Classes 529A, 529B, and 529C),
October 31, 2003 (Class R3) and April 1, 2005 (Classes R1, R2, R4, and R5) through the stated period end.
*** Certain expenses have been reduced without which performance would have been lower. + Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### The net asset values and total returns previously reported as $16.52 and 9.82% (Class R), $18.80 and 11.52% (Class R3),
$17.01 and 1.18% (Class 529A), $16.93 and 1.12% (Class 529B), and $16.92 and 1.12% (Class 529C), respectively, have been
revised to reflect the net asset value from the day prior to the class' inception date. The net asset values and total
returns previously reported were from inception date, the date the share classes were first available to public
shareholders.
^ 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 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. 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 any applicable sales charges.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
= Redemption fees charged by the fund during this period resulted in a per share impact of less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Value Fund (the fund) is a diversified series of MFS Series Trust I (the
trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open- end
management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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.
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 year ended August 31, 2005, the fund's custodian fees were
reduced by $202,689 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the fund
a portion of the commissions generated, to offset certain expenses of the fund.
For the year ended August 31, 2005, the fund's miscellaneous expenses were
reduced by $73,244 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, treating a portion of the proceeds
from redemptions as a distribution from realized gains for tax purposes and wash
sales.
The tax character of distributions declared for the years ended August 31, 2005
and August 31, 2004 was as follows:
8/31/05 8/31/04
Distributions declared from
ordinary income $70,276,146 $54,471,492
During the year ended August 31, 2005 accumulated undistributed net investment
income decreased by $254,475, accumulated undistributed net realized gain on
investments and foreign currency transactions decreased by $12,188,401, and
paid-in capital increased by $12,442,876 due to differences between book and tax
accounting for foreign currency transactions and treating a portion of the
proceeds from redemptions as a distribution from realized gains for tax
purposes. This change had no effect on the net assets or net asset value per
share.
As of August 31, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $17,533,434
Undistributed long-term capital gain 310,751,096
Unrealized appreciation (depreciation) 1,225,917,866
Other temporary differences (13,811)
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 the
following annual rates:
First $7.5 billion of average daily net assets 0.60%
Average daily net assets in excess of $7.5 billion 0.55%
This reduction in the management fee may be rescinded by MFS only with the
approval of the fund's Board of Trustees. The management fee incurred for the
year ended August 31, 2005 was equivalent to an annual effective rate of 0.60%
of the fund's average daily net assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly owned subsidiary of
MFS, as distributor, received $498,917 and $3,146 for the year ended August 31,
2005, as its portion of the initial sales charge on sales of Class A and Class
529A shares of the fund, respectively.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the distribution
and servicing of certain share classes. One component of the plan is a
distribution fee paid to and retained by MFD. Another component of the plan is a
service fee paid to MFD which subsequently pays a portion of this fee 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.
Distribution Fee Plan Table:
TOTAL ANNUAL SERVICE FEE DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE RETAINED AND SERVICE
FEE RATE FEE RATE PLAN(1) RATE(2) BY MFD(3) FEE
Class A 0.10% 0.25% 0.35% 0.35% $359,271 $14,267,458
Class B 0.75% 0.25% 1.00% 1.00% 5,071 12,710,052
Class C 0.75% 0.25% 1.00% 1.00% 9,016 8,313,864
Class R 0.25% 0.25% 0.50% 0.50% 271 352,225
Class R1 0.50% 0.25% 0.75% 0.75% 92 597
Class R2 0.25% 0.25% 0.50% 0.50% 61 366
Class R3 0.25% 0.25% 0.50% 0.50% 23 17,092
Class R4 N/A 0.25% 0.25% 0.25% 31 136
Class 529A 0.25% 0.25% 0.50% 0.35% 986 8,404
Class 529B 0.75% 0.25% 1.00% 1.00% 15 5,563
Class 529C 0.75% 0.25% 1.00% 1.00% 69 8,126
- -----------------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $35,683,883
(1) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up to these
annual percentage rates of each class' average daily net assets.
(2) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August 31, 2005
based on each class' average daily net assets. 0.10% of the Class 529A distribution fee is currently being paid by the
fund. Payment of the remaining 0.15% of the Class 529A distribution fee is not yet implemented and will commence on such
date as the fund's Board of Trustees may determine.
(3) For the year ended August 31, 2005, MFD retained these service fees.
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 12 months
following the purchase. Class B and Class 529B shares are subject to a
contingent deferred sales charge in the event of a shareholder redemption within
six years of purchase. MFD retained all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended August 31, 2005
were as follows:
AMOUNT
Class A $83,465
Class B $2,161,202
Class C $72,958
Class 529B $106
Class 529C $--
The fund has entered into and may from time to time enter into contracts with
program managers and other parties which administer the tuition programs through
which an investment in the fund's 529 share classes is made. The fund has
entered into an agreement with MFD pursuant to which MFD receives an annual fee
of up to 0.35% from the fund based solely upon the value of the fund's 529 share
classes attributable to tuition programs to which MFD, or a third party which
contracts with MFD, provides administrative services. The current fee has been
established at 0.25% annually of average net assets of the fund's 529 share
classes. The fee may only be increased with the approval of the Board of
Trustees who 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. Program manager
fees for the year ended August 31, 2005, were as follows:
AMOUNT
Class 529A $6,003
Class 529B 1,391
Class 529C 2,031
-------------------------------------------------------
Total Program Manager Fees $9,425
SHAREHOLDER SERVICING AGENT - The fund pays a portion of shareholder servicing
costs to MFSC, a wholly-owned subsidiary of MFS. MFS Service Center, Inc.
(MFSC) receives a fee from the fund, for its services as shareholder servicing
agent, set periodically under the supervision of the fund's Board of Trustees.
For the year ended August 31, 2005, the fee was $7,296,388, which equated to
0.1041% annually of the fund's average daily net assets. MFSC also receives
payment from the fund for out-of-pocket and sub-accounting expenses paid by
MFSC on behalf of the fund. For the year ended August 31, 2005, these costs
amounted to $2,744,142.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. Effective July 1, 2005, the fund's annual fixed amount is $10,000.
The administrative services fee incurred for the year ended August 31, 2005 was
equivalent to an annual effective rate of 0.0057% of the fund's average daily
net assets.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain retirement plan
administration and services with respect to certain Class R shares. These
services include various administrative, recordkeeping, and communication/
educational services with respect to the retirement plans which invest in these
shares, and may be provided directly by MFS or by a third party. For the year
ended August 31, 2005, the fund paid an annual retirement plan administration
and services fee up to the following annual percentage rates of each class'
average daily net assets:
AMOUNT
FEE TOTAL RETAINED
RATE AMOUNT BY MFS
Class R1 0.45% $358 $273
Class R2 0.40% 292 215
Class R3 (formerly Class R2) 0.25% 8,546 4,898
Class R4 0.15% 82 26
Class R5 0.10% 21 19
- ------------------------------------------------------------------------------
Total Retirement Plan Administration and
Services Fees $9,299 $5,431
TRUSTEES' COMPENSATION - The fund pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons. The fund does not pay compensation directly to
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, MFD,
and MFSC. The fund has an unfunded, defined benefit plan for retired Independent
Trustees which resulted in a pension expense of $1,235. This amount is included
in Trustees' compensation for the year ended August 31, 2005.
OTHER - 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 the fund
for a portion of the payments made by the funds to Tarantino LLC in the amount
of $32,710 which is shown as a reduction of total expenses in the Statement of
Operations. Additionally, MFS has agreed to bear all expenses associated with
office space, other administrative support, and supplies provided 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, was the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in connection
with fund sales. As a result, proceeds in the amount of $1,390,632 were paid to
the fund on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$2,275,940,339 and $1,630,100,863, 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 $6,724,881,590
------------------------------------------------------------
Gross unrealized appreciation $1,416,762,154
Gross unrealized depreciation (190,844,288)
------------------------------------------------------------
Net unrealized appreciation (depreciation) $1,225,917,866
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 8/31/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 67,622,518 $1,551,532,325 68,232,846 $1,362,862,519
Shares issued to shareholders in
reinvestment of distributions 1,675,437 37,750,899 1,607,195 31,479,055
Shares reacquired (46,979,425) (1,074,415,928) (69,376,970) (1,396,340,338)
- ------------------------------------------------------------------------------------------------------------
Net change 22,318,530 $514,867,296 463,071 $(1,998,764)
CLASS B SHARES
Shares sold 7,612,220 $172,399,903 10,609,786 $210,964,746
Shares issued to shareholders in
reinvestment of distributions 274,776 6,154,187 235,102 4,573,746
Shares reacquired (12,281,886) (279,614,054) (12,715,831) (254,097,701)
- ------------------------------------------------------------------------------------------------------------
Net change (4,394,890) $(101,059,964) (1,870,943) $(38,559,209)
CLASS C SHARES
Shares sold 6,816,382 $154,637,648 9,335,624 $184,215,208
Shares issued to shareholders in
reinvestment of distributions 143,635 3,216,693 120,898 2,350,259
Shares reacquired (7,135,699) (161,831,639) (8,914,773) (179,025,392)
- ------------------------------------------------------------------------------------------------------------
Net change (175,682) $(3,977,298) 541,749 $7,540,075
CLASS I SHARES
Shares sold 10,315,188 $235,628,710 14,195,841 $284,193,397
Shares issued to shareholders in
reinvestment of distributions 445,520 10,091,634 310,207 6,162,008
Shares reacquired (1,453,062) (33,305,489) (2,592,198) (52,439,449)
- ------------------------------------------------------------------------------------------------------------
Net change 9,307,646 $212,414,855 11,913,850 $237,915,956
CLASS R SHARES (FORMERLY CLASS R1)
Shares sold 2,089,842 $47,454,343 2,778,893 $55,557,730
Shares issued to shareholders in
reinvestment of distributions 28,217 638,219 14,631 292,053
Shares reacquired (829,372) (19,020,335) (1,301,372) (26,054,689)
- ------------------------------------------------------------------------------------------------------------
Net change 1,288,687 $29,072,227 1,492,152 $29,795,094
Period ended 8/31/05**
SHARES AMOUNT
CLASS R1 SHARES
Shares sold 24,912 $587,129
Shares issued to shareholders in
reinvestment of distributions 10 235
Shares reacquired (637) (15,038)
- -------------------------------------------------------------------------
Net change 24,285 $572,326
CLASS R2 SHARES
Shares sold 31,006 $733,871
Shares issued to shareholders in
reinvestment of distributions 4 89
Shares reacquired (85) (1,994)
- -------------------------------------------------------------------------
Net change 30,925 $731,966
Year ended 8/31/05 Period ended 8/31/04*
SHARES AMOUNT SHARES AMOUNT
CLASS R3 SHARES (FORMERLY CLASS R2)
Shares sold 427,084 $9,909,445 37,734 $762,333
Shares issued to shareholders in
reinvestment of distributions 1,089 25,006 2 32
Shares reacquired (97,308) (2,238,363) (17,871) (360,775)
- ------------------------------------------------------------------------------------------------------------
Net change 330,865 $7,696,088 19,865 $401,590
Period ended 8/31/05**
SHARES AMOUNT
CLASS R4 SHARES
Shares sold 16,787 $398,880
Shares issued to shareholders in
reinvestment of distributions 6 145
- -------------------------------------------------------------------------
Net change 16,793 $399,025
CLASS R5 SHARES
Shares sold 2,147 $50,000
Shares issued to shareholders in
reinvestment of distributions 7 180
- -------------------------------------------------------------------------
Net change 2,154 $50,180
Year ended 8/31/05 Year ended 8/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 59,455 $1,361,336 37,997 $768,227
Shares issued to shareholders in
reinvestment of distributions 951 21,439 549 10,840
Shares reacquired (17,903) (414,122) (2,961) (60,562)
- ------------------------------------------------------------------------------------------------------------
Net change 42,503 $968,653 35,585 $718,505
CLASS 529B SHARES
Shares sold 8,352 $188,972 12,295 $245,830
Shares issued to shareholders in
reinvestment of distributions 110 2,457 43 843
Shares reacquired (1,826) (43,149) (1,231) (25,198)
- ------------------------------------------------------------------------------------------------------------
Net change 6,636 $148,280 11,107 $221,475
CLASS 529C SHARES
Shares sold 16,465 $377,276 16,679 $325,595
Shares issued to shareholders in
reinvestment of distributions 161 3,597 82 1,583
Shares reacquired (2,618) (59,233) (5,336) (107,766)
- ------------------------------------------------------------------------------------------------------------
Net change 14,008 $321,640 11,425 $219,412
* For the period from the inception of Class R3 shares, October 31, 2003, through August 31, 2004.
** For the period from the inception of Class R1, Class R2, Class R4, and Class R5 shares, April 1, 2005,
through August 31, 2005.
The fund is one of several mutual funds in which the MFS fund-of-funds may
invest. The MFS fund-of-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 2%, 1%, 3%, and 3% respectively, of the value of outstanding
voting shares.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured line
of credit provided by a syndication of banks under a 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 0.35%. In addition, a commitment fee, based on the average daily,
unused portion of the line of credit, is allocated among the participating funds
at the end of each calendar quarter. The commitment fee allocated to the fund
for the year ended August 31, 2005 was $47,617, and is included in miscellaneous
expense. The fund had no significant borrowings during the year ended August 31,
2005.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust I and Shareholders of MFS Value Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Value Fund (the Fund) (one of the portfolios comprising MFS Series Trust I),
including the portfolio of investments, as of August 31, 2005, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of August 31, 2005, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Value Fund at August 31, 2005, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its financial highlights for each of the periods indicated
therein, in conformity with U.S. generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 11, 2005
RESULTS OF SHAREHOLDER MEETING (unaudited) - 8/31/05
At a special meeting of shareholders of MFS Series Trust I, which was held on
March 23, 2005, the following actions were taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
----------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $8,025,286,508.56 $117,939,292.78
- ---------------------------------------------------------------------------
David H. Gunning 8,030,402,677.64 112,823,123.70
- ---------------------------------------------------------------------------
William R. Gutow 8,027,523,726.27 115,702,075.07
- ---------------------------------------------------------------------------
Michael Hegarty 8,021,162,525.49 122,063,275.85
- ---------------------------------------------------------------------------
J. Atwood Ives 8,024,062,680.07 119,163,121.27
- ---------------------------------------------------------------------------
Amy B. Lane 8,019,792,882.59 123,432,918.75
- ---------------------------------------------------------------------------
Robert J. Manning 8,030,980,361.78 112,245,439.56
- ---------------------------------------------------------------------------
Lawrence T. Perara 8,025,935,401.12 117,290,400.22
- ---------------------------------------------------------------------------
Robert C. Pozen 8,031,655,470.25 111,570,331.09
- ---------------------------------------------------------------------------
J. Dale Sherratt 8,027,226,595.42 115,999,205.92
- ---------------------------------------------------------------------------
Laurie J. Thomsen 8,019,388,506.87 123,837,294.47
- ---------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2005, are listed below, together with their principal
occupations during the past five years. (Their titles may have varied during that period.) The address of each
Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(1) OTHER DIRECTORSHIPS(2)
- ------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee and February 2004 Massachusetts Financial Services
(born 10/20/63) President Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School (education),
John Olin Visiting Professor (since
July 2002); Secretary of Economic
Affairs, The Commonwealth of
Massachusetts (January 2002 to December
2002); Fidelity Investments, Vice
Chairman (June 2000 to December 2001);
Fidelity Management & Research Company
(investment adviser), President (March
1997 to July 2001); Bell Canada
Enterprises (telecommunications),
Director; Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications), Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 05/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and Chief
Executive Officer (until November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Chief of Cardiac
Surgery; Harvard Medical School,
Professor of Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider),
Vice Chairman/Director (since April
2001); Encinitos Ventures (private
investment company), Principal (1997 to
April 2001); Lincoln Electric Holdings,
Inc. (welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video franchise),
Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating Officer
(until May 2001); The Equitable Life
Assurance Society (insurance),
President and Chief Operating Officer
(until May 2001)
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group (1997 to
February 2001); Borders Group, Inc.
(book and music retailer), Director;
Federal Realty Investment Trust (real
estate investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 06/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health care
companies), Managing General Partner
(since 1993); Cambridge Nutraceuticals
(professional nutritional products),
Chief Executive Officer (until May
2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 08/05/57) Partners (venture capital), Co-
founder and General Partner (until June
2004); St. Paul Travelers Companies
(commercial property liability
insurance), Director
OFFICERS
Robert J. Manning(3) President and February 2004 Massachusetts Financial Services
(born 10/20/63) Trustee Company, Chief Executive Officer,
President, Chief Investment Officer and
Director
Tracy Atkinson(3) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP, Partner
(prior to September 2004)
Christopher R. Bohane(3) Assistant July 2005 Massachusetts Financial Services
(born 1/18/74) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law firm),
Associate (prior to April 2003); Nvest
Services Company, Assistant Vice
President and Associate Counsel (prior
to January 2001)
Jeffrey N. Carp(3) Secretary and September 2004 Massachusetts Financial Services
(born 12/01/56) Clerk Company, Executive Vice President,
General Counsel and Secretary (since
April 2004); Hale and Dorr LLP (law
firm), Partner (prior to April 2004)
Ethan D. Corey(3) Assistant July 2005 Massachusetts Financial Services
(born 11/21/63) Secretary and Company, Special Counsel (since
Assistant Clerk December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
Stephanie A. DeSisto(3) Assistant May 2003 Massachusetts Financial Services
(born 10/01/53) Treasurer Company, Vice President (since
April 2003); Brown Brothers Harriman &
Co., Senior Vice President (November
2002 to April 2003); ING Groep
N.V./Aeltus Investment Management,
Senior Vice President (prior to
November 2002)
David L. DiLorenzo(3) Assistant July 2005 Massachusetts Financial Services
(born 8/10/68) Treasurer Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (January
2001 to June 2005); State Street
Bank, Vice President and Corporate
Audit Manager (prior to January
2001)
Timothy M. Fagan(3) Assistant September 2005 Massachusetts Financial Services
(born 7/10/68) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(3) Assistant July 2005 Massachusetts Financial Services
(born 10/27/70) Treasurer Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian T. Hourihan(3) Assistant September 2004 Massachusetts Financial Services
(born 11/11/64) Secretary and Company, Vice President, Senior
Assistant Clerk Counsel and Assistant Secretary
(since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance
Program (January to April 2004);
Fidelity Research & Management
Company, Assistant General Counsel
(prior to January 2004)
Ellen Moynihan(3) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Vice President
Susan S. Newton(3) Assistant May 2005 Massachusetts Financial Services
(born 03/07/50) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(3) Assistant July 2005 Massachusetts Financial Services
(born 11/05/70) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (January 2001 to June
2004); Preti, Flaherty, Beliveau,
Pachios & Haley, LLC, Associate
(prior to January 2001)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting services),
Executive Vice President (April 2003 to
June 2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative Officer
and Director (February 1997 to March
2003)
James O. Yost(3) Assistant September 1990 Massachusetts Financial Services
(born 06/12/60) Treasurer Company, Senior Vice President
- ------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(3) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940 (referred to as
the 1940 Act), which is the principal federal law governing investment companies like the fund, as a
result of position with MFS. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.
Each Trustee has been elected by shareholders and each Trustee and officer holds office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal.
Messrs. Ives and Sherratt and Mses. Lane and Thomsen are members of the Trust's Audit Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor, and, in the case of the officers, with certain
affiliates of MFS. As of December 31, 2004, each Trustee served as a board member of 99 funds within the MFS
Family of Funds.
The Trust held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five
years thereafter, to elect Trustees.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -----------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 02116-3741 200 Clarendon Street, Boston, MA 02116
PORTFOLIO MANAGER
Steven Gorham
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of Trustees
and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment advisory
agreement with MFS. The Trustees consider matters bearing on the Fund and its
advisory arrangements at their meetings throughout the year, including a review
of performance data at each regular meeting. In addition, the independent
Trustees met several times over the course of three months beginning in May and
ending in July, 2005 ("contract review meetings") for the specific purpose of
considering whether to approve the continuation of the investment advisory
agreement for the Fund and the other investment companies that the Board
oversees (the "MFS Funds"). The independent Trustees were assisted in their
evaluation of the Fund's investment advisory agreement by independent legal
counsel, from whom they received separate legal advice and with whom they met
separately from MFS during various contract review meetings. The independent
Trustees were also assisted in this process by the MFS Funds' Independent Chief
Compliance Officer, a full-time senior officer appointed by and reporting to the
independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent Trustees,
considered such information and factors as they believed, in light of the legal
advice furnished to them and their own business judgment, to be relevant. The
investment advisory agreement for the Fund was considered separately, although
the Trustees also took into account the common interests of all MFS Funds in
their review. As described below, the Trustees considered the nature, quality,
and extent of the various investment advisory, administrative, and shareholder
services performed by MFS under the existing investment advisory agreement and
other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2004 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a group
of funds identified by objective criteria suggested by MFS ("peer funds"), (ii)
information provided by Lipper Inc. on the Fund's advisory fees and other
expenses and the advisory fees and other expenses of comparable funds identified
by Lipper (the "Lipper expense group"), as well as the advisory fees and other
expenses of peer funds identified by objective criteria suggested by MFS, (iii)
information provided by MFS on the advisory fees of comparable portfolios of
other clients of MFS, including institutional separate account and other
clients, (iv) information as to whether and to what extent applicable expense
waivers, reimbursements or fee "breakpoints" are observed for the Fund, (v)
information regarding MFS' financial results and financial condition, including
MFS' and certain of its affiliates' estimated profitability from services
performed for the Fund and the MFS Funds as a whole, (vi) MFS' views regarding
the outlook for the mutual fund industry and the strategic business plans of
MFS, (vii) descriptions of various functions performed by MFS for the Funds,
such as compliance monitoring and portfolio trading practices, and (viii)
information regarding the overall organization of MFS, including information
about MFS' senior management and other personnel providing investment advisory,
administrative and other services to the Fund and the other MFS Funds. The
comparative performance, fee and expense information prepared and provided by
Lipper Inc. was not independently verified and the independent Trustees did not
independently verify any information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information provided
to the Trustees and not the result of any single factor. Some of the factors
that figured particularly in the Trustees' deliberations are described below,
although individual Trustees may have evaluated the information presented
differently from one another, giving different weights to various factors. It is
also important to recognize that the fee arrangements for the Fund and other MFS
Funds are the result of years of review and discussion between the independent
Trustees and MFS, that certain aspects of such arrangements may receive greater
scrutiny in some years than others, and that the Trustees' conclusions may be
based, in part, on their consideration of these same arrangements during the
course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed the
Fund's total return investment performance as well as the performance of peer
groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2004, which the Trustees believed was a
long enough period to reflect differing market conditions. The Fund's
performance was in the 33rd percentile relative to the other funds in the
universe for this three-year period (the 1st percentile being the best
performers and the 100th percentile being the worst performers). The total
return performance of the Fund's Class A shares was in the 19th percentile
for the one-year period and the 13th percentile for the five-year period
ended December 31, 2004 relative to the Lipper performance universe. Because of
the passage of time, these performance results are likely to differ from the
performance results for more recent periods, including those shown elsewhere in
this report.
In the course of their deliberations, the Trustees took into account information
provided by MFS in connection with the contract review meetings, as well as
during investment review meetings conducted with portfolio management personnel
during the course of the year regarding the Fund's performance. After reviewing
these and related factors, the Trustees concluded, within the context of their
overall conclusions regarding the investment advisory agreement, that they were
satisfied with MFS' responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average net assets
and the advisory fee and total expense ratios of peer groups of funds based on
information provided by Lipper Inc. and MFS. The Trustees considered whether the
Fund was subject to any fee waivers or reductions or expense limitations. The
Trustees also considered that, according to the Lipper data, the Fund's
effective advisory fee rate was lower than the Lipper expense group median, and
the Fund's total expense ratio was approximately at the Lipper expense group
median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the Fund
in comparison to institutional accounts, the higher demands placed on MFS'
investment personnel and trading infrastructure as a result of the daily cash
in-flows and out-flows of the Fund, and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
currently subject to a breakpoint that reduces the Fund's advisory fee rate on
net assets over $7.5 billion. Taking into account fee waivers or reductions or
expense limitations, if any, the Trustees concluded that the existing breakpoint
was sufficient to allow the Fund to benefit from economies of scale as its
assets grow.
The Trustees also considered information prepared by MFS relating to MFS' costs
and profits with respect to the Fund, the MFS Funds considered as a group, and
other investment companies and accounts advised by MFS, as well as MFS'
methodologies used to determine and allocate its costs to the MFS Funds, the
Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the financial
services industry, including the entry into the industry of large and
well-capitalized companies which are spending, and appear to be prepared to
continue to spend, substantial sums to engage personnel and to provide services
to competing investment companies. In this regard, the Trustees also considered
the financial resources of MFS and its ultimate parent, Sun Life Financial Inc.
The Trustees also considered the advantages and possible disadvantages to the
Fund of having an adviser which also serves other investment companies as well
as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the Fund
by MFS and its affiliates under agreements and plans other than the investment
advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund
Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for research and other similar services
(including MFS' general policy to pay directly for third-party research), and
various other factors. Additionally, the Trustees considered so-called "fall-
out benefits" to MFS such as reputational value derived from serving as
investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material, including
those factors described above, the Board of Trustees, including a majority of
the independent Trustees, concluded that the Fund's investment advisory
agreement with MFS should be continued for an additional one-year period,
commencing August 1, 2005.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement will be available on or before December 1, 2005 by
clicking on the fund's name under "Select a fund" on the MFS website (mfs.com).
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 Proxy Voting 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.
FEDERAL TAX INFORMATION (unaudited)
In January 2006, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2005.
The fund has designated $12,442,876 as a capital gain dividend for the year
ended August 31, 2005.
For the year ended August 31, 2005, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations is 100.00%.
The fund hereby designates the maximum amount allowable as qualified dividend
income eligible for a maximum tax rate of 15%, as provided for by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. Complete information will be
reported in conjunction with your 2005 Form 1099-DIV.
CONTACT INFORMATION
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
- --------------------------------------------------------------------------------
Share 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-ANN-10/05 346M
MFS(R) Mutual Funds
ANNUAL REPORT 8/31/05
MFS(R) CASH RESERVE FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(SM)
INVESTMENT MANAGEMENT(R)
- --------------------------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK OR CREDIT UNION GUARANTEE NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR NCUA/NCUSIF
- --------------------------------------------------------------------------------------------------
MFS(R) CASH RESERVE FUND 8/31/05
The fund seeks as high a level of current income as is
considered consistent with the preservation of capital
and liquidity.
THIS REPORT IS PREPARED FOR THE GENERAL INFORMATION OF
SHAREHOLDERS. IT IS AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR ACCOMPANIED
BY A CURRENT PROSPECTUS.
TABLE OF CONTENTS
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
PORTFOLIO COMPOSITION 2
- ----------------------------------------------------
PERFORMANCE SUMMARY 3
- ----------------------------------------------------
EXPENSE TABLE 6
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 8
- ----------------------------------------------------
FINANCIAL STATEMENTS 10
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 20
- ----------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 28
- ----------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 29
- ----------------------------------------------------
TRUSTEES AND OFFICERS 30
- ----------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 35
- ----------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 39
- ----------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 39
- ----------------------------------------------------
FEDERAL TAX INFORMATION 39
- ----------------------------------------------------
CONTACT INFORMATION BACK COVER
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders,
Most investors are familiar with the basic principles of investing - focus on
the long term and keep your assets diversified across different investment
categories. Still, it is surprising how often we forget these basic lessons.
Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s
had many people hoping they could become millionaires overnight. But the
market decline that started in the spring of 2000 taught everyone how
misguided those hopes had been.
Now, less than five years after the market taught a harsh lesson in the
follies of speculative investing, we are seeing a number of trends that
suggest many investors, including professionals, are hoping for overnight
miracles again. We see a steady stream of market "gurus" on television news
shows, promising to teach amateur investors the strategies that will allow
them to get rich quick. Hedge funds - which by their nature move in and out of
investments rapidly - have soared in popularity over the past five years. We
are reminded every day that we live in a "what have you done for me lately?"
world, but this mindset should not influence how we invest and manage our
money. In fact, investors often fall short of their goals because they trade
in and out of investments too frequently and at inopportune times.
Throughout our entire 80-year history, MFS' money management process has
focused on long-term investment opportunities. We firmly believe that one of
the best ways to realize long-term financial goals - be it a college
education, a comfortable retirement, or a secure family legacy - is to follow
a three-pronged approach that focuses on longer time horizons. Allocate
holdings across the major asset classes - including stocks, bonds, and cash.
Diversify within each class to take advantage of different market segments and
investing styles. And rebalance assets regularly to maintain a desired asset
allocation.*
This long-term approach requires diligence and patience, two traits that in
our experience are essential to capitalizing on the many opportunities the
financial markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 17, 2005
* Asset allocation, diversification, and rebalancing does not guarantee a
profit or protect against a loss. The opinions expressed in this letter are
those of MFS, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE*
Commercial Paper 79.5%
Certificates of Deposit 20.7%
Other Assets Less Liabilities -0.2%
SHORT TERM CREDIT QUALITY**
Average Credit Quality Short-Term Bonds*** A-1
------------------------------------------------
All holdings are rated A-1
MATURITY BREAKDOWN*
0-29 days 51.6%
------------------------------------------------
30-59 days 40.5%
------------------------------------------------
60-89 days 8.1%
------------------------------------------------
Other assets less liabilities -0.2%
------------------------------------------------
* For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
** 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. For those portfolios that hold a
security which is not rated by any of the three agencies, the security is
considered Not Rated. Holdings in U.S. Treasuries and mortgage-backed
securities, if any, are included in a "AAA"-rating category. Percentages
are based on the total market value of investments as of 8/31/05.
*** The 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 8/31/05, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
PERFORMANCE SUMMARY THROUGH 8/31/05
Performance results are historical and reflect the change in net asset value,
including reinvestment of dividends and capital gains distributions. An
investment in the fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in this fund. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. THE
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PERFORMANCE
SHOWN DOES NOT REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD
PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
1 YEAR
TOTAL RETURN CURRENT
(WITHOUT CURRENT 7-DAY YIELD
CLASS INCEPTION SALES CHARGE) 7-DAY YIELD WITHOUT WAIVER
- --------------------------------------------------------------------------------
A 9/07/93 2.11% 3.04% 2.64%
- --------------------------------------------------------------------------------
B 12/29/86 1.10% 2.04% 1.64%
- --------------------------------------------------------------------------------
C 4/01/96 1.10% 2.04% 1.64%
- --------------------------------------------------------------------------------
R1 4/01/05 1.02% 1.84% 1.44%
- --------------------------------------------------------------------------------
R2 4/01/05 1.14% 2.14% 1.74%
- --------------------------------------------------------------------------------
R3 4/01/05 1.21% 2.29% 1.89%
- --------------------------------------------------------------------------------
R4 4/01/05 1.94% 2.63% 2.23%
- --------------------------------------------------------------------------------
R5 4/01/05 2.07% 2.94% 2.54%
- --------------------------------------------------------------------------------
529A 7/31/02 1.86% 2.79% 2.04%
- --------------------------------------------------------------------------------
529B 7/31/02 0.87% 1.79% 1.39%
- --------------------------------------------------------------------------------
529C 7/31/02 0.87% 1.79% 1.39%
- --------------------------------------------------------------------------------
Yields quoted are based on the latest seven days ended as of August 31, 2005,
with dividends annualized. The yield quotation more closely reflects the
current earnings of the fund than the total return quotation.
1 YEAR
TOTAL RETURN
(WITH
CLASS SALES CHARGE)
- --------------------------------------------------------------------------------
B -2.90%
- --------------------------------------------------------------------------------
C 0.10%
- --------------------------------------------------------------------------------
529B -3.13%
- --------------------------------------------------------------------------------
529C -0.13%
- --------------------------------------------------------------------------------
Class A, R1, R2, R3, R4, R5, and 529A Shares have no sales charge. Please see
Notes to Performance Summary for more details.
NOTES TO PERFORMANCE SUMMARY
Class A and 529A shares have no 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 calendar month of purchase), reflect the
deduction of the 1% CDSC. Class R1, R2, R3, R4, and R5 shares have no initial
sales charge or CDSC and are only available to certain retirement plans. Class
529 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 R4 and R5 shares includes the performance of the fund's Class
A shares prior to their offering. Performance for R1, R2, and R3 includes the
performance of the fund's Class B shares 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.
KEY RISK CONSIDERATIONS
The portfolio's yield and share price change daily and are based on changes in
interest rates and market conditions, and in response to other economic,
political, or financial developments. In general, the value of debt securities
will decline when interest rates rise and will increase when interest rates
fall. Lower-quality debt securities and certain types of other securities
involve greater risk of default or price changes due to changes in the credit
quality of the issuer. The value of the portfolio's domestic investments will
fluctuate in response to many factors including the performance and valuation
of the issuer and general market conditions. Foreign investments can be more
volatile than U.S. investments. The municipal market is volatile and can be
significantly affected by adverse tax, legislative or political changes and
the financial condition of the issuers of municipal securities.
Please see the prospectus for further information regarding these and other
risks considerations.
EXPENSE TABLE
FUND EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
MARCH 1, 2005 THROUGH AUGUST 31, 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 March 1, 2005 through
August 31, 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 3/01/05-
Share Class Ratio 3/01/05 8/31/05 8/31/05
- --------------------------------------------------------------------------------
Actual 0.54% $1,000.00 $1,013.00 $2.74
A ---------------------------------------------------------------------
Hypothetical* 0.54% $1,000.00 $1,022.48 $2.75
- --------------------------------------------------------------------------------
Actual 1.54% $1,000.00 $1,007.90 $7.79
B ----------------------------------------------------------------------
Hypothetical* 1.54% $1,000.00 $1,017.44 $7.83
- --------------------------------------------------------------------------------
Actual 1.53% $1,000.00 $1,007.90 $7.74
C ---------------------------------------------------------------------
Hypothetical* 1.53% $1,000.00 $1,017.49 $7.78
- --------------------------------------------------------------------------------
Actual 1.84% $1,000.00 $1,007.10 $9.31
R1 ---------------------------------------------------------------------
Hypothetical* 1.84% $1,000.00 $1,015.93 $9.35
- --------------------------------------------------------------------------------
Actual 1.53% $1,000.00 $1,008.40 $7.75
R2 ---------------------------------------------------------------------
Hypothetical* 1.53% $1,000.00 $1,017.49 $7.78
- --------------------------------------------------------------------------------
Actual 1.43% $1,000.00 $1,009.00 $7.24
R3 ---------------------------------------------------------------------
Hypothetical* 1.43% $1,000.00 $1,018.00 $7.27
- --------------------------------------------------------------------------------
Actual 0.98% $1,000.00 $1,011.30 $4.97
R4 ---------------------------------------------------------------------
Hypothetical* 0.98% $1,000.00 $1,020.27 $4.99
- --------------------------------------------------------------------------------
Actual 0.68% $1,000.00 $1,012.60 $3.45
R5 ---------------------------------------------------------------------
Hypothetical* 0.68% $1,000.00 $1,021.78 $3.47
- --------------------------------------------------------------------------------
Actual 0.79% $1,000.00 $1,011.70 $4.01
529A ---------------------------------------------------------------------
Hypothetical* 0.79% $1,000.00 $1,021.22 $4.02
- --------------------------------------------------------------------------------
Actual 1.79% $1,000.00 $1,006.70 $9.05
529B ---------------------------------------------------------------------
Hypothetical* 1.79% $1,000.00 $1,016.18 $9.10
- --------------------------------------------------------------------------------
Actual 1.79% $1,000.00 $1,006.70 $9.05
529C ---------------------------------------------------------------------
Hypothetical* 1.79% $1,000.00 $1,016.18 $9.10
- --------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, 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 - 8/31/05
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 - 20.7%
- ---------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ---------------------------------------------------------------------------------------------------
BNP Paribas, NY, 3.52%, due 10/13/05 $ 17,450,000 $ 17,450,000
Caylon NY, 3.37%, due 9/20/05 12,220,000 12,219,529
Credit Suisse First Boston, NY, 3.5%, due 9/23/05 17,077,000 17,077,000
Deutsche Bank A.G., NY, 3.51%, due 10/11/05 17,768,000 17,768,000
Natexis Banque Populaires, NY, 3.505%, due 9/20/05 17,092,000 17,092,000
Svenska Handelsbanken A.B., NY, 3.415%, due 9/09/05 5,756,000 5,756,000
- ---------------------------------------------------------------------------------------------------
Total Certificates of Deposit, at Amortized Cost and Value $ 87,362,529
- ---------------------------------------------------------------------------------------------------
Commercial Paper - 79.5%<
- ---------------------------------------------------------------------------------------------------
American Express Credit Corp., 3.68%, due 11/08/05 $ 17,277,000 $ 17,156,906
American General Finance Corp., 3.48%, due 9/16/05 4,319,000 4,312,738
American General Finance Corp., 3.63%, due 10/17/05 12,884,000 12,824,240
Bank of America Corp., 3.54%, due 10/19/05 14,000,000 13,933,920
Barton Capital LLC, 3.64%, due 10/18/05@ 17,029,000 16,948,074
Ciesco LLC, 3.32%, due 9/13/05@ 14,281,000 14,265,196
Citibank Credit Card Issuance Trust, 3.51%, due 9/22/05@ 10,500,000 10,478,501
Citigroup Funding, Inc., 3.6%, due 10/11/05 17,225,000 17,156,100
Depfa Bank PLC, 3.69%, due 11/14/05@ 17,285,000 17,153,893
Falcon Asset Securitization Corp., 3.6%, due 10/06/05@ 4,008,000 3,993,972
Falcon Asset Securitization Corp., 3.65%, due 10/20/05@ 13,153,000 13,087,655
General Electric Capital Corp., 3.58%, due 9/01/05 9,080,000 9,080,000
Genworth Financial, Inc., 3.43%, due 9/12/05@ 5,000,000 4,994,760
Govco, Inc., 3.32%, due 9/15/05@ 600,000 599,225
Govco, Inc., 3.38%, due 9/16/05@ 6,455,000 6,445,909
HSBC USA, Inc., 3.39%, due 9/27/05 14,000,000 13,965,723
ING America Insurance Holdings, Inc., 3.32%, due 9/06/05 7,290,000 7,286,639
ING America Insurance Holdings, Inc., 3.46%, due 10/04/05 6,282,000 6,262,076
Jupiter Securitization Corp., 3.6%, due 10/05/05@ 17,159,000 17,100,659
Kitty Hawk Funding Corp., 3.54%, due 9/23/05@ 16,985,000 16,948,256
MetLife Funding, Inc., 3.38%, due 9/20/05 3,229,000 3,223,240
Morgan Stanley, Inc., 3.69%, due 10/27/05 17,009,000 16,911,368
Old Line Funding LLC, 3.38%, due 9/07/05@ 17,575,000 17,565,100
Park Avenue Receivables Company LLC, 3.55%, due 9/22/05@ 13,675,000 13,646,681
Park Avenue Receivables Company LLC, 3.56%, due 10/04/05@ 3,500,000 3,488,578
Procter & Gamble Co., 3.37%, due 9/19/05@ 9,493,000 9,477,004
Ranger Funding Co. LLC, 3.51%, due 9/14/05@ 8,798,000 8,786,849
SBC Communications, Inc., 3.45%, due 9/07/05@ 1,300,000 1,299,253
SBC Communications, Inc., 3.47%, due 9/12/05@ 4,581,000 4,576,143
SBC Communications, Inc., 3.54%, due 9/26/05@ 11,223,000 11,195,410
Svenska Handelsbanken, Inc., 3.56%, due 10/04/05 11,357,000 11,319,938
Toyota Motor Credit Corp., 3.35%, due 9/20/05 5,994,000 5,983,402
Verizon Network Funding Co., 3.69%, due 10/24/05 2,837,000 2,821,588
WalMart Stores, Inc., 3.39%, due 9/13/05@ 2,000,000 1,997,740
- ---------------------------------------------------------------------------------------------------
Total Commercial Paper, at Amortized Cost and Value $ 336,286,736
- ---------------------------------------------------------------------------------------------------
Total Investments, at Amortized Cost and Value $ 423,649,265
- ---------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.2)% (897,539)
- ---------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 422,751,726
- ---------------------------------------------------------------------------------------------------
< The rate shown represents an annualized yield at time of purchase.
@ Security exempt from registration under Section 4(2) of the Securities Act of 1933.
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 the fund.
AT 8/31/05
ASSETS
- ------------------------------------------------------------------------------------------------------
Investments, at amortized cost and value $423,649,265
Receivable for fund shares sold 1,518,249
Interest receivable 432,388
Other assets 1,644
- ------------------------------------------------------------------------------------------------------
Total assets $425,601,546
- ------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------
Payable to custodian $99,477
Distributions payable 31,950
Payable for fund shares reacquired 2,340,690
Payable to affiliates
Management fee 3,443
Shareholder servicing costs 141,604
Distribution and service fees 17,977
Administrative services fee 258
Program manager fees 35
Retirement plan administrative and services fees 38
Accrued expenses and other liabilities 214,348
- ------------------------------------------------------------------------------------------------------
Total liabilities $2,849,820
- ------------------------------------------------------------------------------------------------------
Net assets $422,751,726
- ------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------------
Paid-in capital $422,751,726
Accumulated net realized gain (loss) on investments (445)
Accumulated undistributed net investment income 445
- ------------------------------------------------------------------------------------------------------
Net assets $422,751,726
- ------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 422,751,726
- ------------------------------------------------------------------------------------------------------
Class A shares
- ------------------------------------------------------------------------------------------------------
Net assets $91,165,017
Shares outstanding 91,165,017
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $1.00
- ------------------------------------------------------------------------------------------------------
Class B shares
- ------------------------------------------------------------------------------------------------------
Net assets $280,361,044
Shares outstanding 280,361,044
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class C shares
- ------------------------------------------------------------------------------------------------------
Net assets $46,482,797
Shares outstanding 46,482,797
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R1 shares
- ------------------------------------------------------------------------------------------------------
Net assets $258,170
Shares outstanding 258,170
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $1.00
- ------------------------------------------------------------------------------------------------------
Class R2 shares
- ------------------------------------------------------------------------------------------------------
Net assets $603,801
Shares outstanding 603,801
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $1.00
- ------------------------------------------------------------------------------------------------------
Class R3 shares
- ------------------------------------------------------------------------------------------------------
Net assets $1,179,081
Shares outstanding 1,179,081
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $1.00
- ------------------------------------------------------------------------------------------------------
Class R4 shares
- ------------------------------------------------------------------------------------------------------
Net assets $50,570
Shares outstanding 50,570
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $1.00
- ------------------------------------------------------------------------------------------------------
Class R5 shares
- ------------------------------------------------------------------------------------------------------
Net assets $50,528
Shares outstanding 50,528
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $1.00
- ------------------------------------------------------------------------------------------------------
Class 529A shares
- ------------------------------------------------------------------------------------------------------
Net assets $1,650,080
Shares outstanding 1,650,080
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $1.00
- ------------------------------------------------------------------------------------------------------
Class 529B shares
- ------------------------------------------------------------------------------------------------------
Net assets $340,061
Shares outstanding 340,061
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class 529C shares
- ------------------------------------------------------------------------------------------------------
Net assets $610,577
Shares outstanding 610,577
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- ------------------------------------------------------------------------------------------------------
A contingent deferred sales charge may be imposed on redemptions of Class B, Class C, Class 529B and
Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Operations
This statement describes how much your fund received in investment income and paid in expenses. It
also describes any gains and/or losses generated by fund operations.
YEAR ENDED 8/31/05
NET INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------
Interest income $12,663,988
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $2,741,204
Distribution and service fees 4,042,730
Program manager fees 6,356
Shareholder servicing costs 1,187,642
Administrative services fee 50,264
Retirement plan administration and services fees 783
Trustees' compensation 17,578
Custodian fee 165,315
Printing 33,571
Postage 11,427
Auditing fees 32,443
Legal fees 19,994
Shareholder solicitation expenses 43,829
Miscellaneous 175,455
- ------------------------------------------------------------------------------------------------------
Total expenses $8,528,591
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (21,181)
Reduction of expenses by investment adviser and distributor (2,000,179)
- ------------------------------------------------------------------------------------------------------
Net expenses $6,507,231
- ------------------------------------------------------------------------------------------------------
Net investment income $6,156,757
- ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statements of Changes in Net Assets
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 8/31 2005 2004
CHANGE IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income declared as distributions
to shareholders $6,156,757 $968,695
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A $(1,959,377) $(609,133)
Class B (3,531,863) (295,011)
Class C (621,592) (60,049)
Class R1 (532) --
Class R2 (1,029) --
Class R3 (2,891) --
Class R4 (466) --
Class R5 (528) --
Class 529A (30,067) (3,925)
Class 529B (3,064) (190)
Class 529C (5,348) (387)
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(6,156,757) $(968,695)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(190,979,377) $(409,455,407)
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period $613,731,103 $1,023,186,510
At end of period (including accumulated undistributed net
investment income of $445 and $0, respectively) $422,751,726 $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 past 5 years.
Certain information reflects financial results for a single fund share. The total returns in the table represent the rate
by which an investor would have earned (or lost) on an investment in the fund (assuming reinvestment of all distributions)
held for the entire period. This information has been audited by the fund's independent registered public accounting firm,
whose report, together with the fund's financial statements, are included in this report.
CLASS A
YEARS ENDED 8/31
-------------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.02 $0.01 $0.01 $0.01 $0.05
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.02) $(0.01) $(0.01) $(0.01) $(0.05)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)*** 2.11 0.58 0.69 1.49 4.85
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.90 0.79 0.81 0.91 0.90
Expenses after expense reductions## 0.50 0.55 0.71 0.81 0.80
Net investment income 2.10 0.58 0.70 1.44 4.82
Net assets at end of period
(000 Omitted) $91,165 $101,287 $214,275 $242,230 $107,346
- -----------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
CLASS B
YEARS ENDED 8/31
-----------------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.01 $0.00+++ $0.00+++ $0.00+++ $0.04
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.01) $(0.00)+++ $(0.00)+++ $(0.00)+++ $(0.04)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)*** 1.10 0.06 0.06 0.49 3.81
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.89 1.80 1.81 1.91 1.90
Expenses after expense reductions## 1.49 1.07 1.35 1.81 1.80
Net investment income 1.03 0.06 0.06 0.50 3.65
Net assets at end of period
(000 Omitted) $280,361 $429,844 $647,269 $741,638 $514,324
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C
YEARS ENDED 8/31
-------------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.01 $0.00+++ $0.00+++ $0.00+++ $0.04
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.01) $(0.00)+++ $(0.00)+++ $(0.00)+++ $(0.04)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)*** 1.10 0.06 0.06 0.49 3.80
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.89 1.79 1.81 1.91 1.90
Expenses after expense reductions## 1.49 1.07 1.36 1.81 1.80
Net investment income 1.03 0.06 0.06 0.50 3.77
Net assets at end of period
(000 Omitted) $46,483 $80,482 $159,715 $159,254 $125,200
- -----------------------------------------------------------------------------------------------------------------------------
CLASS R1
PERIOD ENDED
8/31/05**
Net asset value, beginning of period $1.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.01
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.01)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)*** 0.59++
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.24+
Expenses after expense reductions## 1.84+
Net investment income 1.52+
Net assets at end of period (000 Omitted) $258
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R2
PERIOD ENDED
8/31/05**
Net asset value, beginning of period $1.00
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------
Net investment income $0.01
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------
From net investment income $(0.01)
- -------------------------------------------------------------------------------
Net asset value, end of period $1.00
- -------------------------------------------------------------------------------
Total return (%)*** 0.72++
- -------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------
Expenses before expense reductions## 1.93+
Expenses after expense reductions## 1.53+
Net investment income 1.97+
Net assets at end of period (000 Omitted) $604
- -------------------------------------------------------------------------------
Financial Highlights - continued
CLASS R3
PERIOD ENDED
8/31/05**
Net asset value, beginning of period $1.00
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------
Net investment income $0.01
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------
From net investment income $(0.01)
- -------------------------------------------------------------------------------
Net asset value, end of period $1.00
- -------------------------------------------------------------------------------
Total return (%)*** 0.78++
- -------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------
Expenses before expense reductions## 1.83+
Expenses after expense reductions## 1.43+
Net investment income 2.10+
Net assets at end of period (000 Omitted) $1,179
- -------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4
PERIOD ENDED
8/31/05**
Net asset value, beginning of period $1.00
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------
Net investment income $0.01
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------
From net investment income $(0.01)
- -------------------------------------------------------------------------------
Net asset value, end of period $1.00
- -------------------------------------------------------------------------------
Total return (%)*** 0.93++
- -------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------
Expenses before expense reductions## 1.38+
Expenses after expense reductions## 0.98+
Net investment income 2.21+
Net assets at end of period (000 Omitted) $51
- -------------------------------------------------------------------------------
Financial Highlights - continued
CLASS R5
PERIOD ENDED
8/31/05**
Net asset value, beginning of period $1.00
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------
Net investment income $0.01
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------
From net investment income $(0.01)
- -------------------------------------------------------------------------------
Net asset value, end of period $1.00
- -------------------------------------------------------------------------------
Total return (%)*** 1.06++
- -------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------
Expenses before expense reductions## 1.08+
Expenses after expense reductions## 0.68+
Net investment income 2.51+
Net assets at end of period (000 Omitted) $51
- -------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529A
YEARS ENDED 8/31
-------------------------------------------- PERIOD ENDED
2005 2004 2003 8/31/02**
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.02 $0.00+++ $0.00+++ $0.00+++
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.02) $(0.00)+++ $(0.00)+++ $(0.00)+++
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%)*** 1.86 0.33 0.45 0.08++
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.50 1.39 1.41 1.26+
Expenses after expense reductions## 0.75 0.80 0.96 1.16+
Net investment income 1.93 0.34 0.33 1.04+
Net assets at end of period (000 Omitted) $1,650 $1,140 $1,164 $30
- ----------------------------------------------------------------------------------------------------------------------------
CLASS 529B
YEARS ENDED 8/31
--------------------------------------------- PERIOD ENDED
2005 2004 2003 8/31/02**
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income $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 (%)(+)*** 0.87 0.06 0.07 0.02++
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.13 2.03 2.06 2.16+
Expenses after expense reductions## 1.73 1.08 1.25 2.06+
Net investment income 0.87 0.07 0.06 0.23+
Net assets at end of period (000 Omitted) $340 $339 $253 $5
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C
YEARS ENDED 8/31
--------------------------------------------- PERIOD ENDED
2005 2004 2003 8/31/02**
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income $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 (%)(+)*** 0.87 0.06 0.07 0.02++
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.13 2.03 2.06 2.16+
Expenses after expense reductions## 1.73 1.08 1.22 2.06+
Net investment income 0.85 0.06 0.05 0.23+
Net assets at end of period (000 Omitted) $611 $640 $512 $5
- ----------------------------------------------------------------------------------------------------------------------------
** For the period from the class' inception, July 31, 2002 (Classes 529A, 529B, and 529C), and April 1, 2005
(Classes R1, R2, R3, R4, and R5) through the stated period end.
*** Certain expenses have been reduced without which performance would have been lower.
+ 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 any applicable sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Cash Reserve Fund (the fund) is a diversified series of MFS Series Trust I
(the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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 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. During the year ended August 31, 2005, the fund's custodian fees
were reduced by $21,181 under this arrangement. This amount is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. Distributions to
shareholders are recorded on the ex-dividend date. The fund distinguishes
between distributions on a tax basis and a financial reporting basis and only
distributions in excess of tax basis earnings and profits are reported in the
financial statements as distributions from paid-in capital. Differences in the
recognition or classification of income between the financial statements and
tax earnings and profits, which result in temporary over-distributions for
financial statement purposes, are classified as distributions in excess of net
investment income or net realized gains.
The tax character of distributions declared for the years ended August 31, 2005
and August 31, 2004 was as follows:
8/31/05 8/31/04
Distributions declared from:
Ordinary income $6,156,757 $968,695
During the year ended August 31, 2005, accumulated undistributed net
investment income increased by $445 and accumulated net realized gain (loss)
on investments decreased by $445 due to differences between book and tax
presentation of capital losses. This change had no effect on the net assets or
net asset value per share.
As of August 31, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $63,714
Capital loss carryforward (445)
Other temporary differences (63,269)
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) and
August 31, 2013 ($4).
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
0.55% 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, MFS has agreed to reduce the
management fee to 0.15% of the fund's average daily net assets for the period
March 1, 2004 through February 28, 2009. For the year ended August 31, 2005,
this waiver is reflected as a reduction of total expenses in the Statement
of Operations.
The management fee incurred for the year ended August 31, 2005 was equivalent
to an annual effective rate of 0.15% of the fund's average daily net assets.
DISTRIBUTOR - The Board of Trustees has adopted a distribution plan for certain
class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFS Fund
Distributors, Inc. (MFD) for services provided by MFD and financial
intermediaries in connection with the distribution and servicing of certain
share classes. One component of the plan is a distribution fee paid to and
retained by MFD. Another component of the plan is a service fee paid to MFD
which subsequently pays a portion of this fee 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.
Distribution Fee Plan Table:
TOTAL ANNUAL SERVICE FEE DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE RETAINED AND SERVICE
FEE RATE FEE RATE PLAN(1) RATE(2) BY MFD(3) FEE
Class A 0.10% 0.25% 0.35% 0.00% $-- $--
Class B 0.75% 0.25% 1.00% 1.00% 6,203 3,422,919
Class C 0.75% 0.25% 1.00% 1.00% 7,507 603,448
Class R1 0.50% 0.25% 0.75% 0.76% 93 266
Class R2 0.25% 0.25% 0.50% 0.51% 62 268
Class R3 0.25% 0.25% 0.50% 0.52% 62 709
Class R4 0.00% 0.25% 0.25% 0.25% 31 53
Class 529A 0.25% 0.25% 0.50% 0.00% -- 5,467
Class 529B 0.75% 0.25% 1.00% 0.98% 12 3,438
Class 529C 0.75% 0.25% 1.00% 0.98% 58 6,162
- ---------------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $4,042,730
(1) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up to
these annual percentage rates of each class' average daily net assets.
(2) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August 31,
2005 based on each class' average daily net assets. Payment of the 0.25% annual Class A service fee is not yet
implemented and will commence on such date as the fund's Board of Trustees may determine. Payment of the 0.10% annual
Class A distribution fee is not yet implemented and will commence on such date as the fund's Board of Trustees may
determine. 0.10% of the Class 529A distribution fee is currently being waived under a contractual waiver arrangement
and payment of 0.15% of the Class 529A distribution fee is not yet implemented. The distribution fee will be imposed
on such date as the fund's Board of Trustees may determine. 0.25% of the Class 529A service fee is currently being
waived under a contractual waiver arrangement.
(3) For the year ended August 31, 2005, MFD retained these service fees.
Certain Class A shares acquired through an exchange may be subject to a
contingent deferred sales charge upon redemption depending upon when the
shares exchanged were originally purchased. Class C and Class 529C shares are
subject to a contingent deferred sales charge in the event of a shareholder
redemption within 12 months following the purchase. Class B and Class 529B
shares are subject to a contingent deferred sales charge in the event of a
shareholder redemption within six years of purchase. MFD retained all
contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended August 31, 2005 were as follows:
AMOUNT
Class A $107
Class B $1,270,356
Class C $24,839
Class 529B $89
Class 529C $--
The fund has entered into and may from time to time enter into contracts with
program managers and other parties which administer the tuition programs
through which an investment in the fund's 529 share classes is made. The fund
has entered into an agreement with MFD pursuant to which MFD receives an
annual fee of up to 0.35% from the fund based solely upon the value of the
fund's 529 share classes attributable to tuition programs to which MFD, or a
third party which contracts with MFD, provides administrative services. The
current fee has been established at 0.25% annually of average net assets of
the fund's 529 share classes. The fee may only be increased with the approval
of the Board of Trustees who 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. Program manager fees for the year ended August 31, 2005, were as
follows:
AMOUNT
Class 529A $3,911
Class 529B $875
Class 529C $1,570
-------------------------------------------------------
Total Program Manager Fees $6,356
SHAREHOLDER SERVICING AGENT - The fund pays a portion of shareholder servicing
costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS.
MFSC receives a fee from the fund, for its services as shareholder servicing
agent, set periodically under the supervision of the fund's Board of Trustees.
For the year ended August 31, 2005, the fee was $507,770, which equated to
0.1016% annually of the fund's average daily net assets. MFSC also receives
payment from the fund for out-of-pocket and sub-accounting expenses paid by
MFSC on behalf of the fund. For the year ended August 31, 2005, these costs
amounted to $303,563.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. Effective July 1, 2005, the fund's annual fixed amount is $10,000.
The administrative services fee incurred for the year ended August 31, 2005
was equivalent to an annual effective rate of 0.0101% of the fund's average
daily net assets.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain retirement plan
administration and services with respect to certain Class R shares. These
services include various administrative, recordkeeping, and communication/
educational services with respect to the retirement plans which invest in
these shares, and may be provided directly by MFS or by a third party. For the
year ended August 31, 2005, the fund paid an annual retirement plan
administration and services fee up to the following annual percentage rates of
each class' average daily net assets:
AMOUNT
FEE TOTAL RETAINED
RATE AMOUNT BY MFS
Class R1 0.45% $160 $120
Class R2 0.40% 215 151
Class R3 0.25% 355 203
Class R4 0.15% 32 10
Class R5 0.10% 21 19
- -------------------------------------------------------------------------------
Total Retirement Plan Administration and
Services Fees $783 $503
TRUSTEES' COMPENSATION - The fund pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons. The fund does not pay compensation directly to
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 which
resulted in a pension expense of $4,949. This amount is included in Trustees
compensation for the year ended August 31, 2005.
OTHER - 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 the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $1,791, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided to the ICCO. The funds can terminate the Agreement with
Tarantino LLC at any time under the terms of the Agreement.
(4) PORTFOLIO SECURITIES
Purchases and sales of Money Market investments, exclusive of securities
subject to repurchase agreements, aggregated $6,910,614,890 and $7,119,700,000,
respectively. The cost of investments for federal income tax purposes is the
same as for financial reporting purposes.
(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.
Year ended 8/31/05 Year ended 8/31/04
SHARES AND DOLLARS SHARES AND DOLLARS
CLASS A SHARES
Shares sold 104,034,506 209,078,235
Shares issued to shareholders in reinvestment of
distributions 1,774,925 534,126
Shares reacquired (115,931,387) (322,599,964)
- ------------------------------------------------------------------------------------------------
Net change (10,121,956) (112,987,603)
CLASS B SHARES
Shares sold 176,379,353 341,459,510
Shares issued to shareholders in reinvestment of
distributions 3,276,541 289,935
Shares reacquired (329,138,495) (559,174,351)
- ------------------------------------------------------------------------------------------------
Net change (149,482,601) (217,424,906)
CLASS C SHARES
Shares sold 63,564,664 186,509,632
Shares issued to shareholders in reinvestment of
distributions 565,746 54,855
Shares reacquired (98,129,128) (265,797,616)
- ------------------------------------------------------------------------------------------------
Net change (33,998,718) (79,233,129)
Period ended 8/31/05*
SHARES AND DOLLARS
CLASS R1 SHARES
Shares sold 258,123
Shares issued to shareholders in reinvestment of
distributions 532
Shares reacquired (485)
- -------------------------------------------------------------------------
Net change 258,170
CLASS R2 SHARES
Shares sold 602,796
Shares issued to shareholders in reinvestment of
distributions 1,030
Shares reacquired (25)
- -------------------------------------------------------------------------
Net change 603,801
Period ended 8/31/05*
SHARES AND DOLLARS
CLASS R3 SHARES
Shares sold 1,396,398
Shares issued to shareholders in reinvestment of
distributions 2,853
Shares reacquired (220,170)
- -------------------------------------------------------------------------
Net change 1,179,081
CLASS R4 SHARES
Shares sold 50,351
Shares issued to shareholders in reinvestment of
distributions 465
Shares reacquired (246)
- -------------------------------------------------------------------------
Net change 50,570
CLASS R5 SHARES
Shares sold 50,000
Shares issued to shareholders in reinvestment of
distributions 528
- -8-----------------------------------------------------------------------
Net change 50,528
Year ended 8/31/05 Year ended 8/31/04
SHARES AND DOLLARS SHARES AND DOLLARS
CLASS 529A SHARES
Shares sold 1,245,514 647,988
Shares issued to shareholders in reinvestment of
distributions 29,689 3,867
Shares reacquired (764,907) (675,589)
- ------------------------------------------------------------------------------------------------
Net change 510,296 (23,734)
CLASS 529B SHARES
Shares sold 34,497 353,059
Shares issued to shareholders in reinvestment of
distributions 3,062 181
Shares reacquired (36,419) (267,144)
- ------------------------------------------------------------------------------------------------
Net change 1,140 86,096
CLASS 529C SHARES
Shares sold 228,402 517,206
Shares issued to shareholders in reinvestment of
distributions 5,296 376
Shares reacquired (263,386) (389,713)
- ------------------------------------------------------------------------------------------------
Net change (29,688) 127,869
* For the period from the inception of Class R1, Class R2, Class R3, Class R4, and Class R5
shares April 1, 2005 through August 31, 2005.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured line
of credit provided by a syndication of banks under a 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 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the fund for the year ended August 31, 2005 was $3,700 and is
included in miscellaneous expense. The fund had no significant borrowings
during the year ended August 31, 2005.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust I and the Shareholders of
MFS Cash Reserve Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the MFS Cash Reserve Fund (one of
the series comprising MFS Series Trust I) (the "Trust"), as of August 31,
2005, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. The Trust is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Trust's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of August 31, 2005, by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Cash Reserve Fund as of August 31, 2005, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 24, 2005
RESULTS OF SHAREHOLDER MEETING (unaudited) - 8/31/05
At a special meeting of shareholders of MFS Series Trust I, which was held on
March 23, 2005, the following action was taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $8,025,286,508.56 $117,939,292.78
- -----------------------------------------------------------------------------
David H. Gunning 8,030,402,677.64 112,823,123.70
- -----------------------------------------------------------------------------
William R. Gutow 8,027,523,726.27 115,702,075.07
- -----------------------------------------------------------------------------
Michael Hegarty 8,021,162,525.49 122,063,275.85
- -----------------------------------------------------------------------------
J. Atwood Ives 8,024,062,680.07 119,163,121.27
- -----------------------------------------------------------------------------
Amy B. Lane 8,019,792,882.59 123,432,918.75
- -----------------------------------------------------------------------------
Robert J. Manning 8,030,980,361.78 112,245,439.56
- -----------------------------------------------------------------------------
Lawrence T. Perera 8,025,935,401.12 117,290,400.22
- -----------------------------------------------------------------------------
Robert C. Pozen 8,031,655,470.25 111,570,331.09
- -----------------------------------------------------------------------------
J. Dale Sherratt 8,027,226,595.42 115,999,205.92
- -----------------------------------------------------------------------------
Laurie J. Thomsen 8,019,388,506.87 123,837,294.47
- -----------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2005, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.)
The address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(1) OTHER DIRECTORSHIPS(2)
- ------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee and February 2004 Massachusetts Financial Services
(born 10/20/63) President Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School
(education), John Olin Visiting
Professor (since July 2002);
Secretary of Economic Affairs, The
Commonwealth of Massachusetts
(January 2002 to December 2002);
Fidelity Investments, Vice
Chairman (June 2000 to December
2001); Fidelity Management &
Research Company (investment
adviser), President (March 1997 to
July 2001); Bell Canada
Enterprises (telecommunications),
Director; Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 05/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Chief of Cardiac Surgery; Harvard
Medical School, Professor of
Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group (1997 to
February 2001); Borders Group,
Inc. (book and music retailer),
Director; Federal Realty
Investment Trust (real estate
investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 06/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 08/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
OFFICERS
Robert J. Manning(3) President and February 2004 Massachusetts Financial Services
(born 10/20/63) Trustee Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Tracy Atkinson(3) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(3) Assistant July 2005 Massachusetts Financial Services
(born 1/18/74) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003); Nvest Services Company,
Assistant Vice President and
Associate Counsel (prior to
January 2001)
Jeffrey N. Carp(3) Secretary and September 2004 Massachusetts Financial Services
(born 12/01/56) Clerk Company, Executive Vice President,
General Counsel and Secretary
(since April 2004); Hale and Dorr
LLP (law firm), Partner (prior to
April 2004)
Ethan D. Corey(3) Assistant July 2005 Massachusetts Financial Services
(born 11/21/63) Secretary and Company, Special Counsel (since
Assistant Clerk December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
Stephanie A. DeSisto(3) Assistant May 2003 Massachusetts Financial Services
(born 10/01/53) Treasurer Company, Vice President (since
April 2003); Brown Brothers
Harriman & Co., Senior Vice
President (November 2002 to April
2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
David L. DiLorenzo(3) Assistant July 2005 Massachusetts Financial Services
(born 8/10/68) Treasurer Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (January
2001 to June 2005); State Street
Bank, Vice President and Corporate
Audit Manager (prior to January
2001)
Timothy M. Fagan(3) Assistant September 2005 Massachusetts Financial Services
(born 7/10/68) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(3) Assistant July 2005 Massachusetts Financial Services
(born 10/27/70) Treasurer Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian T. Hourihan(3) Assistant September 2004 Massachusetts Financial Services
(born 11/11/64) Secretary and Company, Vice President, Senior
Assistant Clerk Counsel and Assistant Secretary
(since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance
Program (January to April 2004);
Fidelity Research & Management
Company, Assistant General Counsel
(prior to January 2004)
Ellen Moynihan(3) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Vice President
Susan S. Newton(3) Assistant May 2005 Massachusetts Financial Services
(born 03/07/50) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(3) Assistant July 2005 Massachusetts Financial Services
(born 11/05/70) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (January 2001 to June
2004); Preti, Flaherty, Beliveau,
Pachios & Haley, LLC, Associate
(prior to January 2001)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (February
1997 to March 2003)
James O. Yost(3) Assistant September 1990 Massachusetts Financial Services
(born 06/12/60) Treasurer Company, Senior Vice President
- ------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served
continuously since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(3) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940
(referred to as the 1940 Act), which is the principal federal law governing investment companies
like the fund, as a result of position with MFS. The address of MFS is 500 Boylston Street,
Boston, Massachusetts 02116.
Each Trustee has been elected by shareholders and each Trustee and officer holds office until his or
her successor is chosen and qualified or until his or her earlier death, resignation, retirement or
removal. Messrs. Ives and Sherratt and Mses. Lane and Thomsen are members of the Trust's Audit
Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which
MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with
certain affiliates of MFS. As of December 31, 2004, each Trustee served as a board member of 99 funds
within the MFS Family of Funds.
The Trust held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once
every five years thereafter, to elect Trustees.
The Statement of Additional Information contains further information about the Trustees and is
available without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 02110
02116-3741
INDEPENDENT REGISTERED PUBLIC
DISTRIBUTOR ACCOUNTING FIRM
MFS Fund Distributors, Inc. Deloitte & Touche LLP
500 Boylston Street, Boston, MA 200 Berkeley Street, Boston, MA 02116
02116-3741
PORTFOLIO MANAGERS
Edward L. O'Dette
Terri A. Vitozzi
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment
advisory agreement with MFS. The Trustees consider matters bearing on the Fund
and its advisory arrangements at their meetings throughout the year, including
a review of performance data at each regular meeting. In addition, the
independent Trustees met several times over the course of three months
beginning in May and ending in July, 2005 ("contract review meetings") for the
specific purpose of considering whether to approve the continuation of the
investment advisory agreement for the Fund and the other investment companies
that the Board oversees (the "MFS Funds"). The independent Trustees were
assisted in their evaluation of the Fund's investment advisory agreement by
independent legal counsel, from whom they received separate legal advice and
with whom they met separately from MFS during various contract review
meetings. The independent Trustees were also assisted in this process by the
MFS Funds' Independent Chief Compliance Officer, a full-time senior officer
appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light
of the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2004 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable
funds identified by Lipper (the "Lipper expense group"), as well as the
advisory fees and other expenses of peer funds identified by objective
criteria suggested by MFS, (iii) information provided by MFS on the advisory
fees of comparable portfolios of other clients of MFS, including institutional
separate account and other clients, (iv) information as to whether and to what
extent applicable expense waivers, reimbursements or fee "breakpoints" are
observed for the Fund, (v) information regarding MFS' financial results and
financial condition, including MFS' and certain of its affiliates' estimated
profitability from services performed for the Fund and the MFS Funds as a
whole, (vi) MFS' views regarding the outlook for the mutual fund industry and
the strategic business plans of MFS, (vii) descriptions of various functions
performed by MFS for the Funds, such as compliance monitoring and portfolio
trading practices, and (viii) information regarding the overall organization
of MFS, including information about MFS' senior management and other personnel
providing investment advisory, administrative and other services to the Fund
and the other MFS Funds. The comparative performance, fee and expense
information prepared and provided by Lipper Inc. was not independently
verified and the independent Trustees did not independently verify any
information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than others, and that
the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed
the Fund's total return investment performance as well as the performance of
peer groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2004, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 38th percentile relative to the other funds in the
universe for this three-year period (the 1st percentile being the best
performers and the 100th percentile being the worst performers). The total
return performance of the Fund's Class A shares was in the 16th percentile
for the one-year period and the 45th percentile for the five-year period
ended December 31, 2004 relative to the Lipper performance universe. Because
of the passage of time, these performance results are likely to differ from
the performance results for more recent periods, including those shown
elsewhere in this report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings,
as well as during investment review meetings conducted with portfolio
management personnel during the course of the year regarding the Fund's
performance. After reviewing these and related factors, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that they were satisfied with MFS' responses
and efforts relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
whether the Fund was subject to any fee waivers or reductions or expense
limitations. The Trustees also considered that, according to the Lipper data,
the Fund's effective advisory fee rate was approximately at the Lipper expense
group median, and the Fund's total expense ratio was lower than the Lipper
expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information
provided by MFS as to the generally broader scope of services provided by MFS
to the Fund in comparison to institutional accounts, the higher demands placed
on MFS' investment personnel and trading infrastructure as a result of the
daily cash in-flows and out-flows of the Fund, and the impact on MFS and
expenses associated with the more extensive regulatory regime to which the
Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
not currently subject to any breakpoints. Taking into account fee waivers or
reductions or expense limitations, if any, the Trustees determined not to
recommend any advisory fee breakpoints for the Fund at this time.
The Trustees also considered information prepared by MFS relating to MFS'
costs and profits with respect to the Fund, the MFS Funds considered as a
group, and other investment companies and accounts advised by MFS, as well as
MFS' methodologies used to determine and allocate its costs to the MFS Funds,
the Fund and other accounts and products for purposes of
estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the
financial services industry, including the entry into the industry of large
and well-capitalized companies which are spending, and appear to be prepared
to continue to spend, substantial sums to engage personnel and to provide
services to competing investment companies. In this regard, the Trustees also
considered the financial resources of MFS and its ultimate parent, Sun Life
Financial Inc. The Trustees also considered the advantages and possible
disadvantages to the Fund of having an adviser which also serves other
investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the
Fund by MFS and its affiliates under agreements and plans other than the
investment advisory agreement, including any 12b-1 fees the Fund pays to MFS
Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for research and other similar services
(including MFS' general policy to pay directly for third-party research), and
various other factors. Additionally, the Trustees considered so-called "fall-
out benefits" to MFS such as reputational value derived from serving as
investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material,
including those factors described above, the Board of Trustees, including a
majority of the independent Trustees, concluded that the Fund's investment
advisory agreement with MFS should be continued for an additional one-year
period, commencing August 1, 2005.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement will be available on or before
December 1, 2005 by clicking on the fund's name under "Select a fund" on the
MFS website (mfs.com).
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 Proxy Voting 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.
FEDERAL TAX INFORMATION (unaudited)
In January 2006, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2005.
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
- --------------------------------------------------------------------------------
Share 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-ANN-10/05 58M
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the
Registrant's principal executive officer and principal financial and accounting
officer. The Registrant has amended its Code of Ethics to reflect that the
Registrant's Principal Financial Officer has changed.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Mr. J. Atwood Ives and Mses. Amy B. Lane and Laurie J. Thomsen, members of the
Audit Committee, have been determined by the Board of Trustees in their
reasonable business judgment to meet the definition of "audit committee
financial expert" as such term is defined in Form N-CSR. In addition, Mr. Ives
and Mses. Lane and Thomsen are "independent" members of the Audit Committee as
defined in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEMS 4(a) THROUGH 4(d) AND 4(g):
The Board of Trustees has appointed Deloitte & Touche LLP ("Deloitte") to serve
as independent accountants to certain series of the Registrant and Ernst &
Young LLP ("E&Y") to serve in the same capacity to certain other funds (the
series referred to collectively as the "Funds" and singularly as a "Fund"). The
tables below set forth the audit fees billed to the Funds as well as fees for
non-audit services provided to the Funds and/or to the Funds' investment
adviser, Massachusetts Financial Services Company ("MFS") and to various
entities either controlling, controlled by, or under common control with MFS
that provide ongoing services to the Funds ("MFS Related Entities").
For the fiscal years ended August 31, 2005 and 2004, audit fees billed to the
Funds by Deloitte and E&Y were as follows:
Audit Fees
FEES BILLED BY DELOITTE: 2005 2004
---- ----
MFS Cash Reserve Fund $23,660 $21,400
------- -------
TOTAL $23,660 $21,400
Audit Fees
FEES BILLED BY E&Y : 2005 2004
---- ----
MFS Core Equity Fund $33,580 $30,600
MFS Core Growth Fund 33,580 30,600
MFS New Discovery Fund 33,580 30,600
MFS Research International 35,780 32,600
Fund
MFS Strategic Growth Fund 33,580 30,600
MFS Technology Fund 33,580 30,600
MFS Value Fund 33,580 30,600
------ ------
TOTAL $237,260 $216,200
For the fiscal years ended August 31, 2005 and 2004, fees billed by Deloitte
and E&Y for audit-related, tax and other services provided to the Funds and for
audit-related, tax and other services provided to MFS and MFS Related Entities
were as follows:
Audit-Related Fees(1) Tax Fees(2) All Other Fees(3)
FEES BILLED BY DELOITTE: 2005 2004 2005 2004 2005 2004
---- ---- ---- ---- ---- ----
To MFS Cash Reserve $0 $0 $7,500 $3,000 $0 $0
Fund
To MFS and MFS Related $1,018716 $759,500 $62,000 $35,000 $617,000 $32,500
Entities of MFS Cash
Reserve Fund*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2005 2004
---- ----
To MFS Cash Reserve Fund, $1,742,817 $891,500
MFS and MFS Related
Entities#
Audit-Related Fees(1) Tax Fees(2) All Other Fees(4)
FEES BILLED BY E&Y: 2005 2004 2005 2004 2005 2004
---- ---- ---- ---- ---- ----
To MFS Core Equity $0 $0 $9,080 $5,990 $63 $0
Fund
To MFS Core Growth 0 0 9,080 5,990 228 0
Fund
To MFS New Discovery 0 0 9,080 5,990 412 0
Fund
To MFS Research 0 0 9,410 6,290 558 0
International Fund
To MFS Strategic Growth 0 0 9,080 5,990 566 0
Fund
To MFS Technology 0 0 9,080 5,990 55 0
Fund
To MFS Value Fund 0 0 9,080 5,990 2,394 0
TOTAL FEES BILLED BY E&Y
TO ABOVE FUND
To MFS and MFS Related $0 $0 $0 $0 $607,919 $0
Entities of MFS Core
Equity Fund*
To MFS and MFS Related 0 0 0 0 607,919 0
Entities of MFS Core
Growth Fund*
To MFS and MFS Related 0 0 0 0 607,919 0
Entities of MFS New
Discovery Fund*
To MFS and MFS Related 0 0 0 0 607,919 0
Entities of MFS Research
International Fund*
To MFS and MFS Related 0 0 0 0 607,919 0
Entities of MFS
Strategic Growth Fund*
To MFS and MFS Related 0 0 0 0 607,919 0
Entities of MFS
Technology Fund*
To MFS and MFS Related 0 0 0 0 607,919 0
Entities of MFS
Value Fund*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2005 2004
---- ----
To MFS Core Equity Fund, $632,562 $12,990
MFS and MFS Related
Entities#
To MFS Core Growth 632,727 12,990
Fund, MFS and
MFS Related Entities#
To MFS New Discovery 632,911 12,990
Fund, MFS and MFS
Related Entities#
To MFS Research 633,387 13,290
International Fund,
MFS and MFS Related
Entities#
To MFS Strategic Growth 633,065 12,990
Fund, MFS and MFS Related
Entities#
To MFS Technology Fund, MFS 632,554 12,990
and MFS Related Entities#
To MFS Value Fund, MFS and 634,893 12,990
MFS Related Entities#
* This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to the
operations and financial reporting of the Funds (portions of which services also related to the operations and
financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by Deloitte and E&Y for non-audit services rendered to the Funds and
for non-audit services rendered to MFS and the MFS Related Entities.
(1) The fees included under "Audit-Related Fees" are fees related to assurance and related services that are reasonably
related to the performance of the audit or review of financial statements, but not reported under "Audit Fees,"
including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters and internal
control reviews.
(2) The fees included under "Tax Fees" are fees associated with tax compliance, tax advice and tax planning, including
services relating to the filing or amendment of federal, state or local income tax returns, regulated investment
company qualification reviews and tax distribution and analysis.
(3) The fees included under "All Other Fees" are fees for products and services provided by Deloitte other than those
reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees", including fees for services related to sales tax
refunds, consultation on internal cost allocations, consultation on allocation of monies pursuant to an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, and
analysis of certain portfolio holdings verses investment styles.
(4) The fees included under "All Other Fees" are fees for products and services provided by E&Y other than those
reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees", including fees for services related to analysis of
fund administrative expenses, compliance program and records management projects.
For periods prior to May 6, 2003, the amounts shown above under "Audit-Related
Fees," "Tax Fees" and "All Other Fees" relate to permitted non-audit services
that would have been subject to pre-approval if the Securities and Exchange
Commission's rules relating to pre-approval of non-audit services had been in
effect.
ITEM 4(e)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Trustees relating to the pre-approval of audit and
non-audit related services: To the extent required by applicable law,
pre-approval by the Audit Committee of the Board is needed for all audit and
permissible non-audit services rendered to the Funds and all permissible
non-audit services rendered to MFS or MFS Related Entities if the services
relate directly to the operations and financial reporting of the Registrant.
Pre-approval is currently on an engagement-by-engagement basis. In the event
pre-approval of such services is necessary between regular meetings of the
Audit Committee and it is not practical to wait to seek pre-approval at the
next regular meeting of the Audit Committee, pre-approval of such services may
be referred to the Chair of the Audit Committee for approval; provided that the
Chair may not pre-approve any individual engagement for such services exceeding
$50,000 or multiple engagements for such services in the aggregate exceeding
$100,000 between such regular meetings of the Audit Committee. Any engagement
pre-approved by the Chair between regular meetings of the Audit Committee shall
be presented for ratification by the entire Audit Committee at its next
regularly scheduled meeting.
ITEM 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the Fund and MFS and MFS Related Entities relating
directly to the operations and financial reporting of the Registrant disclosed
above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X (which permits audit committee approval after
the start of the engagement with respect to services other than audit, review
or attest services, if certain conditions are satisfied).
ITEM 4(f): Not applicable.
ITEM 4(h): The Registrant's Audit Committee has considered whether the
provision by a Registrant's independent registered public accounting firm of
non-audit services to MFS and MFS Related Entities that were not pre-approved
by the Committee (because such services were provided prior to the
effectiveness of SEC rules requiring pre-approval or because such services did
not relate directly to the operations and financial reporting of the
Registrant) was compatible with maintaining the independence of the independent
registered public accounting firm as the Registrant's principal auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments 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 Investment Company Act
of 1940 (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: Code of Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r),
or otherwise subject to the liability of that section. Such certification
will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933 or the Exchange Act, except to the extent that
the registrant specifically incorporates it by reference: Attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS SERIES TRUST I
By (Signature and Title)* ROBERT J. MANNING
-----------------------------------------------------
Robert J. Manning, President
Date: October 24, 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: October 24, 2005
----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: October 24, 2005
----------------
* Print name and title of each signing officer under his or her signature.