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, 2006
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ITEM 1. REPORTS TO STOCKHOLDERS.
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
KEEPING YOU INFORMED
MFS wants to ensure that you are consistently updated about your investments
with us. This shareholder report will not only show how your investment
performed during the time period, but will also provide you with informative
commentary from the portfolio management team. They will offer an overview of
market conditions and will also discuss the specific factors that may have
enhanced or detracted from your investment's performance.
MFS(R) TECHNOLOGY FUND
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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STATEMENT OF ASSETS AND LIABILITIES 12
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STATEMENT OF OPERATIONS 14
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STATEMENTS OF CHANGES IN NET ASSETS 15
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FINANCIAL HIGHLIGHTS 16
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NOTES TO FINANCIAL STATEMENTS 22
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 32
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RESULTS OF SHAREHOLDER MEETING 33
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TRUSTEES AND OFFICERS 34
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 40
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PROXY VOTING POLICIES AND INFORMATION 45
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QUARTERLY PORTFOLIO DISCLOSURE 45
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FEDERAL TAX INFORMATION 45
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MFS(R) PRIVACY NOTICE 46
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CONTACT INFORMATION BACK COVER
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Fund objective: Seeks capital appreciation.
THE REPORT IS PREPARED FOR THE GENERAL INFORMATION OF SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
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NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
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8/31/06
SCT-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The story is as old as the tortoise and the hare, but we believe it is
still relevant today -- "slow and steady" is the way to go when it comes to
investing. While financial markets will naturally ebb and flow over time,
investors who remain committed to a long-term investment strategy are more
likely to achieve their goals than those who consistently chase short-term
performance.
The first half of 2006 brought a high degree of fluctuation in markets
around the globe as varying economic factors pulled markets in opposite
directions. The global economy, for example, continued to grow at its fastest
pace in three decades -- spurred by increased international trade, good job
growth, and wage increases. At the same time, central banks around the world
raised interest rates in sync in a collaborative attempt to curb inflation.
While this was a positive development in some regions, in other cases,
economic and market gains were tempered.
What does all of this mean to you as an investor? If you're focused on the
long term, these global developments become part of a longer cycle instead of
one-time events that can have a significant impact on your portfolio.
At MFS(R), our investment management process -- honed over 80 years --
combines a unique teamwork approach with an unwavering focus on helping you
realize your long-term financial goals. We believe in a three-pronged
investment strategy:
o ALLOCATE holdings across the major asset classes -- including stocks,
bonds, and cash.
o DIVERSIFY within each class to take advantage of different market
segments and investing styles.
o REBALANCE assets regularly to maintain a desired asset allocation.
Of course, these strategies cannot guarantee a profit or protect against a
loss. Investing and planning for the long term requires diligence and
patience, two traits that in our experience are essential to capitalizing on
the many opportunities the financial markets can offer -- through both up and
down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 13, 2006
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Common Stocks 98.4%
Cash & Other Net Assets 1.6%
TOP TEN HOLDINGS
Cisco Systems, Inc. 6.2%
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SanDisk Corp. 5.3%
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Intel Corp. 4.7%
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TIBCO Software, Inc. 4.4%
------------------------------------------------
Marvell Technology Group Ltd. 3.9%
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Salesforce.com, Inc. 3.8%
------------------------------------------------
Nortel Networks Corp. 3.2%
------------------------------------------------
Juniper Networks, Inc. 3.0%
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First Data Corp. 2.9%
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Hewlett-Packard Co. 2.7%
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TOP FIVE INDUSTRIES
Electronics 24.3%
------------------------------------------------
Computer Software 24.0%
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Network & Telecom 16.1%
------------------------------------------------
Business Services 10.3%
------------------------------------------------
Internet 8.1%
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Percentages are based on net assets as of 8/31/06.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2006, Class A shares of the MFS
Technology Fund provided a total return of 14.59%, at net asset value. This
compares with a return of 1.69% for the fund's benchmark, the Goldman Sachs
Technology Industry Composite Index.
CONTRIBUTORS TO PERFORMANCE
Strong stock selection was the principal source of positive relative
performance in the electronics, computer software, and business services
industries over the period.
In the electronics industry, NAND flash memory storage products maker SanDisk
was the fund's top contributor relative to the index. While the nature of the
flash memory business is that prices fall at a rapid pace, SanDisk has been
able to drive costs down at an equal pace while benefiting from the elasticity
of demand driven by lower priced innovative consumer products. More recently,
stock performance was driven by the M-Systems acquisition, which extends the
life of SanDisk's intellectual property and the capacity upgrades for Apple's
iPod Nano and SanDisk's own Sansa, which drove tightness in the NAND flash
memory storage products market. Our holdings in South Korean microchip and
electronics manufacturer Samsung Electronics and electronic and power supply
manufacturer Delta Electronics*, neither of which are index constituents, also
boosted relative returns.
In the computer software industry, information technology automation software
products provider Opsware and business intelligence software company
MicroStrategy*, neither of which are index constituents, aided results.
Opsware's stock price increased as the company exceeded its revenue guidance
and, in February 2006, announced that Cisco Systems will distribute and
integrate Opsware's Network Automation product set.
In the business services industry, network and Internet exchange services
provider Equinix and custom IT consulting and technology services provider
Cognizant Technology Solutions Corp were among the fund's top contributors.
Shares of Equinix climbed as the company benefited from strong demand and the
ability to increase pricing on its services.
Stock selection and, to a lesser extent, our overweighted positions in the
specialty stores industry helped relative performance. Consumer electronics
retailer Circuit City Stores* (not an index constituent) added to relative
returns. Not owning stocks in the poor-performing consumer services industry
also bolstered results. In particular, avoiding online auctioneer EBay was
beneficial as this stock severely underperformed the broad benchmark during
the reporting period.
Stock selection and, to a lesser extent, our underweighing in the Internet
industry aided relative performance. A combination of stock selection and our
positioning in the leisure and toys industry, particularly video game-related
holdings, also had a positive impact on relative performance. No stocks in
these industries were among the fund's top contributors.
DETRACTORS FROM PERFORMANCE
The fund's allocation to the broadcasting industry, which is not represented
in the index, held back relative performance. Within this industry, radio
broadcaster XM Satellite Radio Holdings was among the fund's top detractors.
Weak stock selection in the network and telecom industry also hurt results.
Network equipment manufacturer Juniper Networks and global telecom equipment
company Nortel Networks had a negative impact on relative returns. Earlier in
the year, Juniper lowered its revenue guidance for the first half of 2006.
Later in the reporting period, the company delayed its second quarter filing
as a result of investigations into its options practices. The company also
guided down its outlook for the second half of the year.
Stocks in other industries that detracted from relative performance included
network chip maker Marvell Technology Group and computer products and services
provider Hewlett-Packard. Over the period, Marvell's performance was marred by
concerns relating to Seagate's proposed acquisition of Maxtor as the
acquisition created uncertainty on Marvell's access to Maxtor hard disk
drives. Additionally, we feel that Marvell was hurt by an inventory build-up
earlier in the period and its purchase of Intel's wireless baseband and
application processor business. For Hewlett-Packard, we missed the run up in
the stock's strong performance during the reporting period.
Respectfully,
Telis D. Bertsekas
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 portfolio. References to specific
securities are not recommendations of such securities, and may not be
representative of any MFS portfolio's current or future investments.
PERFORMANCE SUMMARY THROUGH 8/31/06
The following chart illustrates the historical performance of the fund's Class
A shares 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. The performance of other share classes will be greater
than or less than that of the class depicted below. Benchmark comparisons are
unmanaged; do not reflect sales charges, commissions or expenses; and cannot
be invested in directly. (See Notes to Performance Summary.)
PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR
SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN QUOTED. FOR MOST RECENT MONTH-END
PERFORMANCE, PLEASE VISIT MFS.COM. (FOR THE MOST RECENT MONTH-END PERFORMANCE
FOR CLASS I SHARES CALL 1-800-343-2829.) 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 the stated period end.)
MFS Goldman Sachs
Technology Technology
Fund Industry
- Class A Composite Index
1/97 $ 9,425 $10,000
8/97 11,810 13,556
8/98 11,738 13,111
8/99 19,397 27,522
8/00 36,453 44,917
8/01 14,211 16,459
8/02 8,309 10,414
8/03 11,034 14,411
8/04 10,236 13,980
8/05 11,752 16,297
8/06 13,467 16,572
TOTAL RETURNS THROUGH 8/31/06
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr Life (t)
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A 1/02/97 14.59% -1.07% 3.76%
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B 4/14/00 13.80% -1.72% 3.31%
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C 4/14/00 13.82% -1.74% 3.30%
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I 1/02/97 14.93% -0.75% 4.05%
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R 12/31/02 14.32% -1.21% 3.69%
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R1 4/01/05 13.68% -1.28% 3.65%
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R2 4/01/05 14.14% -1.18% 3.70%
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R3 10/31/03 14.16% -1.28% 3.65%
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R4 4/01/05 14.35% -1.09% 3.75%
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R5 4/01/05 14.79% -0.99% 3.81%
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AVERAGE ANNUAL
Comparative benchmark
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Goldman Sachs Technology Industry
Composite Index (f) 1.69% 0.14% 5.36%
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AVERAGE ANNUAL WITH SALES CHARGE
Share class
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A 8.00% -2.24% 3.13%
With Initial Sales Charge (5.75%)
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B 9.80% -2.11% 3.31%
With CDSC (Declining over six years
from 4% to 0%) (x)
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C 12.82% -1.74% 3.30%
With CDSC (1% for 12 months) (x)
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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.
CDSC - Contingent Deferred Sales Charge.
(f) Source: FactSet Research Systems Inc.
(t) For the period from the commencement of the fund's investment operations,
January 2, 1997 through the stated period end.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
Goldman Sachs Technology Industry Composite Index - A modified capitalization-
weighted index of selected technology stocks.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class R shares are available only to existing Class R shareholders. 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.
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, 2006 through August 31, 2006.
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, 2006 through August 31,
2006.
ACTUAL EXPENSES
The first line for each share class in the following table 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 following table 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.
- ------------------------------------------------------------------------------
Annualized Beginning Ending Expenses
Annualized Account Account Paid During
Share Expense Value Value Period (p)
Class Ratio 3/01/06 8/31/06 3/01/06-8/31/06
- ------------------------------------------------------------------------------
Actual 1.50% $1,000.00 $981.60 $7.49
A -------------------------------------------------------------------
Hypothetical (h) 1.50% $1,000.00 $1,017.64 $7.63
- ------------------------------------------------------------------------------
Actual 2.15% $1,000.00 $977.90 $10.72
B -------------------------------------------------------------------
Hypothetical (h) 2.15% $1,000.00 $1,014.37 $10.92
- ------------------------------------------------------------------------------
Actual 2.15% $1,000.00 $978.90 $10.72
C -------------------------------------------------------------------
Hypothetical (h) 2.15% $1,000.00 $1,014.37 $10.92
- ------------------------------------------------------------------------------
Actual 1.15% $1,000.00 $983.00 $5.75
I -------------------------------------------------------------------
Hypothetical (h) 1.15% $1,000.00 $1,019.41 $5.85
- ------------------------------------------------------------------------------
Actual 1.65% $1,000.00 $980.50 $8.24
R -------------------------------------------------------------------
Hypothetical (h) 1.65% $1,000.00 $1,016.89 $8.39
- ------------------------------------------------------------------------------
Actual 2.25% $1,000.00 $977.90 $11.22
R1 -------------------------------------------------------------------
Hypothetical (h) 2.25% $1,000.00 $1,013.86 $11.42
- ------------------------------------------------------------------------------
Actual 1.90% $1,000.00 $979.90 $9.48
R2 -------------------------------------------------------------------
Hypothetical (h) 1.90% $1,000.00 $1,015.63 $9.65
- ------------------------------------------------------------------------------
Actual 1.80% $1,000.00 $980.40 $8.99
R3 -------------------------------------------------------------------
Hypothetical (h) 1.80% $1,000.00 $1,016.13 $9.15
- ------------------------------------------------------------------------------
Actual 1.55% $1,000.00 $980.60 $7.74
R4 -------------------------------------------------------------------
Hypothetical (h) 1.55% $1,000.00 $1,017.39 $7.88
- ------------------------------------------------------------------------------
Actual 1.25% $1,000.00 $982.60 $6.25
R5 -------------------------------------------------------------------
Hypothetical (h) 1.25% $1,000.00 $1,018.90 $6.36
- ------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
8/31/06
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Common Stocks - 98.4%
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ISSUER SHARES/PAR VALUE ($)
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Broadcasting - 0.9%
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XM Satellite Radio Holdings, Inc., "A" (l)(n) 74,000 $ 959,040
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Business Services - 10.3%
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Amdocs Ltd. (n) 46,600 $ 1,768,470
Cognizant Technology Solutions Corp., "A" (n) 29,570 2,067,239
Equinix, Inc. (l)(n) 39,420 2,273,351
First Data Corp. 69,980 3,007,040
Ultimate Software Group, Inc. (l)(n) 62,200 1,405,720
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$ 10,521,820
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Computer Software - 24.0%
- --------------------------------------------------------------------------------------------------------------
Adobe Systems, Inc. (l)(n) 73,620 $ 2,388,233
Blue Coat Systems, Inc. (l)(n) 58,300 991,683
FileNet Corp. (l)(n) 79,300 2,770,742
McAfee, Inc. (n) 82,030 1,867,003
Opsware, Inc. (l)(n) 235,700 1,661,685
Oracle Corp. (n) 169,398 2,651,079
Salesforce.com, Inc. (l)(n) 111,920 3,859,001
Symantec Corp. (n) 145,801 2,717,731
TIBCO Software, Inc. (n) 576,110 4,528,225
Witness Systems, Inc. (l)(n) 63,500 1,031,875
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$ 24,467,257
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Computer Software - Systems - 6.3%
- --------------------------------------------------------------------------------------------------------------
Apple Computer, Inc. (n) 22,000 $ 1,492,700
Hewlett-Packard Co. 76,300 2,789,528
Sun Microsystems, Inc. (n) 425,600 2,123,744
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$ 6,405,972
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Electronics - 24.3%
- --------------------------------------------------------------------------------------------------------------
Integrated Device Technology, Inc. (n) 117,900 $ 2,031,417
Intel Corp. 246,300 4,812,702
Linear Technology Corp. 42,600 1,448,826
Marvell Technology Group Ltd. (n) 228,500 4,001,035
Nintendo Co. Ltd. 9,400 1,929,191
Samsung Electronics Co. Ltd., GDR 7,838 2,664,920
SanDisk Corp. (l)(n) 92,430 5,445,976
Volterra Semiconductor Corp. (l)(n) 163,730 2,469,048
-------------
$ 24,803,115
- --------------------------------------------------------------------------------------------------------------
Internet - 8.1%
- --------------------------------------------------------------------------------------------------------------
Baidu.com, Inc., ADR (l)(n) 35,290 $ 2,742,033
Google, Inc., "A" (n) 4,790 1,813,159
NHN Corp. 10,330 975,724
RightNow Technologies, Inc. (l)(n) 70,000 1,075,200
TENCENT Holdings Ltd. 784,000 1,713,738
-------------
$ 8,319,854
- --------------------------------------------------------------------------------------------------------------
Leisure & Toys - 5.3%
- --------------------------------------------------------------------------------------------------------------
Capcom Co. Ltd. (l) 106,500 $ 1,545,807
Electronic Arts, Inc. (l)(n) 54,200 2,762,574
THQ, Inc. (l)(n) 41,200 1,062,960
-------------
$ 5,371,341
- --------------------------------------------------------------------------------------------------------------
Network & Telecom - 16.1%
- --------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc. (n) 288,933 $ 6,353,637
Juniper Networks, Inc. (l)(n) 205,830 3,019,526
NICE Systems Ltd., ADR (n) 83,680 2,088,653
Nortel Networks Corp. (l)(n) 1,566,470 3,273,922
Redback Networks, Inc. (l)(n) 92,300 1,720,472
-------------
$ 16,456,210
- --------------------------------------------------------------------------------------------------------------
Telephone Services - 3.1%
- --------------------------------------------------------------------------------------------------------------
Global Crossing Ltd. (l)(n) 67,310 $ 1,128,116
Level 3 Communications, Inc. (l)(n) 451,170 1,998,683
-------------
$ 3,126,799
- --------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $102,120,832) $ 100,431,408
- --------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 23.2%
- --------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 23,723,385 $ 23,723,385
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $125,844,217) $ 124,154,793
- --------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (21.6)% (22,063,640)
- --------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 102,091,153
- --------------------------------------------------------------------------------------------------------------
(l) All or a portion of this security is on loan.
(n) Non-income producing security.
The following abbreviations are used in this report and are defined:
ADR American Depository Receipt
GDR Global Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/06
This statement represents your fund's balance sheet, which details the assets and liabilities
comprising the total value of the fund.
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $23,081,209 of securities on
loan (identified cost, $125,844,217) $124,154,793
Foreign currency, at value (identified cost, $1,441,710) 1,390,724
Receivable for investments sold 2,707,095
Receivable for fund shares sold 34,367
Interest and dividends receivable 33,349
Receivable from investment adviser 11,979
Other assets 786
- -------------------------------------------------------------------------------------------------------
Total assets $128,333,093
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable to custodian $238,650
Payable for investments purchased 1,988,435
Payable for fund shares reacquired 100,643
Collateral for securities loaned, at value 23,723,385
Payable to affiliates
Management fee 4,178
Shareholder servicing costs 43,875
Distribution and service fees 3,720
Administrative services fee 145
Retirement plan administration and services fees 17
Payable for independent trustees' compensation 43,641
Accrued expenses and other liabilities 95,251
- -------------------------------------------------------------------------------------------------------
Total liabilities $26,241,940
- -------------------------------------------------------------------------------------------------------
Net assets $102,091,153
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -------------------------------------------------------------------------------------------------------
Paid-in capital $424,777,373
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies (1,740,453)
Accumulated net realized gain (loss) on investments and
foreign currency transactions (320,945,767)
- -------------------------------------------------------------------------------------------------------
Net assets $102,091,153
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 10,282,588
- -------------------------------------------------------------------------------------------------------
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $43,312,686
Shares outstanding 4,276,919
- -------------------------------------------------------------------------------------------------------
Net asset value per share $10.13
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25 X net asset value per
share) $10.75
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $39,024,532
Shares outstanding 4,009,810
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $9.73
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $11,659,163
Shares outstanding 1,199,979
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $9.72
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $3,492,025
- -------------------------------------------------------------------------------------------------------
Shares outstanding 336,028
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $10.39
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $3,047,421
Shares outstanding 303,047
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $10.06
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $212,991
Shares outstanding 21,920
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $9.72
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $367,058
Shares outstanding 37,588
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $9.77
- -------------------------------------------------------------------------------------------------------
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $800,463
Shares outstanding 80,051
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $10.00
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $113,262
Shares outstanding 11,193
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $10.12
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $61,552
Shares outstanding 6,053
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $10.17
- -------------------------------------------------------------------------------------------------------
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
Year ended 8/31/06
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT LOSS
- ------------------------------------------------------------------------------------------------------
Income
Dividends $286,302
Interest 64,993
Income on securities loaned 58,235
Foreign taxes withheld (15,884)
- ------------------------------------------------------------------------------------------------------
Total investment income $393,646
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $832,364
Distribution and service fees 741,564
Shareholder servicing costs 380,029
Administrative services fee 23,771
Retirement plan administration and services fees 3,671
Independent trustees' compensation 7,342
Custodian fee 63,760
Registration fees 138,787
Shareholder communications 77,498
Auditing fees 44,872
Legal fees 15,359
Miscellaneous 9,497
- ------------------------------------------------------------------------------------------------------
Total expenses $2,338,514
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (9,886)
Reduction of expenses by investment adviser (320,541)
- ------------------------------------------------------------------------------------------------------
Net expenses $2,008,087
- ------------------------------------------------------------------------------------------------------
Net investment loss $(1,614,441)
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis) --
Investment transactions $21,203,401
Foreign currency tansactions (34,957)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency
transactions $21,168,444
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments $(4,957,719)
Translation of assets and liabilities in foreign currencies (35,078)
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(4,992,797)
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $16,175,647
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $14,561,206
- ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
YEARS ENDED 8/31
--------------------------------------
2006 2005
CHANGE IN NET ASSETS
FROM OPERATIONS
- --------------------------------------------------------------------------------------------------------
Net investment loss $(1,614,441) $(1,187,631)
Net realized gain (loss) on investments and foreign
currency transactions 21,168,444 26,313,940
Net unrealized gain (loss) on investments and foreign
currency translation (4,992,797) (3,585,555)
- --------------------------------------------------------------------------------------------------------
Change in net assets from operations $14,561,206 $21,540,754
- --------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(23,708,788) $(67,156,944)
- --------------------------------------------------------------------------------------------------------
Redemption fees $-- $4,244
- --------------------------------------------------------------------------------------------------------
Total change in net assets $(9,147,582) $(45,611,946)
- --------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------
At beginning of period 111,238,735 156,850,681
At end of period $102,091,153 $111,238,735
- --------------------------------------------------------------------------------------------------------
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
life of a particular share class, if shorter). 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
share class (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
-------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $8.84 $7.70 $8.30 $6.25 $10.70
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.11) $(0.05) $(0.10) $(0.07) $(0.11)
Net realized and unrealized gain (loss)
on investments and foreign currency 1.40 1.19 (0.50) 2.12 (4.34)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.29 $1.14 $(0.60) $2.05 $(4.45)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.13 $8.84 $7.70 $8.30 $6.25
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 14.59 14.81 (7.23)(b) 32.80 (41.53)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.79 1.79 1.60 1.76 1.74
Expenses after expense reductions (f) 1.50 1.51 1.50 1.52 1.51
Net investment loss (1.13) (0.56) (1.10) (1.05) (1.22)
Portfolio turnover 217 163 141 162 210
Net assets at end of period (000 Omitted) $43,313 $48,945 $75,786 $101,059 $53,142
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
-------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $8.55 $7.50 $8.13 $6.16 $10.61
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.17) $(0.10) $(0.15) $(0.11) $(0.17)
Net realized and unrealized gain (loss)
on investments and foreign currency 1.35 1.15 (0.48) 2.08 (4.28)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.18 $1.05 $(0.63) $1.97 $(4.45)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.73 $8.55 $7.50 $8.13 $6.16
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 13.80 14.00 (7.75)(b) 31.98 (41.94)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.44 2.44 2.25 2.42 2.39
Expenses after expense reductions (f) 2.15 2.16 2.15 2.18 2.16
Net investment loss (1.79) (1.24) (1.74) (1.71) (1.87)
Portfolio turnover 217 163 141 162 210
Net assets at end of period (000 Omitted) $39,025 $43,765 $50,896 $61,353 $25,997
- --------------------------------------------------------------------------------------------------------------------------
CLASS C YEARS ENDED 8/31
-------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $8.54 $7.48 $8.12 $6.16 $10.61
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.17) $(0.10) $(0.15) $(0.11) $(0.17)
Net realized and unrealized gain (loss)
on investments and foreign currency 1.35 1.16 (0.49) 2.07 (4.28)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.18 $1.06 $(0.64) $1.96 $(4.45)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.72 $8.54 $7.48 $8.12 $6.16
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 13.82 14.17 (7.88)(b) 31.82 (41.94)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.44 2.44 2.25 2.42 2.39
Expenses after expense reductions (f) 2.15 2.16 2.15 2.18 2.16
Net investment loss (1.78) (1.22) (1.74) (1.71) (1.87)
Portfolio turnover 217 163 141 162 210
Net assets at end of period (000 Omitted) $11,659 $12,414 $15,367 $20,210 $10,476
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 8/31
--------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $9.04 $7.85 $8.43 $6.33 $10.79
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $(0.08) $0.01 $(0.06) $(0.05) $(0.08)
Net realized and unrealized gain (loss) on
investments and foreign currency 1.43 1.18 (0.52) 2.15 (4.38)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.35 $1.19 $(0.58) $2.10 $(4.46)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.39 $9.04 $7.85 $8.43 $6.33
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 14.93 15.16 (6.88)(b) 33.18 (41.33)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.43 1.44 1.26 1.41 1.39
Expenses after expense reductions (f) 1.15 1.16 1.16 1.17 1.16
Net investment income (loss) (0.78) 0.17 (0.70) (0.71) (0.87)
Portfolio turnover 217 163 141 162 210
Net assets at end of period (000 Omitted) $3,492 $3,384 $13,404 $4,179 $3,045
- --------------------------------------------------------------------------------------------------------------------------
CLASS R YEARS ENDED 8/31
-------------------------------------------------------------
2006 2005 2004 2003(i)
Net asset value, beginning of period $8.80 $7.67 $8.28 $6.16
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.13) $(0.07) $(0.10) $(0.08)
Net realized and unrealized gain (loss) on investments
and foreign currency 1.39 1.20 (0.51) 2.20
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.26 $1.13 $(0.61) $2.12
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.06 $8.80 $7.67 $8.28
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 14.32 14.73 (7.37)(b) 34.42(n)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.93 1.94 1.76 1.88(a)
Expenses after expense reductions (f) 1.65 1.66 1.66 1.64(a)
Net investment loss (1.28) (0.79) (1.21) (1.22)(a)
Portfolio turnover 217 163 141 162
Net assets at end of period (000 Omitted) $3,047 $2,283 $1,266 $173
- -------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $8.55 $8.01
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.18) $(0.07)
Net realized and unrealized gain (loss) on investments and foreign
currency 1.35 0.61(g)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $1.17 $0.54
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.72 $8.55
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 13.68 6.74(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.63 2.62(a)
Expenses after expense reductions (f) 2.25 2.34(a)
Net investment loss (1.88) (1.90)(a)
Portfolio turnover 217 163
Net assets at end of period (000 Omitted) $213 $64
- -------------------------------------------------------------------------------------------------------------
CLASS R2 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $8.56 $8.01
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.15) $(0.05)
Net realized and unrealized gain (loss) on investments and foreign
currency 1.36 0.60(g)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $1.21 $0.55
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.77 $8.56
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 14.14 6.87(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.33 2.32(a)
Expenses after expense reductions (f) 1.90 2.04(a)
Net investment loss (1.52) (1.60)(a)
Portfolio turnover 217 163
Net assets at end of period (000 Omitted) $367 $85
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 8/31
-----------------------------------------------
2006 2005 2004(i)
Net asset value, beginning of period $8.76 $7.66 $8.79
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.14) $(0.09) $(0.09)
Net realized and unrealized gain (loss) on investments and
foreign currency 1.38 1.19 (1.04)
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations $1.24 $1.10 $(1.13)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.00 $8.76 $7.66
- -----------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 14.16 14.36 (12.86)(b)(n)
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.18 2.19 2.01(a)
Expenses after expense reductions (f) 1.80 1.91 1.91(a)
Net investment loss (1.41) (1.07) (1.47)(a)
Portfolio turnover 217 163 141
Net assets at end of period (000 Omitted) $800 $192 $132
- -----------------------------------------------------------------------------------------------------------------
CLASS R4 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $8.85 $8.26
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.14) $(0.04)
Net realized and unrealized gain (loss) on investments and foreign
currency 1.41 0.63(g)
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations $1.27 $0.59
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.12 $8.85
- -----------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 14.35 7.14(n)
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.84 1.82(a)
Expenses after expense reductions (f) 1.55 1.54(a)
Net investment loss (1.18) (1.10)(a)
Portfolio turnover 217 163
Net assets at end of period (000 Omitted) $113 $54
- -----------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $8.86 $8.26
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.09) $(0.03)
Net realized and unrealized gain (loss) on investments and foreign
currency 1.40 0.63(g)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $1.31 $0.60
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.17 $8.86
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 14.79 7.26(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.53 1.52(a)
Expenses after expense reductions (f) 1.25 1.24(a)
Net investment loss (0.88) (0.79)(a)
Portfolio turnover 217 163
Net assets at end of period (000 Omitted) $62 $54
- -------------------------------------------------------------------------------------------------------------
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years resulted in a per share
impact of less than $0.01.
(a) Annualized.
(b) 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.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(g) 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.
(i) 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.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
(t) Total returns do not include any applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Technology Fund (the fund) is a 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, including securities of emerging market
issuers. 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. The markets of emerging markets countries are generally more
volatile than the markets of developed countries with more mature economies.
All of the risks of investing in foreign securities previously described are
heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales reported
that day, equity securities are generally valued at the last quoted daily bid
quotation as reported by an independent pricing service on the market or
exchange on which they are primarily traded. Short-term instruments with a
maturity at issuance of 60 days or less may be valued at amortized cost, which
approximates market value. Open-end investment companies are generally valued at
their net asset value per share. Securities and other assets generally valued on
the basis of information from an independent pricing service may also be valued
at a broker-dealer bid quotation. The values of foreign securities and other
assets and liabilities expressed in foreign currencies are converted to U.S.
dollars using the mean of bid and asked prices for rates reported by an
independent pricing service. The Board of Trustees has delegated primary
responsibility for determining or causing to be determined the value of the
fund's investments (including any fair valuation) to the adviser pursuant to
valuation policies and procedures approved by the Board. If the adviser
determines that reliable market quotations are not readily available,
investments are valued at fair value as determined in good faith by the adviser
in accordance with such procedures under the oversight of the Board of Trustees.
Under the fund's valuation policies and procedures, market quotations are not
considered to be readily available for many types of debt instruments. These
investments are generally valued at fair value based on information from
independent pricing services. The adviser may rely on independent pricing
services or other information (such as the correlation with price movements of
similar securities in the same or other markets; the type, cost and investment
characteristics of the security; the business and financial condition of the
issuer; and trading and other market data) to assist in determining whether to
fair value and at what value to fair value an investment. The value of an
investment for purposes of calculating the fund's net asset value can differ
depending on the source and method used to determine value. When fair valuation
is used, the value of investments used to determine the fund's net asset value
may differ from quoted or published prices for the same investments. In
addition, investments may be valued at fair value if the adviser determines that
an investment's value has been materially affected by events occurring after the
close of the exchange or market on which the investment is principally traded
(such as foreign exchange or market) and prior to the determination of the
fund's net asset value, or after the halting of trading of a specific security
where trading does not resume prior to the close of the exchange or market on
which the security is principally traded. Events that occur on a frequent basis
after foreign markets close (such as developments in foreign markets and
significant movements in the U.S. markets) and prior to the determination of the
fund's net asset value may be deemed to have a material affect on the value of
securities traded in foreign markets. Accordingly, the fund's foreign equity
securities may often be valued at fair value.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize
a joint trading account for the purpose of entering into one or more
repurchase agreements.
FOREIGN CURRENCY TRANSLATION - Purchases and sales of foreign investments,
income, and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the fund with indemnification against Borrower default. The
fund bears the risk of loss with respect to the investment of cash collateral.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or short-term securities. A portion of the income generated upon
investment of the collateral is remitted to the Borrowers, and the remainder
is allocated between the fund and the lending agent. On loans collateralized
by U.S. Treasury securities, a fee is received from the Borrower, and is
allocated between the fund and the lending agent. The dividend and interest
income earned on the securities loaned is accounted for in the same manner as
other dividend and interest income.
SHORT TERM FEES - For purchases made on or after July 1, 2004 and before April
1, 2005, the fund 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 charges a
redemption fee. See the fund's prospectus for details. Any redemption fees
charged are accounted for as an addition to paid-in-capital.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Certain dividends from foreign securities will be recorded when the fund is
informed of the dividend if such information is obtained subsequent to 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, 2006, the fund's custodian fees
were reduced by $8,043 under this arrangement. This amount is shown as a
reduction of total expenses on the Statement of Operations. 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, 2006, the fund's custodian
expenses were reduced by $1,843 under this agreement. These amounts are shown
as a reduction of total expenses on the Statement of Operations. Effective
January 1, 2006, the commission recapture agreement was terminated.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue
Code, and to distribute all of its taxable income, including realized capital
gains. Accordingly, no provision for federal income tax is required in the
financial statements. Foreign taxes, if any, have been accrued by the fund in
the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Certain capital accounts in the financial statements are periodically adjusted
for permanent differences in order to reflect their tax character. These
adjustments have no impact on net assets or net asset value per share.
Temporary differences which arise from recognizing certain items of income,
expense, gain or loss in different periods for financial statement and tax
purposes will reverse at some time in the future. Distributions in excess
of net investment income or net realized gains are temporary overdistributions
for financial statement purposes resulting from differences in the recognition
or classification of income or distributions for financial statement and
tax purposes.
Book/tax differences primarily relate to net operating losses and wash sale
loss deferrals.
The fund declared no distributions for the years ended August 31, 2006 and
August 31, 2005.
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/06
Cost of investments $126,641,969
----------------------------------------------------------
Gross appreciation 5,553,753
Gross depreciation (8,040,929)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $(2,487,176)
Capital loss carryforwards $(320,056,572)
Other temporary differences (142,472)
As of August 31, 2006, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
8/31/08 $(7,419,613)
8/31/09 (113,374,272)
8/31/10 (119,907,823)
8/31/11 (74,891,618)
8/31/12 (4,463,246)
----------------------------------------------------------
$(320,056,572)
The availability of a portion of the capital loss carryforwards, which were
acquired on August 22, 2003, in connection with the MFS Global
Telecommunications Fund merger, may be limited in a given year.
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years
as of the effective date. This Interpretation prescribes a minimum threshold
for financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return, and requires certain expanded
disclosures. Management has recently begun to evaluate the application of the
Interpretation to the fund, and has not at this time determined the impact, if
any, resulting from the adoption of this Interpretation on the fund's
financial statements.
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
management and related administrative services and facilities to the fund. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the fund's average daily net assets. The investment adviser has agreed in
writing to reduce its management fee to 0.70% of average daily net assets in
excess of $1.0 billion. This written agreement may be rescinded only upon
consent of the fund's Board of Trustees. For the year ended August 31, 2006,
the fund's average daily net assets did not exceed $1.0 billion and therefore,
the management fee was not reduced.
The management fee incurred for the year ended August 31, 2006 was equivalent
to an annual effective rate of 0.75% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay 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 operating expenses do not exceed 0.40% annually of the
fund's average daily net assets. This written agreement will continue through
December 31, 2006 unless changed or rescinded by the fund's Board of Trustees.
For the year ended August 31, 2006, this reduction amounted to $318,736 and is
reflected as a reduction of total expenses in the Statement of Operations.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $8,891 for the year ended August 31, 2006, 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 MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.35% $168,708
Class B 0.75% 0.25% 1.00% 1.00% 428,513
Class C 0.75% 0.25% 1.00% 1.00% 124,916
Class R 0.25% 0.25% 0.50% 0.50% 13,476
Class R1 0.50% 0.25% 0.75% 0.75% 1,090
Class R2 0.25% 0.25% 0.50% 0.50% 1,644
Class R3 0.25% 0.25% 0.50% 0.50% 2,876
Class R4 -- 0.25% 0.25% 0.25% 341
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service fees $741,564
(d) 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.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August
31, 2006 based on each class' average daily net assets.
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 of purchase.
Class B shares are subject to a contingent deferred sales charge in the event
of a shareholder redemption within six years of purchase. All contingent
deferred sales charges are paid to MFD and during the year ended August 31,
2006, were as follows:
AMOUNT
Class A $3,490
Class B $103,483
Class C $1,803
SHAREHOLDER SERVICING AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned
subsidiary of MFS, receives a fee from the fund for its services as
shareholder servicing agent calculated as a percentage of the average net
assets of the fund as determined periodically under the supervision of the
fund's Board of Trustees. For the year ended August 31, 2006, the fee was
$108,359, which equated to 0.0977% 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, 2006, these costs amounted to $86,702. The fund may also pay
shareholder servicing related costs to non-related parties.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the fund.
Under an administrative services agreement, the fund partially reimburses MFS
the costs incurred to provide these services. The fund is charged a fixed
amount plus a fee based on calendar year average net assets. From July 1, 2005
through March 31, 2006, the fund's annual fixed amount was $10,000. Effective
April 1, 2006, the fund's annual fixed amount is $17,500.
The administrative services fee incurred for the year ended August 31, 2006
was equivalent to an annual effective rate of 0.0214% 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 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. MFS may subsequently
pay all, or a portion, of the retirement plan administration and services fee
to affiliated or unaffiliated third parties. For the year ended August 31,
2006, the fund paid MFS an annual retirement plan administration and services
fee up to the following annual percentage rates of each class' average daily
net assets:
ANNUAL
EFFECTIVE TOTAL
FEE RATE RATE(g) AMOUNT
Class R1 0.45% 0.35% $654
Class R2 0.40% 0.25% 1,315
Class R3 0.25% 0.15% 1,438
Class R4 0.15% 0.15% 205
Class R5 0.10% 0.10% 59
- --------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $3,671
(g) Effective October 1, 2005, MFS has agreed in writing to waive a portion of
the retirement plan administration and services fee equal to 0.10% for
Class R1 shares, 0.15% for Class R2 shares, and 0.10% for Class R3 shares.
This agreement will continue until at least September 30, 2008. For the
year ended August 31, 2006, this waiver amounted to $1,181 and is
reflected as a reduction of total expenses in the Statement of Operations.
TRUSTEES' AND OFFICERS' 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 or officers of the fund who are also
officers of the investment adviser, 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 certain retired Independent Trustees which resulted in a
pension expense of $622. The fund also has an unfunded retirement benefit
deferral plan for certain Independent Trustees which resulted in an expense of
$515. Both amounts are included in Independent trustees' compensation for the
year ended August 31, 2006. The deferred liability for retirement benefits
payable to certain Trustees under both plans amounted to $43,122 at August 31,
2006, and is included in payable for independent 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. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the year ended August 31, 2006, the fee paid to Tarantino LLC
was $766. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $624, 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.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$237,927,761 and $264,170,004, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
YEAR ENDED YEAR ENDED
8/31/06 8/31/05(i)
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 936,633 $9,265,824 1,841,301 $15,794,906
Class B 431,689 4,087,393 601,987 5,034,688
Class C 168,042 1,594,448 230,424 1,904,542
Class I 84,307 859,389 153,317 1,351,997
Class R 100,509 991,380 203,930 1,740,254
Class R1 24,284 239,333 7,503 61,010
Class R2 31,881 288,973 9,983 82,697
Class R3 97,787 947,694 11,651 100,006
Class R4 77,723 839,955 6,053 50,000
Class R5 8 78 6,053 50,000
- ----------------------------------------------------------------------------------------------------------
1,952,863 $19,114,467 3,072,202 $26,170,100
Shares reacquired
Class A (2,193,910) $(21,391,336) (6,148,566) $(52,768,987)
Class B (1,538,128) (14,435,786) (2,275,531) (18,989,310)
Class C (421,535) (3,939,737) (830,211) (6,910,220)
Class I (122,505) (1,226,997) (1,486,367) (13,661,239)
Class R (57,043) (568,460) (109,402) (937,454)
Class R1 (9,866) (98,868) (1) (17)
Class R2 (4,276) (38,622) -- --
Class R3 (39,636) (372,004) (7,034) (59,817)
Class R4 (72,583) (751,370) -- --
Class R5 (8) (75) -- --
- ----------------------------------------------------------------------------------------------------------
(4,459,490) $(42,823,255) (10,857,112) $(93,327,044)
Net change
Class A (1,257,277) $(12,125,512) (4,307,265) $(36,974,081)
Class B (1,106,439) (10,348,393) (1,673,544) (13,954,622)
Class C (253,493) (2,345,289) (599,787) (5,005,678)
Class I (38,198) (367,608) (1,333,050) (12,309,242)
Class R 43,466 422,920 94,528 802,800
Class R1 14,418 140,465 7,502 60,993
Class R2 27,605 250,351 9,983 82,697
Class R3 58,151 575,690 4,617 40,189
Class R4 5,140 88,585 6,053 50,000
Class R5 -- 3 6,053 50,000
- ----------------------------------------------------------------------------------------------------------
(2,506,627) $(23,708,788) (7,784,910) $(67,156,944)
(i) For the period from the class' inception, April 1, 2005 (Classes R1, R2, R4, and R5), through the
stated period end.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other affiliated funds have established
uncommitted borrowing arrangements with certain banks. Borrowings may be made
for temporary financing needs. Interest is charged to each fund, based on its
borrowings, generally 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 committed line of credit, is allocated among the participating
funds at the end of each calendar quarter. For the year ended August 31, 2006,
the fund's commitment fee and interest expense were $750 and $0, respectively,
and are included in miscellaneous expense on the Statement of Operations.
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, 2006, 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, 2006, by
correspondence with the Fund's 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, 2006, 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 20, 2006
RESULTS OF SHAREHOLDER MEETING
(unaudited)
At the annual meeting of shareholders of MFS Technology Fund, which was held
on August 15, 2006, the following actions were taken:
ITEM 1. - To approve a change to the Fund's sub-classification under the
Investment Company Act of 1940 from a diversified company to a non-diversified
company.
NUMBER OF DOLLARS
For 49,798,964
Against 4,165,604
Abstain 3,071,507
ITEM 2. - To approve an amendment to the Fund's fundamental investment policy
concerning concentration.
NUMBER OF DOLLARS
For 49,952,035
Against 3,932,115
Abstain 3,151,926
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2006, 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(h) OTHER DIRECTORSHIPS(j)
- ------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); 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 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (November 2000 until June
2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians' Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) 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 9/27/41) 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)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (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 8/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (2000 until 2005);
Hillview Investment Trust II Funds
(mutual fund complex), Trustee
(2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004); Fidelity
Management & Research Company,
Vice President (prior to March
2004); Fidelity Group of Funds,
President and Treasurer (prior to
March 2004)
Tracy Atkinson(k) 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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
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(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior to May
2005)
Ellen Moynihan(k) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance Officer compliance services), Principal
(since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (prior to
March 2003)
James O. Yost(k) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) Company, Senior Vice President
- ------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(k) "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.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant
retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters. The
terms of that settlement required that compensation and expenses related to the independent compliance
consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services he rendered to
the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of $351,119.29.
The Trust held a shareholders' meeting in 2005 to elect Trustees, and will hold a shareholders' meeting at
least once every five years thereafter, to elect Trustees.
Each Trustee (except Mr. Butler and Mr. Uek) 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. Butler, Sherratt and Uek and Ms. 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 January 1, 2006, the Trustees served as board members of 98 funds within the MFS
Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 02116-3741 200 Clarendon Street, Boston, MA 02116
PORTFOLIO MANAGER
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, 2006 ("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, 2005 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 ("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 MFS peer funds, (iii) information provided
by MFS on the advisory fees of comparable portfolios of other clients of MFS,
including institutional separate accounts 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, 2005, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 4th quintile relative to the other funds in the
universe for this three-year period (the 1st quintile being the best
performers and the 5th quintile being the worst performers). The total return
performance of the Fund's Class A shares was in the 3rd quintile for the one-
year period and the 4th quintile for the five-year period ended December 31,
2005 relative to the Lipper performance universe. Because of the passage of
time, these performance results may differ from the performance results for
more recent periods, including those shown elsewhere in this report.
The Trustees expressed concern about the ongoing substandard investment
performance of the Fund. 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 recent restructuring
of responsibilities among MFS' senior investment management executives and
assigning a new primary portfolio manager for the Fund in March 2005. In
addition, the Trustees requested that they receive a separate update on the
Fund's performance at each of their meetings. After reviewing these and
related factors, the Trustees concluded, within the context of their overall
conclusions regarding the investment advisory agreement, that MFS' responses
and efforts and plans to improve investment performance were sufficient to
support approval of the continuance of the investment advisory agreement for
an additional one year period, but that they would continue to closely monitor
the performance of the Fund.
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
that MFS has agreed in writing to waive a portion of its advisory fee on
assets over $1 billion, which may not be changed without Trustee approval, and
that MFS currently observes an expense limitation for the Fund. The Trustees
also considered that, according to the Lipper data, the Fund's effective
advisory fee rate (taking into account the expense limitation) 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
currently subject to a breakpoint as a result of an advisory fee waiver
described above. The Trustees concluded that the existing breakpoint was
sufficient to allow the Fund to benefit from economies of scale as 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 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, which may include 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, if applicable, to pay for investment research
(excluding third-party research, for which MFS pays directly), 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, 2006.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement will be available on or before November 1, 2006 by
clicking on the fund's name under "Select a fund" on the MFS Web site (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
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The fund's Form N-Q is
available on the EDGAR database on the Commission's Internet Web site 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)
The fund will notify shareholders of amounts for use in preparing 2006 income
tax forms in January 2007.
MFS(R) PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about the investment products and services that we
offer, and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal
information. We maintain information and records about you, your investments,
and the services you use. Examples of the nonpublic personal information we
maintain include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or
others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. We may share nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with
which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you.
We maintain physical, electronic, and procedural safeguards to help protect
the personal information we collect about you.
If you have any questions about the MFS privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS send prospectuses, reports,
and proxies directly to your e-mail inbox. You'll get timely information and
less clutter in your mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply go to mfs.com, log in to
your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
MFS(R) CASH RESERVE FUND
LETTER FROM THE CEO 1
- ------------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------------------------
PERFORMANCE SUMMARY 3
- ------------------------------------------------------------------
EXPENSE TABLE 6
- ------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 8
- ------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 10
- ------------------------------------------------------------------
STATEMENT OF OPERATIONS 12
- ------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 13
- ------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 14
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 21
- ------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 29
- ------------------------------------------------------------------
TRUSTEES AND OFFICERS 30
- ------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 36
- ------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 40
- ------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 40
- ------------------------------------------------------------------
FEDERAL TAX INFORMATION 40
- ------------------------------------------------------------------
MFS(R) PRIVACY NOTICE 41
- ------------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------------
Fund objective: Seeks to provide as high a level of current income as is
considered consistent with the preservation of capital and liquidity.
THE REPORT IS PREPARED FOR THE GENERAL INFORMATION OF SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
- -------------------------------------------------------------------------------
NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
- -------------------------------------------------------------------------------
8/31/06
LMM-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The story is as old as the tortoise and the hare, but we believe it is
still relevant today -- "slow and steady" is the way to go when it comes to
investing. While financial markets will naturally ebb and flow over time,
investors who remain committed to a long-term investment strategy are more
likely to achieve their goals than those who consistently chase short-term
performance.
The first half of 2006 brought a high degree of fluctuation in markets
around the globe as varying economic factors pulled markets in opposite
directions. The global economy, for example, continued to grow at its fastest
pace in three decades -- spurred by increased international trade, good job
growth, and wage increases. At the same time, central banks around the world
raised interest rates in sync in a collaborative attempt to curb inflation.
While this was a positive development in some regions, in other cases,
economic and market gains were tempered.
What does all of this mean to you as an investor? If you're focused on the
long term, these global developments become part of a longer cycle instead of
one-time events that can have a significant impact on your portfolio.
At MFS(R), our investment management process -- honed over 80 years --
combines a unique teamwork approach with an unwavering focus on helping you
realize your long-term financial goals. We believe in a three-pronged
investment strategy:
o ALLOCATE holdings across the major asset classes -- including stocks,
bonds, and cash.
o DIVERSIFY within each class to take advantage of different market
segments and investing styles.
o REBALANCE assets regularly to maintain a desired asset allocation.
Of course, these strategies cannot guarantee a profit or protect against a
loss. Investing and planning for the long term requires diligence and
patience, two traits that in our experience are essential to capitalizing on
the many opportunities the financial markets can offer -- through both up and
down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 13, 2006
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE (u)
Commercial Paper 87.7%
Certificates of Deposit 7.5%
Repurchase Agreements 5.1%
Other Assets Less Liabilities -0.3%
SHORT TERM CREDIT QUALITY (q)
Average Credit Quality
Short-Term Bonds (a) A-1
------------------------------------------------
All holdings are rated A-1
MATURITY BREAKDOWN (u)
0-29 days 37.8%
------------------------------------------------
30-59 days 39.5%
------------------------------------------------
60-89 days 19.0%
------------------------------------------------
90-366 days 4.0%
------------------------------------------------
Other Assets Less Liabilities -0.3%
------------------------------------------------
(a) The average credit quality is based upon a market weighted average of
portfolio holdings that are rated by public rating agencies.
(q) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. If not rated by any of the three
agencies, the security is considered Not Rated. U.S. Treasuries and U.S.
Agency securities are included in the "A-1"-rating category. Percentages are
based on the total market value of investments as of 8/31/06.
(u) For purposes of this graphical presentation, accrued interest, where
applicable, is included.
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 8/31/06.
The portfolio is actively managed and current holdings may be different.
PERFORMANCE SUMMARY THROUGH 8/31/06
Total returns as well as the current 7-day yield have been provided for the
applicable time periods. Performance results reflect the percentage change in
net asset value, including there investment of any dividends and capital gains
distributions. (See Notes to Performance Summary.)
An investment in the portfolio is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
portfolio seeks to preserve the value of your investment at $1.00 per share,
it is possible to lose money by investing in the portfolio.
PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR
SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN QUOTED. FOR MOST RECENT MONTH-END
PERFORMANCE, PLEASE VISIT MFS.COM. 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 4.19% 5.02% 4.62%
- --------------------------------------------------------------------------------
B 12/29/86 3.16% 4.02% 3.62%
- --------------------------------------------------------------------------------
C 4/01/96 3.15% 4.02% 3.62%
- --------------------------------------------------------------------------------
R1 4/01/05 3.04% 3.92% 3.42%
- --------------------------------------------------------------------------------
R2 4/01/05 3.40% 4.26% 3.71%
- --------------------------------------------------------------------------------
R3 4/01/05 3.51% 4.37% 3.87%
- --------------------------------------------------------------------------------
R4 4/01/05 3.77% 4.59% 4.19%
- --------------------------------------------------------------------------------
R5 4/01/05 4.09% 4.92% 4.52%
- --------------------------------------------------------------------------------
529A 7/31/02 3.93% 4.77% 4.02%
- --------------------------------------------------------------------------------
529B 7/31/02 2.90% 3.79% 3.39%
- --------------------------------------------------------------------------------
529C 7/31/02 2.90% 3.77% 3.37%
- --------------------------------------------------------------------------------
Yields quoted are based on the latest seven days ended as of August 31, 2006,
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 -0.84%
- --------------------------------------------------------------------------------
C 2.15%
- --------------------------------------------------------------------------------
529B -1.10%
- --------------------------------------------------------------------------------
529C 1.90%
- --------------------------------------------------------------------------------
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 Classes R4, R5, and 529A shares includes the performance of
the fund's Class A shares for periods prior to their offering. Performance for
Classes R1, R2, R3, and 529B shares includes the performance of the fund's
Class B shares for periods prior to their offering. Performance for Class 529C
shares includes the performance of the fund's Class C shares for periods prior
to their offering. For reporting periods ending prior to March 31, 2004, when
quoting performance for the fund's Class 529A shares, the performance of these
share classes included the performance of the fund's Class B shares, rather
than Class A shares. The blending methodology changed for reporting periods
ending on or after March 31, 2004, because Class A shares now has a 10 year
performance history, and share class performance is being blended to Class A
shares based upon the similarity of share class operating expenses. This
change in blending methodology results in better performance for Class 529A
shares than it had under the prior blending methodology. For a transitional
period lasting until December 31, 2007, performance for Class 529A shares
under the prior methodology is available at mfs.com. This blended class
performance has been adjusted to take into account differences in sales loads,
if any, applicable to these share classes, but has not been adjusted to take
into account differences in class specific operating expenses (such as Rule
12b-1 fees). Compared to performance these share classes would have
experienced had they been offered for the entire period, the use of blended
performance generally results in higher performance for share classes with
higher operating expenses than the share class to which it is blended, and
lower performance for share classes with lower operating expenses than the
share class to which it is blended.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
EXPENSE TABLE
Fund expenses borne by the shareholders during the period,
March 1, 2006 through August 31, 2006.
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, 2006 through
August 31, 2006.
ACTUAL EXPENSES
The first line for each share class in the following table 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 following table 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(p)
Share Expense Account Value Account Value 3/01/06-
Class Ratio 3/01/06 8/31/06 8/31/06
- --------------------------------------------------------------------------------
Actual 0.47% $1,000.00 $1,023.30 $2.40
A -------------------------------------------------------------------------
Hypothetical (h) 0.47% $1,000.00 $1,022.84 $2.40
- --------------------------------------------------------------------------------
Actual 1.47% $1,000.00 $1,018.20 $7.48
B -------------------------------------------------------------------------
Hypothetical (h) 1.47% $1,000.00 $1,017.80 $7.48
- --------------------------------------------------------------------------------
Actual 1.47% $1,000.00 $1,018.20 $7.48
C -------------------------------------------------------------------------
Hypothetical (h) 1.47% $1,000.00 $1,017.80 $7.48
- --------------------------------------------------------------------------------
Actual 1.57% $1,000.00 $1,017.70 $7.98
R1 -------------------------------------------------------------------------
Hypothetical (h) 1.57% $1,000.00 $1,017.29 $7.98
- --------------------------------------------------------------------------------
Actual 1.22% $1,000.00 $1,019.50 $6.21
R2 -------------------------------------------------------------------------
Hypothetical (h) 1.22% $1,000.00 $1,019.06 $6.21
- --------------------------------------------------------------------------------
Actual 1.11% $1,000.00 $1,020.00 $5.65
R3 -------------------------------------------------------------------------
Hypothetical (h) 1.11% $1,000.00 $1,019.61 $5.65
- --------------------------------------------------------------------------------
Actual 0.86% $1,000.00 $1,021.30 $4.38
R4 -------------------------------------------------------------------------
Hypothetical (h) 0.86% $1,000.00 $1,020.87 $4.38
- --------------------------------------------------------------------------------
Actual 0.57% $1,000.00 $1,022.80 $2.91
R5 -------------------------------------------------------------------------
Hypothetical (h) 0.57% $1,000.00 $1,022.33 $2.91
- --------------------------------------------------------------------------------
Actual 0.72% $1,000.00 $1,022.10 $3.67
529A -------------------------------------------------------------------------
Hypothetical (h) 0.72% $1,000.00 $1,021.58 $3.67
- --------------------------------------------------------------------------------
Actual 1.72% $1,000.00 $1,017.00 $8.74
529B -------------------------------------------------------------------------
Hypothetical (h) 1.72% $1,000.00 $1,016.53 $8.74
- --------------------------------------------------------------------------------
Actual 1.72% $1,000.00 $1,016.90 $8.74
529C -------------------------------------------------------------------------
Hypothetical (h) 1.72% $1,000.00 $1,016.53 $8.74
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
8/31/06
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Certificates of Deposit - 7.4%
- ---------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ---------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 7.4%
- ---------------------------------------------------------------------------------------------------------
Barclays Bank PLC, NY, 5.45%, due 10/25/06 $ 15,269,000 $ 15,269,000
Credit Suisse, NY, 4.985%, due 9/13/06 14,618,000 14,618,000
- ---------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT, AT AMORTIZED COST AND VALUE $ 29,887,000
- ---------------------------------------------------------------------------------------------------------
Commercial Paper - 87.7% (y)
- ---------------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 4.2%
- ---------------------------------------------------------------------------------------------------------
Yorktown Capital LLC, 5.3%, due 9/07/06 (t) $ 16,896,000 $ 16,881,075
- ---------------------------------------------------------------------------------------------------------
Automotive - 4.1%
- ---------------------------------------------------------------------------------------------------------
Toyota Motor Credit Corp., 5.37%, due 10/12/06 $ 16,766,000 $ 16,663,462
- ---------------------------------------------------------------------------------------------------------
Financial Institutions - 47.7%
- ---------------------------------------------------------------------------------------------------------
CRC Funding LLC, 5.35%, due 10/05/06 (t) $ 2,701,000 $ 2,687,352
Ciesco LLC, 5.34%, due 10/05/06 (t) 12,183,000 12,121,557
Citibank Credit Card Issuance Trust, 5.38%, due 9/18/06 (t) 10,000,000 9,974,594
Edison Asset Securitization LLC, 5.27%, due 11/21/06 (t) 16,520,000 16,324,114
FCAR Owner Trust, 5.26%, due 9/22/06 16,351,000 16,300,830
Fairway Finance Corp., 5.31%, due 11/20/06 (t) 17,083,000 16,881,421
Falcon Asset Securitization Corp., 5.26%, due 10/19/06 (t) 7,013,000 6,963,815
General Electric Capital Corp., 5.38%, due 10/26/06 2,140,000 2,122,410
General Electric Capital Corp., 5.37%, due 11/27/06 14,874,000 14,680,973
Govco, Inc., 5.39%, due 10/12/06 (t) 16,708,000 16,605,436
Jupiter Securitization Corp., 5.27%, due 9/13/06 (t) 3,564,000 3,557,739
Jupiter Securitization Corp., 5.26%, due 10/11/06 (t) 2,000,000 1,988,311
Kitty Hawk Funding Corp., 5.34%, due 9/15/06 (t) 9,141,000 9,122,017
Old Line Funding LLC, 5.36%, due 9/11/06 (t) 9,380,000 9,366,034
Old Line Funding LLC, 5.35%, due 9/15/06 (t) 3,995,000 3,986,688
Ranger Funding Co. LLC, 5.26%, due 9/11/06 (t) 16,356,000 16,332,103
Scaldis Capital LLC, 5.38%, due 10/13/06 (t) 11,001,000 10,931,950
Scaldis Capital LLC, 5.275%, due 11/27/06 (t) 2,562,000 2,529,340
Scaldis Capital LLC, 5.4%, due 11/27/06 (t) 2,877,000 2,839,455
Thunder Bay Funding LLC, 5.36%, due 9/11/06 - 10/30/06 (t) 16,978,000 16,890,279
Windmill Funding Corp., 5.26%, due 10/10/06 (t) 917,000 911,775
-------------
$ 193,118,193
- ---------------------------------------------------------------------------------------------------------
Insurance - 4.2%
- ---------------------------------------------------------------------------------------------------------
MetLife, Inc., 5.34%, due 10/02/06 (t) $ 16,967,000 $ 16,888,980
- ---------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 27.5%
- ---------------------------------------------------------------------------------------------------------
Abbey National North America LLC, 5.25%, due 12/27/06 $ 16,584,000 $ 16,301,036
Citigroup Funding, Inc., 5.31%, due 10/06/06 16,933,000 16,845,583
Deutsche Bank Financial LLC, 5.25%, due 9/22/06 16,415,000 16,364,729
Dexia Delaware LLC, 5.265%, due 10/10/06 16,634,000 16,539,124
HBOS Treasury Services PLC, 5.39%, due 9/29/06 7,000,000 6,970,654
HBOS Treasury Services PLC, 5.32%, due 11/07/06 7,540,000 7,465,346
Societe Generale North America, 5.34%, due 11/01/06 16,453,000 16,304,128
Svenska Handelsbanken Inc., 5.03%, due 10/23/06 14,842,000 14,734,165
-------------
$ 111,524,765
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER, AT AMORTIZED COST AND VALUE $ 355,076,475
- ---------------------------------------------------------------------------------------------------------
Repurchase Agreements - 5.1%
- ---------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., 5.28%, dated 8/31/06, total to be received
$20,490,005 (secured by U.S. Treasury and Federal Agency
obligations and Mortgage Backed Securities in a jointly traded
account), at Cost $ 20,487,000 $ 20,487,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE $ 405,450,475
- ---------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.2)% (750,790)
- ---------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 404,699,685
- ---------------------------------------------------------------------------------------------------------
(t) Security exempt from registration with the U.S. Securities and Exchange Commission under Section 4(2)
of the Securities Act of 1933.
(y) The rate shown represents an annualized yield at time of purchase.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/06
This statement represents your fund's balance sheet, which details the assets and liabilities
comprising the total value of the fund.
ASSETS
- ------------------------------------------------------------------------------------------------------
Investments, at amortized cost and value $405,450,475
Cash 889
Receivable for fund shares sold 1,095,329
Interest receivable 430,907
Other assets 2,404
- ------------------------------------------------------------------------------------------------------
Total assets $406,980,004
- ------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------
Distributions payable $57,156
Payable for fund shares reacquired 1,892,026
Payable to affiliates
Management fee 3,329
Shareholder servicing costs 109,918
Distribution and service fees 15,621
Administrative services fee 436
Program manager fees 43
Retirement plan administration and services fees 82
Payable for independent trustees' compensation 30,631
Accrued expenses and other liabilities 171,077
- ------------------------------------------------------------------------------------------------------
Total liabilities $2,280,319
- ------------------------------------------------------------------------------------------------------
Net assets $404,699,685
- ------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- ------------------------------------------------------------------------------------------------------
Paid-in-capital $404,653,395
Accumulated net realized gain (loss) on investments (1,256)
Undistributed net investment income 47,546
- ------------------------------------------------------------------------------------------------------
Net assets $404,699,685
- ------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 404,653,410
- ------------------------------------------------------------------------------------------------------
Class A shares
- ------------------------------------------------------------------------------------------------------
Net assets $114,481,036
Shares outstanding 114,468,776
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class B shares
- ------------------------------------------------------------------------------------------------------
Net assets $222,661,285
Shares outstanding 222,633,968
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class C shares
- ------------------------------------------------------------------------------------------------------
Net assets $56,456,050
Shares outstanding 56,450,447
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class R1 shares
- ------------------------------------------------------------------------------------------------------
Net assets $898,297
Shares outstanding 898,197
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class R2 shares
- ------------------------------------------------------------------------------------------------------
Net assets $1,100,647
Shares outstanding 1,100,543
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class R3 shares
- ------------------------------------------------------------------------------------------------------
Net assets $4,909,311
Shares outstanding 4,908,802
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class R4 shares
- ------------------------------------------------------------------------------------------------------
Net assets $1,019,463
Shares outstanding 1,019,432
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class R5 shares
- ------------------------------------------------------------------------------------------------------
Net assets $52,600
Shares outstanding 52,594
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class 529A shares
- ------------------------------------------------------------------------------------------------------
Net assets $2,135,489
Shares outstanding 2,135,263
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class 529B shares
- ------------------------------------------------------------------------------------------------------
Net assets $297,337
Shares outstanding 297,290
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class 529C shares
- ------------------------------------------------------------------------------------------------------
Net assets $688,170
Shares outstanding 688,098
- ------------------------------------------------------------------------------------------------------
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
Year ended 8/31/06
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------
Interest income $18,263,307
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $2,188,398
Distribution and service fees 2,938,180
Program manager fees 6,858
Shareholder servicing costs 863,607
Administrative services fee 61,569
Retirement plan administration and services fees 14,166
Independent trustees' compensation 17,064
Custodian fee 108,240
Shareholder communications 73,396
Auditing fees 31,160
Legal fees 7,458
Miscellaneous 186,594
- ------------------------------------------------------------------------------------------------------
Total expenses $6,496,690
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (33,877)
Reduction of expenses by investment adviser and distributor (1,604,756)
- ------------------------------------------------------------------------------------------------------
Net expenses $4,858,057
- ------------------------------------------------------------------------------------------------------
Net investment income $13,405,250
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions $(811)
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $13,404,439
- ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
YEARS ENDED 8/31
-----------------------------------
2006 2005
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income $13,405,250 $6,156,757
Net realized gain (loss) on investments (811) --
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $13,404,439 $6,156,757
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A $(4,153,465) $(1,959,377)
Class B (7,438,988) (3,531,863)
Class C (1,500,901) (621,592)
Class R1 (22,701) (532)
Class R2 (30,414) (1,029)
Class R3 (102,446) (2,891)
Class R4 (9,619) (466)
Class R5 (2,066) (528)
Class 529A (70,775) (30,067)
Class 529B (9,881) (3,064)
Class 529C (16,893) (5,348)
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(13,358,149) $(6,156,757)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(18,098,331) $(190,979,377)
- -------------------------------------------------------------------------------------------------------
Total change in net assets $(18,052,041) $(190,979,377)
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period 422,751,726 613,731,103
At end of period (including undistributed net investment
income of $47,546 and $445, respectively) $404,699,685 $422,751,726
- -------------------------------------------------------------------------------------------------------
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
life of a particular class, if shorter). 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 share
class (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
--------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.04 $0.02 $0.01 $0.01 $0.01
Net realized and unrealized gain (loss)
on investments (0.00)(w) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.04 $0.02 $0.01 $0.01 $0.01
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.04) $(0.02) $(0.01) $(0.01) $(0.01)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r) 4.19 2.11 0.58 0.69 1.49
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.89 0.90 0.79 0.81 0.91
Expenses after expense reductions (f) 0.49 0.50 0.55 0.71 0.81
Net investment income 4.14 2.10 0.58 0.70 1.44
Net assets at end of period (000 Omitted) $114,481 $91,165 $101,287 $214,275 $242,230
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
-----------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.03 $0.01 $0.00(w) $0.00(w) $0.00(w)
Net realized and unrealized gain
(loss) on investments (0.00)(w) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.03 $0.01 $0.00(w) $0.00(w) $0.00(w)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.03) $(0.01) $(0.00)(w) $(0.00)(w) $(0.00)(w)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(t) 3.16 1.10 0.06 0.06 0.49
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.89 1.89 1.80 1.81 1.91
Expenses after expense reductions (f) 1.49 1.49 1.07 1.35 1.81
Net investment income 3.09 1.03 0.06 0.06 0.50
Net assets at end of period
(000 Omitted) $222,661 $280,361 $429,844 $647,269 $741,638
- ----------------------------------------------------------------------------------------------------------------------------
CLASS C YEARS ENDED 8/31
-----------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.03 $0.01 $0.00(w) $0.00(w) $0.00(w)
Net realized and unrealized gain
(loss) on investments (0.00)(w) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.03 $0.01 $0.00(w) $0.00(w) $0.00(w)
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.03) $(0.01) $(0.00)(w) $(0.00)(w) $(0.00)(w)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(t) 3.15 1.10 0.06 0.06 0.49
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.89 1.89 1.79 1.81 1.91
Expenses after expense reductions (f) 1.49 1.49 1.07 1.36 1.81
Net investment income 3.14 1.03 0.06 0.06 0.50
Net assets at end of period
(000 Omitted) $56,456 $46,483 $80,482 $159,715 $159,254
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.03 $0.01
Net realized and unrealized gain (loss) on investments (0.00)(w) --
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $0.03 $0.01
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.03) $(0.01)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r) 3.04 0.59(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.09 2.24(a)
Expenses after expense reductions (f) 1.59 1.84(a)
Net investment income 3.15 1.52(a)
Net assets at end of period (000 Omitted) $898 $258
- -------------------------------------------------------------------------------------------------------------
CLASS R2 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.03 $0.01
Net realized and unrealized gain (loss) on investments (0.00)(w) --
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $0.03 $0.01
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.03) $(0.01)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r) 3.40 0.72(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.79 1.93(a)
Expenses after expense reductions (f) 1.25 1.53(a)
Net investment income 3.40 1.97(a)
Net assets at end of period (000 Omitted) $1,101 $604
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.04 $0.01
Net realized and unrealized gain (loss) on investments (0.01) --
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $0.03 $0.01
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.03) $(0.01)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r) 3.51 0.78(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.63 1.83(a)
Expenses after expense reductions (f) 1.13 1.43(a)
Net investment income 3.73 2.10(a)
Net assets at end of period (000 Omitted) $4,909 $1,179
- -------------------------------------------------------------------------------------------------------------
CLASS R4 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.04 $0.01
Net realized and unrealized gain (loss) on investments (0.00)(w) --
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $0.04 $0.01
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.04) $(0.01)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r) 3.77 0.93(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.28 1.38(a)
Expenses after expense reductions (f) 0.88 0.98(a)
Net investment income 4.06 2.21(a)
Net assets at end of period (000 Omitted) $1,019 $51
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.04 $0.01
Net realized and unrealized gain (loss) on investments (0.00)(w) --
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $0.04 $0.01
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.04) $(0.01)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r) 4.09 1.06(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.99 1.08(a)
Expenses after expense reductions (f) 0.59 0.68(a)
Net investment income 4.03 2.51(a)
Net assets at end of period (000 Omitted) $53 $51
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529A YEARS ENDED 8/31
------------------------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.04 $0.02 $0.00(w) $0.00(w) $0.00(w)
Net realized and unrealized gain (loss)
on investments (0.00)(w) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.04 $0.02 $0.00(w) $0.00(w) $0.00(w)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.04) $(0.02) $(0.00)(w) $(0.00)(w) $(0.00)(w)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r) 3.93 1.86 0.33 0.45 0.08(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.49 1.50 1.39 1.41 1.26(a)
Expenses after expense reductions (f) 0.74 0.75 0.80 0.96 1.16(a)
Net investment income 3.92 1.93 0.34 0.33 1.04(a)
Net assets at end of period (000 Omitted) $2,135 $1,650 $1,140 $1,164 $30
- -----------------------------------------------------------------------------------------------------------------------------
CLASS 529B YEARS ENDED 8/31
------------------------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.03 $0.01 $0.00(w) $0.00(w) $0.00(w)
Net realized and unrealized gain (loss)
on investments (0.00)(w) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.03 $0.01 $0.00(w) $0.00(w) $0.00(w)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.03) $(0.01) $(0.00)(w) $(0.00)(w) $(0.00)(w)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(t) 2.90 0.87 0.06 0.07 0.02(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.14 2.13 2.03 2.06 2.16(a)
Expenses after expense reductions (f) 1.74 1.73 1.08 1.25 2.06(a)
Net investment income 2.88 0.87 0.07 0.06 0.23(a)
Net assets at end of period (000 Omitted) $297 $340 $339 $253 $5
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C YEARS ENDED 8/31
------------------------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.03 $0.01 $0.00(w) $0.00(w) $0.00(w)
Net realized and unrealized gain (loss)
on investments (0.00)(w) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.03 $0.01 $0.00(w) $0.00(w) $0.00(w)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.03) $(0.01) $(0.00)(w) $(0.00)(w) $(0.00)(w)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(t) 2.90 0.87 0.06 0.07 0.02(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.14 2.13 2.03 2.06 2.16(a)
Expenses after expense reductions (f) 1.74 1.73 1.08 1.22 2.06(a)
Net investment income 2.89 0.85 0.06 0.05 0.23(a)
Net assets at end of period (000 Omitted) $688 $611 $640 $512 $5
- -----------------------------------------------------------------------------------------------------------------------------
(a) Annualized.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(i) 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.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(t) Total returns do not include any applicable sales charges.
(w) Per share amount was less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Cash Reserve Fund (the fund) is a 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 approximates market value. Amortized cost involves valuing an instrument
at its cost as adjusted for amortization of premium or accretion of discount
rather than its current market value. Each money market fund's use of
amortized cost is subject to the fund's compliance with Rule 2a-7 under the
Investment Company Act of 1940. The amortized cost value of an instrument can
be different from the market value of an instrument.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The fund requires that the
securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the fund to obtain those securities
in the event of a default under the repurchase agreement. The fund monitors, on
a daily basis, the value of the collateral to ensure that its value, including
accrued interest, is greater than amounts owed to the fund under each such
repurchase agreement. The fund, along with other affiliated entities of
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is amortized and accreted for financial statement purposes and tax
reporting purposes in accordance with generally accepted accounting principles
and federal tax regulations, respectively.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the year ended August 31, 2006, is shown as a reduction
of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue Code,
and to distribute all of its taxable income, including realized capital gains.
Accordingly, no provision for federal income tax is required in the financial
statements. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Certain capital accounts in the financial statements are periodically adjusted
for permanent differences in order to reflect their tax character. These
adjustments have no impact on net assets or net asset value per share.
Temporary differences which arise from recognizing certain items of income,
expense, gain or loss in different periods for financial statement and tax
purposes will reverse at some time in the future. Distributions in excess of
net investment income or net realized gains are temporary overdistributions
for financial statement purposes resulting from differences in the recognition
or classification of income or distributions for financial statement and tax
purposes.
During the year ended August 31, 2006, there were no significant adjustments
due to differences between book and tax accounting.
The tax character of distributions declared to shareholders is as follows:
8/31/06 8/31/05
Ordinary income (including any short-term
capital gains) $13,358,149 $6,156,757
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/06
Cost of investments $405,450,475
----------------------------------------------------------
Undistributed ordinary income 134,730
Capital loss carryforwards (445)
Post-October capital loss deferral (811)
Other temporary differences (87,184)
As of August 31, 2006, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
8/31/12 $(441)
8/31/13 (4)
----------------------------------------------------------
$(445)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years
as of the effective date. This Interpretation prescribes a minimum threshold
for financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return, and requires certain expanded
disclosures. Management has recently begun to evaluate the application of the
Interpretation to the fund, and has not at this time determined the impact,
if any, resulting from the adoption of this Interpretation on the fund's
financial statements.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on the value
of settled shares outstanding of each class, without distinction between share
classes. Dividends are declared separately for each class. Differences in per
share dividend rates are generally due to differences in separate class
expenses. Class B and Class 529B shares will convert to Class A and Class 529A
shares, respectively, approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with MFS to
provide overall investment management and related administrative services and
facilities to the fund. 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, 2006,
this waiver amounted to $1,591,562 and is reflected as a reduction of total
expenses in the Statement of Operations.
The management fee incurred for the year ended August 31, 2006 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 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 MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.00% $--
Class B 0.75% 0.25% 1.00% 1.00% 2,418,268
Class C 0.75% 0.25% 1.00% 1.00% 479,917
Class R1 0.50% 0.25% 0.75% 0.75% 5,442
Class R2 0.25% 0.25% 0.50% 0.50% 4,484
Class R3 0.25% 0.25% 0.50% 0.50% 13,808
Class R4 -- 0.25% 0.25% 0.25% 596
Class 529A 0.25% 0.25% 0.50% 0.00% 6,336
Class 529B 0.75% 0.25% 1.00% 1.00% 3,451
Class 529C 0.75% 0.25% 1.00% 1.00% 5,878
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $2,938,180
(d) 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.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August
31, 2006 based on each class' average daily net assets. Payment of the 0.25% annual Class A service fee is not yet
in effect and will be implemented 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 in effect and will be implemented 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 written waiver
arrangement through January 1, 2007. Payment of 0.15% of the Class 529A distribution fee is not yet in effect and
will be implemented on such date as the fund's Board of Trustees may determine. For the year ended August 31,
2006, this waiver amounted to $1,810 and is reflected as a reduction of total expenses in the Statement of
Operations. 0.25% of the Class 529A service fee is currently being waived under a written waiver arrangement
through January 1, 2007. For the year ended August 31, 2006, this waiver amounted to $4,526 and is reflected as a
reduction of total expenses in the Statement of Operations.
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. All contingent deferred sales charges are paid to MFD and
during the year ended August 31, 2006, were as follows:
AMOUNT
Class A $150
Class B $784,801
Class C $19,028
Class 529B $597
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% of the average daily net assets attributable to each
529 share class. The fee is based on average daily net assets and is currently
established at 0.25% annually of average daily 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, 2006, were as follows:
AMOUNT
Class 529A $4,526
Class 529B 863
Class 529C 1,469
--------------------------------------------------
Total Program Manager Fees $6,858
SHAREHOLDER SERVICING AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned
subsidiary of MFS, receives a fee from the fund for its services as
shareholder servicing agent calculated as a percentage of the average net
assets of the fund as determined periodically under the supervision of the
fund's Board of Trustees. For the year ended August 31, 2006, the fee was
$389,024, which equated to 0.0978% 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, 2006, these costs amounted to $224,285. The fund may also pay
shareholder servicing related costs to non-related parties.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the fund.
Under an administrative services agreement, the fund partially reimburses MFS
the costs incurred to provide these services. The fund is charged a fixed
amount plus a fee based on calendar year average net assets. From July 1, 2005
through March 31, 2006, the fund's annual fixed amount was $10,000. Effective
April 1, 2006, the fund's annual fixed amount is $17,500.
The administrative services fee incurred for the year ended August 31, 2006
was equivalent to an annual effective rate of 0.0155% 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 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. MFS may subsequently
pay all, or a portion, of the retirement plan administration and services fee
to affiliated or unaffiliated third parties. For the year ended August 31,
2006, the fund paid MFS an annual retirement plan administration and services
fee up to the following annual percentage rates of each class' average daily
net assets:
ANNUAL
EFFECTIVE TOTAL
FEE RATE RATE(g) AMOUNT
Class R1 0.45% 0.35% $3,265
Class R2 0.40% 0.26% 3,587
Class R3 0.25% 0.15% 6,905
Class R4 0.15% 0.15% 358
Class R5 0.10% 0.10% 51
- --------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $14,166
(g) Effective October 1, 2005, MFS has contractually agreed to waive a portion
of the retirement plan administration and services fee equal to 0.10% for
Class R1 shares, 0.15% for Class R2 shares, and 0.10% for Class R3 shares.
This agreement will continue until at least September 30, 2008. For the
year ended August 31, 2006 this waiver amounted to $4,609 and is reflected
as a reduction of total expenses in the Statement of Operations.
TRUSTEES' AND OFFICERS' 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 or officers of the fund who are also
officers of the investment adviser, 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 certain retired Independent Trustees which resulted
in a pension expense of $5,204. This amount is included in Independent
trustees' compensation for the year ended August 31, 2006. The deferred
liability for retirement benefits payable to certain retired Trustees amounted
to $30,528 at August 31, 2006, and is included in payable for independent
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. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the year ended August 31, 2006, the fee paid to Tarantino LLC
was $2,765. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $2,249, 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.
(4) PORTFOLIO SECURITIES
Purchases and sales of money market investments, exclusive of securities
subject to repurchase agreements, aggregated $7,354,182,749 and
$7,432,650,994, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
YEAR ENDED YEAR ENDED
8/31/06 8/31/05(i)
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 117,033,867 $117,033,876 104,034,506 $104,034,506
Class B 172,309,994 172,309,994 176,379,353 176,379,353
Class C 66,947,131 66,947,131 63,564,664 63,564,664
Class R1 1,313,341 1,313,341 258,123 258,123
Class R2 861,517 861,516 602,796 602,796
Class R3 6,796,745 6,796,746 1,396,398 1,396,398
Class R4 1,072,464 1,072,464 50,351 50,351
Class R5 -- -- 50,000 50,000
Class 529A 886,031 886,031 1,245,514 1,245,514
Class 529B 243,462 243,463 34,497 34,497
Class 529C 366,108 366,108 228,402 228,402
- ----------------------------------------------------------------------------------------------------------
367,830,660 $367,830,670 347,844,604 $347,844,604
Shares issued to shareholders in
reinvestment of distributions
Class A 3,783,600 $3,783,600 1,774,925 $1,774,925
Class B 6,929,081 6,929,081 3,276,541 3,276,541
Class C 1,374,977 1,374,977 565,746 565,746
Class R1 22,173 22,174 532 532
Class R2 29,955 29,955 1,030 1,030
Class R3 99,631 99,631 2,853 2,853
Class R4 9,521 9,521 465 465
Class R5 2,066 2,066 528 528
Class 529A 70,755 70,755 29,689 29,689
Class 529B 9,850 9,850 3,062 3,062
Class 529C 16,827 16,827 5,296 5,296
- ----------------------------------------------------------------------------------------------------------
12,348,436 $12,348,437 5,660,667 $5,660,667
Shares reacquired
Class A (97,513,708) $(97,513,708) (115,931,387) $(115,931,387)
Class B (236,966,151) (236,966,174) (329,138,495) (329,138,495)
Class C (58,354,458) (58,354,459) (98,129,128) (98,129,128)
Class R1 (695,487) (695,487) (485) (485)
Class R2 (394,730) (394,730) (25) (25)
Class R3 (3,166,655) (3,166,655) (220,170) (220,170)
Class R4 (113,123) (113,123) (246) (246)
Class 529A (471,603) (471,603) (764,907) (764,907)
Class 529B (296,083) (296,084) (36,419) (36,419)
Class 529C (305,414) (305,415) (263,386) (263,386)
- ----------------------------------------------------------------------------------------------------------
(398,277,412) $(398,277,438) (544,484,648) $(544,484,648)
Net change
Class A 23,303,759 $23,303,768 (10,121,956) $(10,121,956)
Class B (57,727,076) (57,727,099) (149,482,601) (149,482,601)
Class C 9,967,650 9,967,649 (33,998,718) (33,998,718)
Class R1 640,027 640,028 258,170 258,170
Class R2 496,742 496,741 603,801 603,801
Class R3 3,729,721 3,729,722 1,179,081 1,179,081
Class R4 968,862 968,862 50,570 50,570
Class R5 2,066 2,066 50,528 50,528
Class 529A 485,183 485,183 510,296 510,296
Class 529B (42,771) (42,771) 1,140 1,140
Class 529C 77,521 77,520 (29,688) (29,688)
- ----------------------------------------------------------------------------------------------------------
(18,098,316) $(18,098,331) (190,979,377) $(190,979,377)
(i) For the period from the class' inception, April 1, 2005 (Classes R1, R2, R3, R4, and R5), through the
stated period end.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other affiliated funds have established
uncommitted borrowing arrangements with certain banks. Borrowings may be made
for temporary financing needs. Interest is charged to each fund, based on its
borrowings, generally 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 committed line of credit, is allocated among the participating
funds at the end of each calendar quarter. For the year ended August 31, 2006,
the fund's commitment fee and interest expense were $1,750 and $0,
respectively, and are included in miscellaneous expense on the Statement
of Operations.
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 MFS Cash Reserve Fund (one of the portfolios
comprising MFS Series Trust I) (the "Trust") as of August 31, 2006, 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 Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with 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 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 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, 2006, by correspondence with the custodian.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Cash Reserve
Fund as of August 31, 2006, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 20, 2006
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2006, 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(h) OTHER DIRECTORSHIPS(j)
- ------------------- ---------------- --------------- ----------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); 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 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (November 2000 until June
2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians' Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) 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 9/27/41) 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)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (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 8/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (2000 until 2005);
Hillview Investment Trust II Funds
(mutual fund complex), Trustee
(2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004); Fidelity
Management & Research Company,
Vice President (prior to March
2004); Fidelity Group of Funds,
President and Treasurer (prior to
March 2004)
Tracy Atkinson(k) 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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
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(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior to May
2005)
Ellen Moynihan(k) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance Officer compliance services), Principal
(since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (prior to
March 2003)
James O. Yost(k) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) Company, Senior Vice President
- ------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(k) "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.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant
retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters. The
terms of that settlement required that compensation and expenses related to the independent compliance
consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services he rendered to
the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of $351,119.29.
The Trust held a shareholders' meeting in 2005 to elect Trustees, and will hold a shareholders' meeting at
least once every five years thereafter, to elect Trustees.
Each Trustee (except Mr. Butler and Mr. Uek) 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. Butler, Sherratt and Uek and Ms. 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 January 1, 2006, the Trustees served as board members of 98 funds within the MFS
Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
MFS Fund Distributors, Inc. Deloitte & Touche LLP
500 Boylston Street, Boston, MA 02116-3741 200 Berkeley Street, Boston, MA 02116
PORTFOLIO MANAGERS
Edward L. O'Dette
Terri A. Vittozzi
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, 2006 ("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, 2005 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 ("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 MFS peer funds, (iii) information provided
by MFS on the advisory fees of comparable portfolios of other clients of MFS,
including institutional separate accounts 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, 2005, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 2nd quintile relative to the other funds in the
universe for this three-year period (the 1st quintile being the best
performers and the 5th quintile being the worst performers). The total return
performance of the Fund's Class A shares was in the 1st quintile for the one-
year period and the 2nd quintile for the five-year period ended December 31,
2005 relative to the Lipper performance universe. Because of the passage of
time, these performance results may 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
that MFS observes an advisory fee reduction that will remain in effect for the
Fund through February 28, 2009 as part of MFS' settlement with the New York
Attorney General concerning market timing and related matters. The Trustees
also considered that, according to the Lipper data, the Fund's effective
advisory fee rate (taking into account the advisory fee reduction) 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. Taking into account the advisory fee
reduction noted above, 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 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, which may include 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, if applicable, to pay for investment research
(excluding third-party research, for which MFS pays directly), 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, 2006.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement will be available on or before
November 1, 2006 by clicking on the fund's name under "Select a fund" on the
MFS Web site (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
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The fund's Form N-Q is
available on the EDGAR database on the Commission's Internet Web site 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)
The fund will notify shareholders of amounts for use in preparing 2006 income
tax forms in January 2007.
MFS(R) PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about the investment products and services that we
offer, and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal
information. We maintain information and records about you, your investments,
and the services you use. Examples of the nonpublic personal information we
maintain include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or
others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. We may share nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with
which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you.
We maintain physical, electronic, and procedural safeguards to help protect
the personal information we collect about you.
If you have any questions about the MFS privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS send prospectuses, reports,
and proxies directly to your e-mail inbox. You'll get timely information and
less clutter in your mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply go to mfs.com, log in to
your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
KEEPING YOU INFORMED
MFS wants to ensure that you are consistently updated about your investments
with us. This shareholder report will not only show how your investment
performed during the time period, but will also provide you with informative
commentary from the portfolio management team. They will offer an overview of
market conditions and will also discuss the specific factors that may have
enhanced or detracted from your investment's performance.
MFS(R) CORE GROWTH FUND
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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STATEMENT OF ASSETS AND LIABILITIES 16
- ------------------------------------------------------------------
STATEMENT OF OPERATIONS 19
- ------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 20
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FINANCIAL HIGHLIGHTS 21
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NOTES TO FINANCIAL STATEMENTS 28
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 38
- ------------------------------------------------------------------
TRUSTEES AND OFFICERS 39
- ------------------------------------------------------------------
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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MFS(R) PRIVACY NOTICE 50
- ------------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------------
Fund objective: Seeks to provide capital appreciation.
THE REPORT IS PREPARED FOR THE GENERAL INFORMATION OF SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
- ------------------------------------------------------------------------------
NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
- ------------------------------------------------------------------------------
8/31/06
CGF-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The story is as old as the tortoise and the hare, but we believe it is still
relevant today -- "slow and steady" is the way to go when it comes to investing.
While financial markets will naturally ebb and flow over time, investors who
remain committed to a long-term investment strategy are more likely to achieve
their goals than those who consistently chase short-term performance.
The first half of 2006 brought a high degree of fluctuation in markets
around the globe as varying economic factors pulled markets in opposite
directions. The global economy, for example, continued to grow at its fastest
pace in three decades -- spurred by increased international trade, good job
growth, and wage increases. At the same time, central banks around the world
raised interest rates in sync in a collaborative attempt to curb inflation.
While this was a positive development in some regions, in other cases, economic
and market gains were tempered.
What does all of this mean to you as an investor? If you're focused on the
long term, these global developments become part of a longer cycle instead of
one-time events that can have a significant impact on your portfolio.
At MFS(R), our investment management process -- honed over 80 years --
combines a unique teamwork approach with an unwavering focus on helping you
realize your long-term financial goals. We believe in a three-pronged investment
strategy:
o ALLOCATE holdings across the major asset classes -- including stocks,
bonds, and cash.
o DIVERSIFY within each class to take advantage of different market segments
and investing styles.
o REBALANCE assets regularly to maintain a desired asset allocation.
Of course, these strategies cannot guarantee a profit or protect against a
loss. Investing and planning for the long term requires diligence and patience,
two traits that in our experience are essential to capitalizing on the many
opportunities the financial markets can offer -- through both up and down
economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 13, 2006
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Common Stocks 94.1%
Cash & Other Net Assets 5.9%
TOP TEN HOLDINGS
Cisco Systems, Inc. 2.9%
------------------------------------------------
First Data Corp. 2.6%
------------------------------------------------
Procter & Gamble Co. 2.4%
------------------------------------------------
Allergan, Inc. 2.4%
------------------------------------------------
Adobe Systems, Inc. 2.2%
------------------------------------------------
General Electric Co. 2.1%
------------------------------------------------
United Technologies Corp. 2.0%
------------------------------------------------
Hewlett-Packard Co. 2.0%
------------------------------------------------
Amdocs Ltd. 2.0%
------------------------------------------------
Amgen, Inc. 2.0%
------------------------------------------------
EQUITY SECTORS
Technology 23.1%
------------------------------------------------
Health Care 22.5%
------------------------------------------------
Industrial Goods & Services 8.6%
------------------------------------------------
Financial Services 7.8%
------------------------------------------------
Consumer Staples 6.9%
------------------------------------------------
Leisure 6.3%
------------------------------------------------
Retailing 5.3%
------------------------------------------------
Special Products & Services 5.2%
------------------------------------------------
Energy 3.7%
------------------------------------------------
Basic Materials 2.1%
------------------------------------------------
Transportation 1.3%
------------------------------------------------
Utilities & Communications 1.3%
------------------------------------------------
Percentages are based on net assets as of 8/31/06.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2006, Class A shares of the MFS Core
Growth Fund provided a total return of 5.23%, at net asset value. This compares
with a return of 3.68% for the fund's benchmark, the Russell 1000 Growth Index.
CONTRIBUTORS TO PERFORMANCE
The technology, health care, and leisure sectors were the top contributors to
performance relative to the benchmark during the reporting period. Stock
selection played the major role in each case. In the technology sector, flash
memory storage products maker SanDisk and wireless communications software
company QUALCOMM led the way. SanDisk has been able to drive costs down faster
than price declines and, we believe, the company's acquisition of M-Systems
could secure royalties in the next generation flash cards.
Within the health care sector, our holdings in pharmaceutical company Roche
Holding (not a benchmark constituent) and biotech firm Gilead Sciences*
benefited relative returns. Strong sales of Truvada (HIV treatment) and Hepsera
(antiviral medicine), and royalty income from flu medication Tamiflu, boosted
Gilead's performance during the reporting period.
Casino operator Las Vegas Sands was the standout performer in the leisure
sector. The firm increased earnings and revenues in the first quarter of 2006,
due in part to growth in its Sands Macau operations.
Individual stocks in other sectors that contributed to relative results included
oil and gas field equipment supplier Weatherford International*, Latin American
wireless communications company America Movil, investment management and banking
firm UBS, and telecommunications software provider Amdocs, none of which are
benchmark constituents. Elsewhere, our holdings in agrichemical products company
Monsanto also aided relative results.
DETRACTORS FROM PERFORMANCE
Security selection in the retailing sector held back relative performance,
although no individual holdings within the sector were among the fund's top
detractors for the period.
In the industrial goods and services sector, our underweighted position hurt
relative returns. Again, no individual stocks in this sector were among the
fund's top detractors.
Although the technology and healthcare sectors were top contributors to
performance, several individual securities in these sectors did detract from
relative results. Technology stocks that hurt relative returns included chip
maker Marvell Technology Group (not a benchmark constituent), network security
software company Symantec*, network equipment manufacturer Juniper Networks*,
and supplier of integrated circuits Xilinx*. Individual healthcare securities
that detracted from performance included cardiovascular medical devices company
St. Jude Medical, orthopedic products designer Zimmer Holdings, and implantable
biomedical devices maker Medtronic.
Securities in other sectors that held back relative returns included high-end
stereo and audio equipment manufacturer Harman International*, tobacco firm
Altria Group, and electric utility company TXU*.
Respectfully,
Stephen Pesek
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 portfolio. References to specific securities
are not recommendations of such securities, and may not be representative of any
MFS portfolio's current or future investments.
PERFORMANCE SUMMARY THROUGH 8/31/06
The following chart illustrates the historical performance of the fund's Class A
shares 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. The performance of other share classes will be greater than or
less than that of the class depicted below. Benchmark comparisons are unmanaged;
do not reflect sales charges, commissions or expenses; and cannot be invested in
directly. (See Notes to Performance Summary.)
PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR SHARES, WHEN
SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT PERFORMANCE MAY
BE LOWER OR HIGHER THAN QUOTED. FOR MOST RECENT MONTH-END PERFORMANCE, PLEASE
VISIT MFS.COM. (FOR THE MOST RECENT MONTH-END PERFORMANCE FOR CLASS I SHARES
CALL 1-800-343-2829.) THE PERFORMANCE SHOWN DOES NOT REFLECT THE DEDUCTION OF
TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE
REDEMPTION OF FUND SHARES.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
MFS Core
Growth Fund Russell 1000
-Class A Growth Index
8/96 $ 9,425 $10,000
8/97 13,687 13,937
8/98 14,884 15,087
8/99 22,971 22,379
8/00 34,774 29,867
8/01 22,058 16,330
8/02 17,265 12,700
8/03 18,819 14,499
8/04 19,211 15,275
8/05 21,967 17,130
8/06 23,116 17,759
TOTAL RETURNS THROUGH 8/31/06
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
- -----------------------------------------------------------------------------
A 1/02/96 5.23% 0.94% 9.39%
- -----------------------------------------------------------------------------
B 12/31/99 4.56% 0.31% 8.93%
- -----------------------------------------------------------------------------
C 12/31/99 4.62% 0.30% 8.93%
- -----------------------------------------------------------------------------
I 1/02/97 5.65% 1.31% 9.66%
- -----------------------------------------------------------------------------
W 5/01/06 5.35% 0.96% 9.40%
- -----------------------------------------------------------------------------
R 12/31/02 5.07% 0.85% 9.34%
- -----------------------------------------------------------------------------
R1 4/01/05 4.44% 0.71% 9.26%
- -----------------------------------------------------------------------------
R2 4/01/05 4.80% 0.81% 9.32%
- -----------------------------------------------------------------------------
R3 10/31/03 4.91% 0.74% 9.27%
- -----------------------------------------------------------------------------
R4 4/01/05 5.23% 0.93% 9.38%
- -----------------------------------------------------------------------------
R5 4/01/05 5.53% 1.01% 9.42%
AVERAGE ANNUAL
Comparative benchmark
- -----------------------------------------------------------------------------
Russell 1000 Growth Index (f) 3.68% 1.69% 5.91%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -----------------------------------------------------------------------------
A -0.82% -0.25% 8.74%
With Initial Sales Charge (5.75%)
- -----------------------------------------------------------------------------
B 0.56% -0.09% 8.93%
With CDSC (Declining over six years
from 4% to 0%) (x)
- -----------------------------------------------------------------------------
C 3.62% 0.30% 8.93%
With CDSC (1% for 12 months) (x)
- -----------------------------------------------------------------------------
Class I, W, R, R1, R2, R3, R4, and R5 shares do not have a sales charge. Please
see Notes to Performance Summary for more details.
CDSC - Contingent Deferred Sales Charge.
(f) Source: FactSet Research Systems Inc.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
Russell 1000 Growth Index - 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 R shares are available only to existing Class R shareholders. 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 W shares
are intended for purchase only through fee-based wrap programs sponsored by
financial intermediaries, such as brokerage firms and investment advisers, that
have entered into an agreement with the fund's distributor to offer Class W
shares to their wrap program clients. The use of Class W shares by a financial
intermediary sponsor of a fee-based program will depend on, among other things,
the structure of the particular fee-based wrap program. Class W shares may be
purchased at net asset value without an initial sales charge or CDSC upon
redemption.
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, 2006 through August 31, 2006.
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, 2006 through August 31, 2006.
ACTUAL EXPENSES
The first line for each share class in the following table 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 following table 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(p)
Share Expense Account Value Account Value 3/01/06-
Class Ratio 3/01/06 8/31/06 8/31/06
- --------------------------------------------------------------------------------
Actual 1.31% $1,000.00 $981.70 $6.54
A ------------------------------------------------------------------------
Hypothetical (h) 1.31% $1,000.00 $1,018.60 $6.67
- --------------------------------------------------------------------------------
Actual 1.97% $1,000.00 $978.70 $9.83
B -------------------------------------------------------------------------
Hypothetical (h) 1.97% $1,000.00 $1,015.27 $10.01
- --------------------------------------------------------------------------------
Actual 1.97% $1,000.00 $978.70 $9.83
C ------------------------------------------------------------------------
Hypothetical (h) 1.97% $1,000.00 $1,015.27 $10.01
- --------------------------------------------------------------------------------
Actual 0.95% $1,000.00 $983.20 $4.75
I ------------------------------------------------------------------------
Hypothetical (h) 0.95% $1,000.00 $1,020.42 $4.84
- --------------------------------------------------------------------------------
Actual 1.09% $1,000.00 $965.70 (i) $3.61 (i)
W ------------------------------------------------------------------------
Hypothetical (h) 1.09% $1,000.00 $1,013.18 (i) $3.70 (i)
- --------------------------------------------------------------------------------
Actual 1.46% $1,000.00 $981.10 $7.29
R ------------------------------------------------------------------------
Hypothetical (h) 1.46% $1,000.00 $1,017.85 $7.43
- --------------------------------------------------------------------------------
Actual 2.06% $1,000.00 $978.10 $10.27
R1 ------------------------------------------------------------------------
Hypothetical (h) 2.06% $1,000.00 $1,014.82 $10.46
- --------------------------------------------------------------------------------
Actual 1.70% $1,000.00 $979.90 $8.48
R2 ------------------------------------------------------------------------
Hypothetical (h) 1.70% $1,000.00 $1,016.64 $8.64
- --------------------------------------------------------------------------------
Actual 1.62% $1,000.00 $980.40 $8.09
R3 ------------------------------------------------------------------------
Hypothetical (h) 1.62% $1,000.00 $1,017.04 $8.24
- --------------------------------------------------------------------------------
Actual 1.36% $1,000.00 $981.70 $6.79
R4 ------------------------------------------------------------------------
Hypothetical (h) 1.36% $1,000.00 $1,018.35 $6.92
- --------------------------------------------------------------------------------
Actual 1.06% $1,000.00 $982.80 $5.30
R5 ------------------------------------------------------------------------
Hypothetical (h) 1.06% $1,000.00 $1,019.86 $5.40
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(i) For the period from the class' inception, May 1, 2006 through the stated
period end.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
8/31/06
The Portfolio of Investments is a complete list of all securities owned by your
fund. It is categorized by broad-based asset classes.
Common Stocks - 94.1%
- ----------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ----------------------------------------------------------------------------------------------------
Aerospace - 2.0%
- ----------------------------------------------------------------------------------------------------
United Technologies Corp. 246,600 $ 15,464,286
- ----------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.8%
- ----------------------------------------------------------------------------------------------------
NIKE, Inc., "B" 77,200 $ 6,234,672
- ----------------------------------------------------------------------------------------------------
Biotechnology - 5.4%
- ----------------------------------------------------------------------------------------------------
Amgen, Inc. (n) 222,140 $ 15,089,970
Celgene Corp. (l)(n) 232,100 9,444,149
Genentech, Inc. (n) 71,400 5,891,928
Genzyme Corp. (n) 171,530 11,360,432
------------
$ 41,786,479
- ----------------------------------------------------------------------------------------------------
Broadcasting - 1.3%
- ----------------------------------------------------------------------------------------------------
News Corp., "A" 544,900 $ 10,369,447
- ----------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.8%
- ----------------------------------------------------------------------------------------------------
Charles Schwab Corp. 358,500 $ 5,847,135
Chicago Mercantile Exchange Holdings, Inc. 8,800 3,872,000
E*TRADE Financial Corp. (n) 116,000 2,736,440
Mellon Financial Corp. 110,900 4,128,807
Morgan Stanley 75,800 4,986,882
------------
$ 21,571,264
- ----------------------------------------------------------------------------------------------------
Business Services - 4.8%
- ----------------------------------------------------------------------------------------------------
Amdocs Ltd. (n) 398,300 $ 15,115,485
CheckFree Corp. (n) 44,000 1,575,200
First Data Corp. 470,600 20,221,682
------------
$ 36,912,367
- ----------------------------------------------------------------------------------------------------
Chemicals - 1.8%
- ----------------------------------------------------------------------------------------------------
Ecolab, Inc. 49,500 $ 2,206,710
Monsanto Co. 245,900 11,665,496
------------
$ 13,872,206
- ----------------------------------------------------------------------------------------------------
Computer Software - 5.9%
- ----------------------------------------------------------------------------------------------------
Adobe Systems, Inc. (n) 530,300 $ 17,202,932
Akamai Technologies, Inc. (l)(n) 62,000 2,430,400
Microsoft Corp. 558,800 14,355,572
Oracle Corp. (n) 736,600 11,527,790
------------
$ 45,516,694
- ----------------------------------------------------------------------------------------------------
Computer Software - Systems - 3.8%
- ----------------------------------------------------------------------------------------------------
Apple Computer, Inc. (n) 215,100 $ 14,594,535
Hewlett-Packard Co. 413,800 15,128,528
------------
$ 29,723,063
- ----------------------------------------------------------------------------------------------------
Conglomerates - 0.1%
- ----------------------------------------------------------------------------------------------------
Textron, Inc. 12,800 $ 1,073,408
- ----------------------------------------------------------------------------------------------------
Consumer Goods & Services - 3.4%
- ----------------------------------------------------------------------------------------------------
Colgate-Palmolive Co. 89,400 $ 5,351,484
eBay, Inc. (n) 62,600 1,744,036
Procter & Gamble Co. 306,000 18,941,400
------------
$ 26,036,920
- ----------------------------------------------------------------------------------------------------
Electrical Equipment - 4.8%
- ----------------------------------------------------------------------------------------------------
Danaher Corp. 151,100 $ 10,016,419
General Electric Co. 477,400 16,260,244
Rockwell Automation, Inc. 93,200 5,254,616
W.W. Grainger, Inc. 82,400 5,504,320
------------
$ 37,035,599
- ----------------------------------------------------------------------------------------------------
Electronics - 4.7%
- ----------------------------------------------------------------------------------------------------
Altera Corp. (n) 104,800 $ 2,120,104
Intel Corp. 583,600 11,403,544
Marvell Technology Group Ltd. (n) 204,300 3,577,293
Samsung Electronics Co. Ltd. 6,330 4,280,141
SanDisk Corp. (n) 195,200 11,501,184
Texas Instruments, Inc. 101,300 3,301,367
------------
$ 36,183,633
- ----------------------------------------------------------------------------------------------------
Energy - Independent - 1.7%
- ----------------------------------------------------------------------------------------------------
CONSOL Energy, Inc. 102,000 $ 3,719,940
Devon Energy Corp. 30,600 1,912,194
EOG Resources, Inc. 22,700 1,471,414
XTO Energy, Inc. 130,100 5,954,677
------------
$ 13,058,225
- ----------------------------------------------------------------------------------------------------
Energy - Integrated - 0.8%
- ----------------------------------------------------------------------------------------------------
Exxon Mobil Corp. 87,200 $ 5,900,824
- ----------------------------------------------------------------------------------------------------
Food & Beverages - 3.0%
- ----------------------------------------------------------------------------------------------------
Dean Foods Co. (n) 50,300 $ 1,992,886
Nestle S.A 28,447 9,786,388
PepsiCo, Inc. 172,820 11,281,690
------------
$ 23,060,964
- ----------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.5%
- ----------------------------------------------------------------------------------------------------
CVS Corp. 350,300 $ 11,752,565
- ----------------------------------------------------------------------------------------------------
Gaming & Lodging - 2.6%
- ----------------------------------------------------------------------------------------------------
International Game Technology 220,000 $ 8,509,600
Las Vegas Sands Corp. (n) 137,600 9,605,856
Royal Caribbean Cruises Ltd. 57,200 2,086,656
------------
$ 20,202,112
- ----------------------------------------------------------------------------------------------------
General Merchandise - 1.3%
- ----------------------------------------------------------------------------------------------------
Kohl's Corp. (n) 92,560 $ 5,785,926
Target Corp. 80,260 3,883,781
------------
$ 9,669,707
- ----------------------------------------------------------------------------------------------------
Health Maintenance Organizations - 0.5%
- ----------------------------------------------------------------------------------------------------
WellPoint, Inc. (n) 49,300 $ 3,816,313
- ----------------------------------------------------------------------------------------------------
Insurance - 0.4%
- ----------------------------------------------------------------------------------------------------
AFLAC, Inc. 34,100 $ 1,536,887
Genworth Financial, Inc., "A" 55,800 1,921,194
------------
$ 3,458,081
- ----------------------------------------------------------------------------------------------------
Internet - 2.8%
- ----------------------------------------------------------------------------------------------------
Google, Inc., "A" (n) 32,845 $ 12,432,818
Yahoo!, Inc. (n) 320,000 9,222,400
------------
$ 21,655,218
- ----------------------------------------------------------------------------------------------------
Leisure & Toys - 1.6%
- ----------------------------------------------------------------------------------------------------
Electronic Arts, Inc. (n) 248,730 $ 12,677,768
- ----------------------------------------------------------------------------------------------------
Machinery & Tools - 1.8%
- ----------------------------------------------------------------------------------------------------
Deere & Co. 104,600 $ 8,169,260
Precision Castparts Corp. 95,600 5,586,864
------------
$ 13,756,124
- ----------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 2.7%
- ----------------------------------------------------------------------------------------------------
Caremark Rx, Inc. 53,600 $ 3,105,584
DaVita, Inc. (n) 68,800 4,015,168
Henry Schein, Inc. (n) 63,300 3,156,771
IMS Health, Inc. 160,100 4,369,129
McKesson Corp. 114,400 5,811,520
------------
$ 20,458,172
- ----------------------------------------------------------------------------------------------------
Medical Equipment - 6.9%
- ----------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc. (l)(n) 205,600 $ 9,899,640
Baxter International, Inc. 174,200 7,730,996
DENTSPLY International, Inc. 91,400 2,977,812
Fisher Scientific International, Inc. (n) 123,900 9,692,697
Medtronic, Inc. 202,660 9,504,754
St. Jude Medical, Inc. (n) 50,800 1,849,628
Stryker Corp. 174,800 8,395,644
Zimmer Holdings, Inc. (n) 43,500 2,958,000
------------
$ 53,009,171
- ----------------------------------------------------------------------------------------------------
Network & Telecom - 4.2%
- ----------------------------------------------------------------------------------------------------
Cisco Systems, Inc. (n) 1,034,700 $ 22,753,053
Corning, Inc. (n) 222,820 4,955,517
QUALCOMM, Inc. 131,760 4,963,399
------------
$ 32,671,969
- ----------------------------------------------------------------------------------------------------
Oil Services - 1.2%
- ----------------------------------------------------------------------------------------------------
Schlumberger Ltd. 145,500 $ 8,919,150
- ----------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 4.6%
- ----------------------------------------------------------------------------------------------------
American Express Co. 110,480 $ 5,804,619
Countrywide Financial Corp. 43,200 1,460,160
JPMorgan Chase & Co. 140,100 6,396,966
Moody's Corp. 70,700 4,325,426
SLM Corp. 122,800 5,959,484
State Street Corp. 67,500 4,171,500
UBS AG 134,817 7,632,288
------------
$ 35,750,443
- ----------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.7%
- ----------------------------------------------------------------------------------------------------
EMC Corp. (n) 658,150 $ 7,667,448
Network Appliance, Inc. (n) 152,600 5,225,024
------------
$ 12,892,472
- ----------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.0%
- ----------------------------------------------------------------------------------------------------
Allergan, Inc. 162,100 $ 18,570,176
Eli Lilly & Co. 105,460 5,898,378
Johnson & Johnson 222,720 14,401,075
Roche Holding AG 80,500 14,846,338
------------
$ 53,715,967
- ----------------------------------------------------------------------------------------------------
Printing & Publishing - 0.6%
- ----------------------------------------------------------------------------------------------------
McGraw-Hill Cos., Inc. 78,600 $ 4,394,526
- ----------------------------------------------------------------------------------------------------
Railroad & Shipping - 1.1%
- ----------------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 131,500 $ 8,803,925
- ----------------------------------------------------------------------------------------------------
Restaurants - 0.2%
- ----------------------------------------------------------------------------------------------------
YUM! Brands, Inc. 37,800 $ 1,847,664
- ----------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.3%
- ----------------------------------------------------------------------------------------------------
Praxair, Inc. 33,800 $ 1,940,458
- ----------------------------------------------------------------------------------------------------
Specialty Stores - 1.7%
- ----------------------------------------------------------------------------------------------------
Best Buy Co., Inc. 40,800 $ 1,917,600
Lowe's Cos., Inc. 70,600 1,910,436
Staples, Inc. 423,800 9,560,928
------------
$ 13,388,964
- ----------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.3%
- ----------------------------------------------------------------------------------------------------
America Movil S.A. de C.V., "L", ADR 270,200 $ 10,081,162
- ----------------------------------------------------------------------------------------------------
Tobacco - 0.8%
- ----------------------------------------------------------------------------------------------------
Altria Group, Inc. 72,200 $ 6,030,866
- ----------------------------------------------------------------------------------------------------
Trucking - 0.2%
- ----------------------------------------------------------------------------------------------------
FedEx Corp. 17,360 $ 1,753,881
- ----------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $718,630,986) $726,446,729
- ----------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 1.7%
- ----------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 12,681,618 $ 12,681,618
- ----------------------------------------------------------------------------------------------------
Repurchase Agreements - 5.6%
- ----------------------------------------------------------------------------------------------------
Merrill Lynch & Co., 5.28%, dated 8/31/06, due 9/01/06, total
to be received $43,545,386 (secured by various U.S. Treasury
and Federal Agency obligations and Mortgage Backed Securities
in a jointly traded account), at Cost $43,539,000 $ 43,539,000
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $774,851,604) $782,667,347
- ----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (1.4)% (10,435,977)
- ----------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $772,231,370
- ----------------------------------------------------------------------------------------------------
(l) All or a portion of this security is on loan.
(n) Non-income producing security.
The following abbreviations are used in this report and are defined:
ADR American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/06
This statement represents your fund's balance sheet, which details the assets
and liabilities comprising the total value of the fund.
ASSETS
- -----------------------------------------------------------------------------------------------------
Investments, at value, including $12,403,933 of securities
on loan (identified cost, $774,851,604) $782,667,347
Cash 356
Receivable for investments sold 13,221,460
Receivable for fund shares sold 210,443
Interest and dividends receivable 553,599
Other assets 4,787
- -----------------------------------------------------------------------------------------------------
Total assets $796,657,992
- -----------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------
Payable for investments purchased $9,007,169
Payable for fund shares reacquired 2,180,211
Collateral for securities loaned, at value 12,681,618
Payable to affiliates
Management fee 27,533
Shareholder servicing costs 101,633
Distribution and service fees 22,143
Administrative services fee 789
Retirement plan administration and services fees 62
Payable for independent trustees' compensation 45,134
Accrued expenses and other liabilities 360,330
- -----------------------------------------------------------------------------------------------------
Total liabilities $24,426,622
- -----------------------------------------------------------------------------------------------------
Net assets $772,231,370
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------
Paid-in capital $820,409,071
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 7,817,015
Accumulated net realized gain (loss) on investments and
foreign currency transactions (55,949,152)
Accumulated net investment loss (45,564)
- -----------------------------------------------------------------------------------------------------
Net assets $772,231,370
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 44,120,603
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- -----------------------------------------------------------------------------------------------------
Net assets $504,760,868
Shares outstanding 28,516,490
- -----------------------------------------------------------------------------------------------------
Net asset value per share $17.70
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value
per share) $18.78
- -----------------------------------------------------------------------------------------------------
Class B shares
- -----------------------------------------------------------------------------------------------------
Net assets $162,868,467
Shares outstanding 9,593,319
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.98
- -----------------------------------------------------------------------------------------------------
Class C shares
- -----------------------------------------------------------------------------------------------------
Net assets $58,522,521
Shares outstanding 3,447,133
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.98
- -----------------------------------------------------------------------------------------------------
Class I shares
- -----------------------------------------------------------------------------------------------------
Net assets $34,998,056
Shares outstanding 1,928,048
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $18.15
- -----------------------------------------------------------------------------------------------------
Class W shares
- -----------------------------------------------------------------------------------------------------
Net assets $96,550
Shares outstanding 5,450
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $17.72
- -----------------------------------------------------------------------------------------------------
Class R shares
- -----------------------------------------------------------------------------------------------------
Net assets $5,735,473
Shares outstanding 325,482
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $17.62
- -----------------------------------------------------------------------------------------------------
Class R1 shares
- -----------------------------------------------------------------------------------------------------
Net assets $505,795
Shares outstanding 29,836
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $16.95
- -----------------------------------------------------------------------------------------------------
Class R2 shares
- -----------------------------------------------------------------------------------------------------
Net assets $2,597,703
Shares outstanding 152,566
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $17.03
- -----------------------------------------------------------------------------------------------------
Class R3 shares
- -----------------------------------------------------------------------------------------------------
Net assets $1,803,964
Shares outstanding 102,960
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $17.52
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R4 shares
- -----------------------------------------------------------------------------------------------------
Net assets $285,941
Shares outstanding 16,165
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $17.69
- -----------------------------------------------------------------------------------------------------
Class R5 shares
- -----------------------------------------------------------------------------------------------------
Net assets $56,032
Shares outstanding 3,154
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $17.76
- -----------------------------------------------------------------------------------------------------
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
Year ended 8/31/06
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT LOSS
- -----------------------------------------------------------------------------------------------------
Income
Dividends $7,622,451
Interest 1,381,556
Foreign taxes withheld (116,766)
- -----------------------------------------------------------------------------------------------------
Total investment income $8,887,241
- -----------------------------------------------------------------------------------------------------
Expenses
Management fee $6,532,327
Distribution and service fees 4,736,046
Shareholder servicing costs 2,252,996
Administrative services fee 121,899
Retirement plan administration and services fees 7,640
Independent trustees' compensation 21,525
Custodian fee 191,267
Shareholder communications 155,541
Auditing fees 40,772
Legal fees 14,144
Miscellaneous 173,109
- -----------------------------------------------------------------------------------------------------
Total expenses $14,247,266
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (118,371)
Reduction of expenses by investment adviser (876,426)
- -----------------------------------------------------------------------------------------------------
Net expenses $13,252,469
- -----------------------------------------------------------------------------------------------------
Net investment loss $(4,365,228)
- -----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $93,384,859
Foreign currency transactions (773)
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $93,384,086
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(42,353,164)
Translation of assets and liabilities in foreign currencies 13,580
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(42,339,584)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $51,044,502
- -----------------------------------------------------------------------------------------------------
Change in net assets from operations $46,679,274
- -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting
from operations, any distributions, and any shareholder transactions.
YEARS ENDED 8/31
---------------------------------
2006 2005
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment loss $(4,365,228) $(2,104,858)
Net realized gain (loss) on investments and foreign
currency transactions 93,384,086 152,520,859
Net unrealized gain (loss) on investments and foreign
currency translation (42,339,584) (56,264,736)
- -----------------------------------------------------------------------------------------------
Change in net assets from operations $46,679,274 $94,151,265
- -----------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(201,470,391) $191,397,865
- -----------------------------------------------------------------------------------------------
Redemption fees $-- $3,489
- -----------------------------------------------------------------------------------------------
Total change in net assets $(154,791,117) $285,552,619
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
At beginning of period 927,022,487 641,469,868
At end of period (including accumulated net investment
loss of $45,564 and $43,711, respectively) $772,231,370 $927,022,487
- -----------------------------------------------------------------------------------------------
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 life of a particular share
class, if shorter). 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 share
class (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
--------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $16.82 $14.71 $14.41 $13.22 $16.89
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.05) $(0.01) $(0.07) $(0.07) $(0.12)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.93 2.12 0.37 1.26 (3.55)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.88 $2.11 $0.30 $1.19 $(3.67)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.70 $16.82 $14.71 $14.41 $13.22
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 5.23 14.34 2.08(b) 9.00 (21.73)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.44 1.38 1.41 1.42 1.43
Expenses after expense reductions (f) 1.34 1.28 1.36 N/A 1.47(e)
Net investment loss (0.31) (0.08) (0.47) (0.52) (0.76)
Portfolio turnover 245 184 261 312 257
Net assets at end of period (000 Omitted) $504,761 $632,209 $404,511 $496,271 $417,986
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
----------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $16.24 $14.30 $14.09 $13.01 $16.72
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.16) $(0.11) $(0.16) $(0.15) $(0.22)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.90 2.05 0.37 1.23 (3.49)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.74 $1.94 $0.21 $1.08 $(3.71)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.98 $16.24 $14.30 $14.09 $13.01
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 4.56 13.57 1.49(b) 8.22 (22.13)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.09 2.03 2.05 2.07 2.08
Expenses after expense reductions (f) 1.99 1.93 2.00 N/A 2.12(e)
Net investment loss (0.96) (0.73) (1.11) (1.18) (1.41)
Portfolio turnover 245 184 261 312 257
Net assets at end of period (000 Omitted) $162,868 $201,513 $138,226 $155,602 $114,619
- --------------------------------------------------------------------------------------------------------------------------
CLASS C YEARS ENDED 8/31
----------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $16.23 $14.30 $14.10 $13.02 $16.73
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.16) $(0.11) $(0.16) $(0.15) $(0.22)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.91 2.04 0.36 1.23 (3.49)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.75 $1.93 $0.20 $1.08 $(3.71)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.98 $16.23 $14.30 $14.10 $13.02
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 4.62 13.50 1.42(b) 8.29 (22.18)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.09 2.03 2.05 2.07 2.08
Expenses after expense reductions (f) 1.99 1.93 2.00 N/A 2.12(e)
Net investment loss (0.96) (0.69) (1.12) (1.18) (1.41)
Portfolio turnover 245 184 261 312 257
Net assets at end of period (000 Omitted) $58,523 $82,182 $91,225 $110,786 $82,441
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 8/31
----------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $17.18 $14.98 $14.63 $13.37 $17.01
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.00(w) $0.05 $(0.02) $(0.02) $(0.06)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.97 2.15 0.37 1.28 (3.58)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.97 $2.20 $0.35 $1.26 $(3.64)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.15 $17.18 $14.98 $14.63 $13.37
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.65 14.69 2.39(b) 9.42 (21.40)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.06 1.02 1.06 1.07 1.08
Expenses after expense reductions (f) 0.96 0.92 1.01 N/A 1.12(e)
Net investment income (loss) 0.03 0.32 (0.11) (0.16) (0.39)
Portfolio turnover 245 184 261 312 257
Net assets at end of period (000 Omitted) $34,998 $3,816 $4,136 $4,317 $4,403
- --------------------------------------------------------------------------------------------------------------------------
CLASS W YEAR ENDED 8/31
---------------
2006(i)
Net asset value, beginning of period $18.35
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $(0.00)(w)
Net realized and unrealized gain (loss)
on investments and foreign currency (0.63)(g)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.63)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.72
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) (3.43)(n)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.18(a)
Expenses after expense reductions (f) 1.08(a)
Net investment loss (0.03)(a)
Portfolio turnover 245
Net assets at end of period (000 Omitted) $97
- ---------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R YEARS ENDED 8/31
----------------------------------------------------
2006 2005 2004 2003(i)
Net asset value, beginning of period $16.77 $14.69 $14.41 $12.35
- ---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.08) $(0.04) $(0.09) $(0.08)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.93 2.12 0.37 2.14(g)
- ---------------------------------------------------------------------------------------------------
Total from investment operations $0.85 $2.08 $0.28 $2.06
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $17.62 $16.77 $14.69 $14.41
- ---------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.07 14.16 1.94(b) 16.68(n)
- ---------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.59 1.54 1.56 1.65(a)
Expenses after expense reductions (f) 1.49 1.44 1.51 N/A
Net investment loss (0.46) (0.25) (0.60) (0.82)(a)
Portfolio turnover 245 184 261 312
Net assets at end of period (000 Omitted) $5,735 $5,904 $3,266 $1,869
- ---------------------------------------------------------------------------------------------------
CLASS R1 YEARS ENDED 8/31
----------------------
2006 2005(i)
Net asset value, beginning of period $16.23 $15.35
- ---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.17) $(0.08)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.89 0.96(g)
- ---------------------------------------------------------------------------------------------------
Total from investment operations $0.72 $0.88
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $16.95 $16.23
- ---------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 4.44 5.73(n)
- ---------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.28 2.35(a)
Expenses after expense reductions (f) 2.09 2.25(a)
Net investment loss (1.07) (1.21)(a)
Portfolio turnover 245 184
Net assets at end of period (000 Omitted) $506 $80
- ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R2 YEARS ENDED 8/31
----------------------
2006 2005(i)
Net asset value, beginning of period $16.25 $15.35
- ------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------
Net investment loss (d) $(0.11) $(0.04)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.89 0.94(g)
- ------------------------------------------------------------------------------------
Total from investment operations $0.78 $0.90
- ------------------------------------------------------------------------------------
Net asset value, end of period $17.03 $16.25
- ------------------------------------------------------------------------------------
Total return (%) (r)(s) 4.80 5.86(n)
- ------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.97 2.04(a)
Expenses after expense reductions (f) 1.73 1.94(a)
Net investment loss (0.67) (0.67)(a)
Portfolio turnover 245 184
Net assets at end of period (000 Omitted) $2,598 $437
- ------------------------------------------------------------------------------------
CLASS R3 YEARS ENDED 8/31
-------------------------------------
2006 2005 2004(i)
Net asset value, beginning of period $16.70 $14.67 $14.63
- ------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------
Net investment loss (d) $(0.11) $(0.06) $(0.06)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.93 2.09 0.10(g)
- ------------------------------------------------------------------------------------
Total from investment operations $0.82 $2.03 $0.04
- ------------------------------------------------------------------------------------
Net asset value, end of period $17.52 $16.70 $14.67
- ------------------------------------------------------------------------------------
Total return (%) (r)(s) 4.91 13.84 0.27(b)(n)
- ------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.85 1.82 1.95(a)
Expenses after expense reductions (f) 1.65 1.72 1.90(a)
Net investment loss (0.60) (0.48) (0.48)(a)
Portfolio turnover 245 184 261
Net assets at end of period (000 Omitted) $1,804 $774 $105
- ------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 YEARS ENDED 8/31
----------------------
2006 2005(i)
Net asset value, beginning of period $16.81 $15.85
- ---------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------
Net investment loss (d) $(0.06) $(0.03)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.94 0.99(g)
- ---------------------------------------------------------------------
Total from investment operations $0.88 $0.96
- ---------------------------------------------------------------------
Net asset value, end of period $17.69 $16.81
- ---------------------------------------------------------------------
Total return (%) (r)(s) 5.23 6.06(n)
- ---------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------
Expenses before expense reductions (f) 1.48 1.56(a)
Expenses after expense reductions (f) 1.38 1.46(a)
Net investment loss (0.36) (0.41)(a)
Portfolio turnover 245 184
Net assets at end of period (000 Omitted) $286 $53
- ---------------------------------------------------------------------
CLASS R5 YEARS ENDED 8/31
----------------------
2006 2005(i)
Net asset value, beginning of period $16.83 $15.85
- ---------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------
Net investment loss (d) $(0.01) $(0.01)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.94 0.99(g)
- ---------------------------------------------------------------------
Total from investment operations $0.93 $0.98
- ---------------------------------------------------------------------
Net asset value, end of period $17.76 $16.83
- ---------------------------------------------------------------------
Total return (%) (r)(s) 5.53 6.18(n)
- ---------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------
Expenses before expense reductions (f) 1.19 1.26(a)
Expenses after expense reductions (f) 1.09 1.16(a)
Net investment loss (0.06) (0.11)(a)
Portfolio turnover 245 184
Net assets at end of period (000 Omitted) $56 $53
- ---------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years
resulted in a per share impact of less than $0.01.
(a) Annualized.
(b) 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 the shares outstanding on the day
the proceeds were recorded.
(d) Per share data are based on average shares outstanding.
(e) Ratio includes a reimbursement fee for expenses borne by MFS in prior years
under the then existing expense reimbursement agreement.
(f) Ratios do not reflect reductions from fees paid indirectly.
(g) 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.
(i) For the period from the class' inception, December 31, 2002 (Class R),
October 31, 2003 (Class R3), April 1, 2005 (Classes R1, R2, R4, and R5),
and May 1, 2006 (Class W) through the stated period end.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have
been lower.
(s) From time to time the fund may receive proceeds from litigation
settlements, without which performance would be lower.
(t) Total returns do not include any applicable sales charges.
(w) Per share amount was 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 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, including securities of emerging market
issuers. 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. The markets of emerging markets countries are generally more
volatile than the markets of developed countries with more mature economies.
All of the risks of investing in foreign securities previously described are
heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales
reported that day, equity securities are generally valued at the last quoted
daily bid quotation as reported by an independent pricing service on the market
or exchange on which they are primarily traded. Short-term instruments with a
maturity at issuance of 60 days or less may be valued at amortized cost, which
approximates market value. Open-end investment companies are generally valued
at their net asset value per share. Securities and other assets generally
valued on the basis of information from an independent pricing service may also
be valued at a broker-dealer bid quotation. The values of foreign securities
and other assets and liabilities expressed in foreign currencies are converted
to U.S. dollars using the mean of bid and asked prices for rates reported by an
independent pricing service. The Board of Trustees has delegated primary
responsibility for determining or causing to be determined the value of the
fund's investments (including any fair valuation) to the adviser pursuant to
valuation policies and procedures approved by the Board. If the adviser
determines that reliable market quotations are not readily available,
investments are valued at fair value as determined in good faith by the adviser
in accordance with such procedures under the oversight of the Board of
Trustees. Under the fund's valuation policies and procedures, market quotations
are not considered to be readily available for many types of debt instruments.
These investments are generally valued at fair value based on information from
independent pricing services. The adviser may rely on independent pricing
services or other information (such as the correlation with price movements of
similar securities in the same or other markets; the type, cost and investment
characteristics of the security; the business and financial condition of the
issuer; and trading and other market data) to assist in determining whether to
fair value and at what value to fair value an investment. The value of an
investment for purposes of calculating the fund's net asset value can differ
depending on the source and method used to determine value. When fair valuation
is used, the value of investments used to determine the fund's net asset value
may differ from quoted or published prices for the same investments. In
addition, investments may be valued at fair value if the adviser determines
that an investment's value has been materially affected by events occurring
after the close of the exchange or market on which the investment is
principally traded (such as foreign exchange or market) and prior to the
determination of the fund's net asset value, or after the halting of trading of
a specific security where trading does not resume prior to the close of the
exchange or market on which the security is principally traded. Events that
occur on a frequent basis after foreign markets close (such as developments in
foreign markets and significant movements in the U.S. markets) and prior to the
determination of the fund's net asset value may be deemed to have a material
affect on the value of securities traded in foreign markets. Accordingly, the
fund's foreign equity securities may often be valued at fair value.
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 no longer charges a
redemption fee. See the fund's prospectus for details. Any redemption fees
charged are accounted for as an addition to paid-in-capital.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Certain dividends from foreign securities will be recorded when the fund is
informed of the dividend if such information is obtained subsequent to 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, 2006, the fund's custodian fees were
reduced by $65,406 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, 2006, the fund's custodian expenses were
reduced by $52,965 under this agreement. These amounts are shown as a reduction
of total expenses on the Statement of Operations. Effective January 1, 2006,
the commission recapture agreement was terminated.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue Code,
and to distribute all of its taxable income, including realized capital gains.
Accordingly, no provision for federal income tax is required in the financial
statements. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Certain capital accounts in the financial statements are periodically adjusted
for permanent differences in order to reflect their tax character. These
adjustments have no impact on net assets or net asset value per share.
Temporary differences which arise from recognizing certain items of income,
expense, gain or loss in different periods for financial statement and tax
purposes will reverse at some time in the future. Distributions in excess of
net investment income or net realized gains are temporary overdistributions for
financial statement purposes resulting from differences in the recognition or
classification of income or distributions for financial statement and tax
purposes.
Book/tax differences primarily relate to net operating losses, wash sale loss
deferrals, and expiration of capital loss carryforwards.
The fund declared no distributions for the years ended August 31, 2006 and
August 31, 2005.
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/06
Cost of investments $784,829,747
------------------------------------------------------------
Gross appreciation $25,752,339
Gross depreciation (27,914,739)
------------------------------------------------------------
Net unrealized appreciation (depreciation) $(2,162,400)
Undistributed ordinary income 5,724,975
Undistributed long-term capital gain 9,296,863
Capital loss carryforwards (59,221,280)
Other temporary differences (1,815,859)
As of August 31, 2006, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
8/31/09 $(33,513,254)
8/31/10 (25,708,026)
------------------------------------------------------------
$(59,221,280)
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.
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years as
of the effective date. This Interpretation prescribes a minimum threshold for
financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return, and requires certain expanded
disclosures. Management has recently begun to evaluate the application of the
Interpretation to the fund, and has not at this time determined the impact, if
any, resulting from the adoption of this Interpretation on the fund's financial
statements.
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 management and related administrative services and
facilities to the fund.
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, 2006, this waiver
amounted to $868,846 and is reflected as a reduction of total expenses in the
Statement of Operations.
The management fee incurred for the year ended August 31, 2006 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 $60,856 for the year ended August 31, 2006, 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 MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.35% $2,080,769
Class B 0.75% 0.25% 1.00% 1.00% 1,877,991
Class C 0.75% 0.25% 1.00% 1.00% 733,504
Class W 0.10% -- 0.10% 0.10% 32
Class R 0.25% 0.25% 0.50% 0.50% 31,236
Class R1 0.50% 0.25% 0.75% 0.75% 1,601
Class R2 0.25% 0.25% 0.50% 0.50% 3,725
Class R3 0.25% 0.25% 0.50% 0.50% 6,965
Class R4 -- 0.25% 0.25% 0.25% 223
- -------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $4,736,046
(d) 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.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the year
ended August 31, 2006 based on each class' average daily net assets.
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 of purchase.
Class B shares are subject to a contingent deferred sales charge in the event
of a shareholder redemption within six years of purchase. All contingent
deferred sales charges are paid to MFD and during the year ended August 31,
2006, were as follows:
AMOUNT
Class A $13,564
Class B 393,090
Class C 5,300
SHAREHOLDER SERVICING AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned
subsidiary of MFS, receives a fee from the fund for its services as shareholder
servicing agent calculated as a percentage of the average net assets of the
fund as determined periodically under the supervision of the fund's Board of
Trustees. For the year ended August 31, 2006, the fee was $850,219, which
equated to 0.0976% 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, 2006, these
costs amounted to $258,224. The fund may also pay shareholder servicing related
costs to non-related parties.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the fund.
Under an administrative services agreement, the fund partially reimburses MFS
the costs incurred to provide these services. The fund is charged a fixed
amount plus a fee based on calendar year average net assets. From July 1, 2005
through March 31, 2006, the fund's annual fixed amount was $10,000. Effective
April 1, 2006, the fund's annual fixed amount is $17,500.
The administrative services fee incurred for the year ended August 31, 2006 was
equivalent to an annual effective rate of 0.0140% 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 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. MFS may subsequently pay
all, or a portion, of the retirement plan administration and services fee to
affiliated or unaffiliated third parties. For the year ended August 31, 2006,
the fund paid MFS an annual retirement plan administration and services fee up
to the following annual percentage rates of each class' average daily net
assets:
ANNUAL
EFFECTIVE TOTAL
FEE RATE RATE(g) AMOUNT
Class R1 0.45% 0.36% $962
Class R2 0.40% 0.26% 3,001
Class R3 0.25% 0.15% 3,487
Class R4 0.15% 0.15% 134
Class R5 0.10% 0.10% 56
- --------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $7,640
(g) Effective October 1, 2005, MFS has agreed in writing to waive a portion of
the retirement plan administration and services fee equal to 0.10% for
Class R1 shares, 0.15% for Class R2 shares, and 0.10% for Class R3 shares.
This agreement will continue until at least September 30, 2008. For the
year ended August 31, 2006, this waiver amounted to $2,592 and is reflected
as a reduction of total expenses in the Statement of Operations.
TRUSTEES' AND OFFICERS' 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 or officers of the fund who are also officers
of the investment adviser, 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 certain retired Independent
Trustees which resulted in a pension expense of $775. The fund also has an
unfunded retirement benefit deferral plan for certain Independent Trustees
which resulted in an expense of $402. Both amounts are included in Independent
trustees' compensation for the year ended August 31, 2006. The deferred
liability for retirement benefits payable to certain Trustees under both plans
amounted to $44,481 at August 31, 2006, and is included in payable for
independent 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. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the year ended August 31, 2006, the fee paid to Tarantino LLC
was $6,270. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $4,988, 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.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$2,062,110,879 and $2,279,626,246, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
YEAR ENDED YEAR ENDED
8/31/06(i) 8/31/05(i)
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 6,430,188 $113,225,460 6,045,043 $96,257,424
Class B 887,359 15,079,814 824,699 12,849,738
Class C 433,212 7,356,579 733,441 11,311,540
Class I 1,970,276 33,949,254 36,183 585,957
Class W 5,450 100,000 -- --
Class R 76,939 1,357,467 216,408 3,447,630
Class R1 29,696 489,931 5,484 84,854
Class R2 147,706 2,457,779 26,881 437,516
Class R3 88,327 1,546,974 42,062 697,441
Class R4 13,738 235,417 3,154 50,000
Class R5 4 75 3,154 50,000
- -----------------------------------------------------------------------------------------------------
10,082,895 $175,798,750 7,936,509 $125,772,100
Share issued in connection with
acquisition of MFS Large Cap
Growth Fund
Class A 15,966,412 $260,252,510
Class B 4,980,471 78,492,230
Class I 2,991 49,763
- -----------------------------------------------------------------------------------------------------
20,949,874 $338,794,503
Shares reacquired
Class A (15,505,829) $(271,914,439) (11,909,431) $(190,911,285)
Class B (3,706,240) (62,822,571) (3,061,054) (47,687,100)
Class C (2,048,446) (35,022,100) (2,051,435) (31,628,141)
Class I (264,308) (4,682,666) (93,157) (1,502,028)
Class R (103,586) (1,796,528) (86,556) (1,385,040)
Class R1 (4,778) (79,351) (566) (9,209)
Class R2 (22,019) (382,432) (2) (39)
Class R3 (31,732) (556,427) (2,868) (45,896)
Class R4 (727) (12,551) -- --
Class R5 (4) (76) -- --
- -----------------------------------------------------------------------------------------------------
(21,687,669) $(377,269,141) (17,205,069) $(273,168,738)
Net change
Class A (9,075,641) $(158,688,979) 10,102,024 $165,598,649
Class B (2,818,881) (47,742,757) 2,744,116 43,654,868
Class C (1,615,234) (27,665,521) (1,317,994) (20,316,601)
Class I 1,705,968 29,266,588 (53,983) (866,308)
Class W 5,450 100,000 -- --
Class R (26,647) (439,061) 129,852 2,062,590
Class R1 24,918 410,580 4,918 75,645
Class R2 125,687 2,075,347 26,879 437,477
Class R3 56,595 990,547 39,194 651,545
Class R4 13,011 222,866 3,154 50,000
Class R5 -- (1) 3,154 50,000
- -----------------------------------------------------------------------------------------------------
(11,604,774) $(201,470,391) 11,681,314 $191,397,865
(i) For the period from the class' inception, April 1, 2005 (Classes R1, R2, R4, and R5) and May 1,
2006 (Class W) through the stated period end.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other affiliated funds have established
uncommitted borrowing arrangements with certain banks. Borrowings may be made
for temporary financing needs. Interest is charged to each fund, based on its
borrowings, generally 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 committed line of credit, is allocated among the participating
funds at the end of each calendar quarter. For the year ended August 31, 2006,
the fund's commitment fee and interest expense were $5,677 and $5,146,
respectively, and are included in miscellaneous expense on the Statement of
Operations.
(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. 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 the 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, 2006, 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, 2006, by correspondence with
the Fund's 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, 2006, 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 20, 2006
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2006, 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(h) OTHER DIRECTORSHIPS(j)
- ------------------- ---------------- --------------- ----------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); 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 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (November 2000 until June
2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians' Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) 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 9/27/41) 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)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (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 8/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (2000 until 2005);
Hillview Investment Trust II Funds
(mutual fund complex), Trustee
(2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004); Fidelity
Management & Research Company,
Vice President (prior to March
2004); Fidelity Group of Funds,
President and Treasurer (prior to
March 2004)
Tracy Atkinson(k) 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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
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(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior to May
2005)
Ellen Moynihan(k) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance Officer compliance services), Principal
(since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (prior to
March 2003)
James O. Yost(k) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) Company, Senior Vice President
- ------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(k) "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.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant
retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters. The
terms of that settlement required that compensation and expenses related to the independent compliance
consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services he rendered to
the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of $351,119.29.
The Trust held a shareholders' meeting in 2005 to elect Trustees, and will hold a shareholders' meeting at
least once every five years thereafter, to elect Trustees.
Each Trustee (except Mr. Butler and Mr. Uek) 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. Butler, Sherratt and Uek and Ms. 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 January 1, 2006, the Trustees served as board members of 98 funds within the MFS
Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 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
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, 2006 ("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, 2005 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 ("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 MFS peer funds, (iii) information provided by MFS on the advisory
fees of comparable portfolios of other clients of MFS, including institutional
separate accounts 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, 2005, which the Trustees believed was a
long enough period to reflect differing market conditions. The Fund's
performance was in the 3rd quintile relative to the other funds in the universe
for this three-year period (the 1st quintile being the best performers and the
5th quintile being the worst performers). The total return performance of the
Fund's Class A shares was in the 3rd quintile for the one-year period and the
4th quintile for the five-year period ended December 31, 2005 relative to the
Lipper performance universe. Because of the passage of time, these performance
results may 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 that there
is an advisory fee reduction in effect for the Fund through February 28, 2009 as
part of MFS' settlement with the New York Attorney General concerning market
timing and related matters. The Trustees also considered that, according to the
Lipper data, the Fund's effective advisory fee rate (taking into account the
advisory fee reduction) 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. Taking into account the advisory fee
reduction noted above, 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 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, which may include 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, if applicable, to pay for investment research
(excluding third-party research, for which MFS pays directly), 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, 2006.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement will be available on or before November 1, 2006 by
clicking on the fund's name under "Select a fund" on the MFS Web site (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
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The fund's Form N-Q is available on
the EDGAR database on the Commission's Internet Web site 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)
The fund will notify shareholders of amounts for use in preparing 2006 income
tax forms in January 2007.
MFS(R) PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about the investment products and services that we
offer, and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information.
We maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or
others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. We may share nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with which
we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you. We
maintain physical, electronic, and procedural safeguards to help protect the
personal information we collect about you.
If you have any questions about the MFS privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS send prospectuses, reports,
and proxies directly to your e-mail inbox. You'll get timely information and
less clutter in your mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply go to mfs.com, log in to
your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
KEEPING YOU INFORMED
MFS wants to ensure that you are consistently updated about your investments
with us. This shareholder report will not only show how your investment
performed during the time period, but will also provide you with informative
commentary from the portfolio management team. They will offer an overview of
market conditions and will also discuss the specific factors that may have
enhanced or detracted from your investment's performance.
MFS(R) STRATEGIC GROWTH FUND
LETTER FROM THE CEO 1
- ---------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- ---------------------------------------------------------------
MANAGEMENT REVIEW 3
- ---------------------------------------------------------------
PERFORMANCE SUMMARY 5
- ---------------------------------------------------------------
EXPENSE TABLE 8
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 10
- ---------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 14
- ---------------------------------------------------------------
STATEMENT OF OPERATIONS 17
- ---------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 19
- ---------------------------------------------------------------
FINANCIAL HIGHLIGHTS 20
- ---------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 29
- ---------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 41
- ---------------------------------------------------------------
TRUSTEES AND OFFICERS 42
- ---------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 48
- ---------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 53
- ---------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 53
- ---------------------------------------------------------------
FEDERAL TAX INFORMATION 53
- ---------------------------------------------------------------
MFS(R) PRIVACY NOTICE 54
- ---------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- ---------------------------------------------------------------
Fund objective: Seeks to provide capital appreciation.
THE REPORT IS PREPARED FOR THE GENERAL INFORMATION OF SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
- -------------------------------------------------------------------------------
NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
- -------------------------------------------------------------------------------
8/31/06
AGF-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The story is as old as the tortoise and the hare, but we believe it is
still relevant today -- "slow and steady" is the way to go when it comes to
investing. While financial markets will naturally ebb and flow over time,
investors who remain committed to a long-term investment strategy are more
likely to achieve their goals than those who consistently chase short-term
performance.
The first half of 2006 brought a high degree of fluctuation in markets
around the globe as varying economic factors pulled markets in opposite
directions. The global economy, for example, continued to grow at its fastest
pace in three decades -- spurred by increased international trade, good job
growth, and wage increases. At the same time, central banks around the world
raised interest rates in sync in a collaborative attempt to curb inflation.
While this was a positive development in some regions, in other cases,
economic and market gains were tempered.
What does all of this mean to you as an investor? If you're focused on the
long term, these global developments become part of a longer cycle instead of
one-time events that can have a significant impact on your portfolio.
At MFS(R), our investment management process -- honed over 80 years --
combines a unique teamwork approach with an unwavering focus on helping you
realize your long-term financial goals. We believe in a three-pronged
investment strategy:
o ALLOCATE holdings across the major asset classes -- including stocks,
bonds, and cash.
o DIVERSIFY within each class to take advantage of different market
segments and investing styles.
o REBALANCE assets regularly to maintain a desired asset allocation.
Of course, these strategies cannot guarantee a profit or protect against a
loss. Investing and planning for the long term requires diligence and
patience, two traits that in our experience are essential to capitalizing on
the many opportunities the financial markets can offer -- through both up and
down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 13, 2006
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Common Stocks 97.1%
Cash & Other Net Assets 2.9%
TOP TEN HOLDINGS
Electronic Arts, Inc. 3.6%
- -----------------------------------------------------
Adobe Systems, Inc. 3.5%
- -----------------------------------------------------
First Data Corp. 3.3%
- -----------------------------------------------------
Cisco Systems, Inc. 2.7%
- -----------------------------------------------------
Allergan, Inc. 2.6%
- -----------------------------------------------------
Monsanto Co. 2.6%
- -----------------------------------------------------
Roche Holding AG 2.6%
- -----------------------------------------------------
American Tower Corp., "A" 2.4%
- -----------------------------------------------------
News Corp., "A" 2.4%
- -----------------------------------------------------
PepsiCo, Inc. 2.3%
- -----------------------------------------------------
EQUITY SECTORS
Technology 20.4%
- -----------------------------------------------------
Health Care 20.1%
- -----------------------------------------------------
Financial Services 11.0%
- -----------------------------------------------------
Leisure 9.2%
- -----------------------------------------------------
Consumer Staples 6.8%
- -----------------------------------------------------
Industrial Goods & Services 6.6%
- -----------------------------------------------------
Special Products & Services 6.5%
- -----------------------------------------------------
Energy 5.4%
- -----------------------------------------------------
Basic Materials 4.0%
- -----------------------------------------------------
Utilities & Communications 3.7%
- -----------------------------------------------------
Retailing 2.3%
- -----------------------------------------------------
Autos & Housing 1.1%
- -----------------------------------------------------
Percentages are based on net assets as of 8/31/06.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2006, Class A shares of the MFS
Strategic Growth Fund provided a total return of 0.16%, at net asset value.
This compares with a return of 3.68% for the fund's benchmark, the Russell
1000 Growth Index.
DETRACTORS FROM PERFORMANCE
Security selection and, to a lesser extent, our overweighted position in the
technology sector held back relative performance over the period. Our holdings
in network equipment companies Juniper Networks and Cisco Systems, chip maker
Marvell Technology Group and global telecommunications equipment company
Nortel Networks* were among the fund's top detractors. Marvell and Nortel are
not benchmark constituents. Juniper's shares have been under pressure because
earlier in the year the company lowered its revenue guidance for the first
half of 2006. Later in the reporting period, the company delayed its second
quarter filing as a result of investigations into its stock options practices.
The company also guided down its outlook for the second half of the year.
Our underweighting of the industrial goods and services sector also hurt
relative returns. Industrial automation and control products manufacturer
Rockwell Automation was the top detractor in this sector. Rockwell's
disappointing first quarter in 2006 appears to have caused some concern in the
market.
Although stock selection in the energy sector had a negative impact on
relative performance, no individual stocks within the sector were among the
fund's top detractors for the period.
Securities in other sectors that hurt relative results included online
auctioneer eBay, multimedia image provider Getty Images*, high-end stereo and
audio equipment manufacturer Harman International, cardiovascular medical
devices maker St. Jude Medical*, and pharmaceutical company Wyeth*.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the leisure sector contributed to the fund's relative
performance. Casino operator Las Vegas Sands was the top performer within this
sector. The firm increased earnings and revenues in the first quarter of 2006,
due in part to growth in its Sands Macau operations.
A combination of stock selection and an overweighted position in the utilities
and communications sector benefited relative returns. Leading the way was
broadcast and communication tower firm American Tower. The company posted
earnings and revenues for the first and second quarters of 2006 that exceeded
expectations.
Stock selection in the basic materials sector also aided relative performance,
although no individual holdings within the sector were among the fund's top
contributors for the period.
Although the technology sector was a detractor from relative returns overall,
some of our technology holdings were among the fund's top contributors,
including cell phone manufacturer Nokia* and electronics manufacturer Samsung
(neither of which are benchmark constituents). Holdings in Flash memory
storage products maker SanDisk also boosted relative performance. SanDisk has
been able to drive costs down faster than price declines and, we believe, the
company's acquisition of M-Systems could secure royalties of next generation
flash cards. Our underweighted position in poor-performing semiconductor
company Intel also aided results.
Individual stocks in other sectors that contributed to relative results
included biotech firms Gilead Sciences and Celgene, pharmaceutical company
Roche Holding (not a benchmark constituent), and technology consulting and
services provider Cognizant Technology.
During the reporting period, our currency exposure was a contributor to the
fund's relative performance. All of MFS' investment decisions are driven by
the fundamentals of each individual opportunity and, as such, it is common for
our portfolios to have different currency exposure than the benchmark.
Respectfully,
Eric B. Fischman
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 portfolio. References to
specific securities are not recommendations of such securities, and may not be
representative of any MFS portfolio's current or
future investments.
PERFORMANCE SUMMARY THROUGH 8/31/06
The following chart illustrates the historical performance of the fund's Class
A shares 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. The performance of other share classes will be greater
than or less than that of the class depicted below. Benchmark comparisons are
unmanaged; do not reflect sales charges, commissions or expenses; and cannot
be invested in directly. (See Notes to Performance Summary.)
PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR
SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN QUOTED. FOR MOST RECENT MONTH-END
PERFORMANCE, PLEASE VISIT MFS.COM. (FOR THE MOST RECENT MONTH-END PERFORMANCE
FOR CLASS I SHARES CALL 1-800-343-2829.) THE PERFORMANCE SHOWN DOES NOT
REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
MFS Strategic Russell
Growth Fund 1000 Growth
- Class A Index
8/96 $ 9,425 $10,000
8/97 15,036 13,937
8/98 17,002 15,087
8/99 26,250 22,379
8/00 38,635 29,867
8/01 22,049 16,330
8/02 16,162 12,710
8/03 19,088 14,499
8/04 19,146 15,275
8/05 21,611 17,130
8/06 21,646 17,759
TOTAL RETURNS THROUGH 8/31/06
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
- -----------------------------------------------------------------------------
A 1/02/96 0.16% -0.37% 8.67%
- -----------------------------------------------------------------------------
B 4/11/97 -0.45% -1.00% 8.00%
- -----------------------------------------------------------------------------
C 4/11/97 -0.50% -1.01% 8.02%
- -----------------------------------------------------------------------------
I 1/02/97 0.52% -0.02% 9.02%
- -----------------------------------------------------------------------------
R 12/31/02 0.05% -0.47% 8.61%
- -----------------------------------------------------------------------------
R1 4/01/05 -0.62% -0.60% 8.55%
- -----------------------------------------------------------------------------
R2 4/01/05 -0.22% -0.50% 8.60%
- -----------------------------------------------------------------------------
R3 10/31/03 -0.16% -0.57% 8.56%
- -----------------------------------------------------------------------------
R4 4/01/05 0.11% -0.39% 8.66%
- -----------------------------------------------------------------------------
R5 4/01/05 0.37% -0.30% 8.70%
- -----------------------------------------------------------------------------
529A 7/31/02 -0.05% -0.55% 8.57%
- -----------------------------------------------------------------------------
529B 7/31/02 -0.73% -1.10% 8.27%
- -----------------------------------------------------------------------------
529C 7/31/02 -0.73% -1.10% 8.27%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmark
- -----------------------------------------------------------------------------
Russell 1000 Growth Index (f) 3.68% 1.69% 5.91%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -----------------------------------------------------------------------------
A -5.60% -1.54% 8.03%
With Initial Sales Charge (5.75%)
- -----------------------------------------------------------------------------
B -4.43% -1.40% 8.00%
With CDSC (Declining over six years
from 4% to 0%) (x)
- -----------------------------------------------------------------------------
C -1.50% -1.01% 8.02%
With CDSC (1% for 12 months) (x)
- -----------------------------------------------------------------------------
529A -5.80% -1.72% 7.93%
With Initial Sales Charge (5.75%)
- -----------------------------------------------------------------------------
529B -4.70% -1.48% 8.27%
With CDSC (Declining over six
years from 4% to 0%) (x)
- -----------------------------------------------------------------------------
529C -1.72% -1.10% 8.27%
With CDSC (1% for 12 months) (x)
- -----------------------------------------------------------------------------
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.
CDSC - Contingent Deferred Sales Charge.
(f) Source: FactSet Research Systems Inc.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
Russell 1000 Growth Index - 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 R shares are available only to existing Class R shareholders. 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, 2006 through August 31, 2006.
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, 2006 through
August 31, 2006.
ACTUAL EXPENSES
The first line for each share class in the following table 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 following table 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(p)
Share Expense Account Value Account Value 3/01/06-
Class Ratio 3/01/06 8/31/06 8/31/06
- --------------------------------------------------------------------------------
Actual 1.25% $1,000.00 $952.80 $6.15
A ------------------------------------------------------------------------
Hypothetical (h) 1.25% $1,000.00 $1,018.90 $6.36
- --------------------------------------------------------------------------------
Actual 1.91% $1,000.00 $949.80 $9.39
B ------------------------------------------------------------------------
Hypothetical (h) 1.91% $1,000.00 $1,015.58 $9.70
- --------------------------------------------------------------------------------
Actual 1.92% $1,000.00 $949.90 $9.44
C ------------------------------------------------------------------------
Hypothetical (h) 1.92% $1,000.00 $1,015.53 $9.75
- --------------------------------------------------------------------------------
Actual 0.90% $1,000.00 $954.50 $4.43
I ------------------------------------------------------------------------
Hypothetical (h) 0.90% $1,000.00 $1,020.67 $4.58
- --------------------------------------------------------------------------------
Actual 1.38% $1,000.00 $952.10 $6.79
R ------------------------------------------------------------------------
Hypothetical (h) 1.38% $1,000.00 $1,018.25 $7.02
- --------------------------------------------------------------------------------
Actual 2.02% $1,000.00 $949.20 $9.92
R1 ------------------------------------------------------------------------
Hypothetical (h) 2.02% $1,000.00 $1,015.02 $10.26
- --------------------------------------------------------------------------------
Actual 1.66% $1,000.00 $951.00 $8.16
R2 ------------------------------------------------------------------------
Hypothetical (h) 1.66% $1,000.00 $1,016.84 $8.44
- --------------------------------------------------------------------------------
Actual 1.55% $1,000.00 $951.30 $7.62
R3 ------------------------------------------------------------------------
Hypothetical (h) 1.55% $1,000.00 $1,017.39 $7.88
- --------------------------------------------------------------------------------
Actual 1.31% $1,000.00 $952.30 $6.45
R4 ------------------------------------------------------------------------
Hypothetical (h) 1.31% $1,000.00 $1,018.60 $6.67
- --------------------------------------------------------------------------------
Actual 1.02% $1,000.00 $953.90 $5.02
R5 ------------------------------------------------------------------------
Hypothetical (h) 1.02% $1,000.00 $1,020.06 $5.19
- --------------------------------------------------------------------------------
Actual 1.50% $1,000.00 $951.90 $7.38
529A ------------------------------------------------------------------------
Hypothetical (h) 1.50% $1,000.00 $1,017.64 $7.63
- --------------------------------------------------------------------------------
Actual 2.15% $1,000.00 $948.40 $10.56
529B ------------------------------------------------------------------------
Hypothetical (h) 2.15% $1,000.00 $1,014.37 $10.92
- --------------------------------------------------------------------------------
Actual 2.16% $1,000.00 $948.90 $10.61
529C ------------------------------------------------------------------------
Hypothetical (h) 2.16% $1,000.00 $1,014.32 $10.97
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
8/31/06
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Common Stocks - 97.1%
- -------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- -------------------------------------------------------------------------------------------------------
Aerospace - 4.2%
- -------------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 404,100 $ 33,378,660
United Technologies Corp. 507,700 31,837,867
--------------
$ 65,216,527
- -------------------------------------------------------------------------------------------------------
Automotive - 1.1%
- -------------------------------------------------------------------------------------------------------
Harman International Industries, Inc. 199,000 $ 16,142,880
- -------------------------------------------------------------------------------------------------------
Biotechnology - 6.9%
- -------------------------------------------------------------------------------------------------------
Amgen, Inc. (n) 299,100 $ 20,317,863
Celgene Corp. (l)(n) 392,200 15,958,618
Genentech, Inc. (n) 236,100 19,482,972
Genzyme Corp. (n) 410,180 27,166,221
Gilead Sciences, Inc. (n) 270,360 17,140,824
Millipore Corp. (n) 100,400 6,443,672
--------------
$ 106,510,170
- -------------------------------------------------------------------------------------------------------
Broadcasting - 3.1%
- -------------------------------------------------------------------------------------------------------
Grupo Televisa S.A., ADR (l) 577,840 $ 11,002,074
News Corp., "A" 1,916,800 36,476,704
--------------
$ 47,478,778
- -------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 4.4%
- -------------------------------------------------------------------------------------------------------
Charles Schwab Corp. 1,117,100 $ 18,219,901
Chicago Mercantile Exchange Holdings, Inc. 78,800 34,672,000
Goldman Sachs Group, Inc. 103,100 15,325,815
--------------
$ 68,217,716
- -------------------------------------------------------------------------------------------------------
Business Services - 5.4%
- -------------------------------------------------------------------------------------------------------
Amdocs Ltd. (n) 416,690 $ 15,813,386
Cognizant Technology Solutions Corp., "A" (n) 241,100 16,855,301
First Data Corp. 1,166,500 50,124,505
--------------
$ 82,793,192
- -------------------------------------------------------------------------------------------------------
Chemicals - 2.6%
- -------------------------------------------------------------------------------------------------------
Monsanto Co. 835,800 $ 39,650,352
- -------------------------------------------------------------------------------------------------------
Computer Software - 3.5%
- -------------------------------------------------------------------------------------------------------
Adobe Systems, Inc. (n) 1,674,616 $ 54,324,543
- -------------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.3%
- -------------------------------------------------------------------------------------------------------
Apple Computer, Inc. (n) 304,400 $ 20,653,540
- -------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.6%
- -------------------------------------------------------------------------------------------------------
Colgate-Palmolive Co. 381,700 $ 22,848,562
eBay, Inc. (n) 609,900 16,991,814
--------------
$ 39,840,376
- -------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.8%
- -------------------------------------------------------------------------------------------------------
Rockwell Automation, Inc. 486,000 $ 27,400,680
- -------------------------------------------------------------------------------------------------------
Electronics - 7.2%
- -------------------------------------------------------------------------------------------------------
Intel Corp. 1,095,300 $ 21,402,162
Linear Technology Corp. 239,100 8,131,791
Marvell Technology Group Ltd. (n) 1,447,900 25,352,729
Samsung Electronics Co. Ltd., GDR 67,020 22,786,800
SanDisk Corp. (n) 547,600 32,264,592
--------------
$ 109,938,074
- -------------------------------------------------------------------------------------------------------
Energy - Independent - 1.1%
- -------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp. 330,600 $ 16,857,294
- -------------------------------------------------------------------------------------------------------
Food & Beverages - 3.8%
- -------------------------------------------------------------------------------------------------------
Kellogg Co. 467,800 $ 23,717,460
PepsiCo, Inc. 541,100 35,323,008
--------------
$ 59,040,468
- -------------------------------------------------------------------------------------------------------
Gaming & Lodging - 2.5%
- -------------------------------------------------------------------------------------------------------
International Game Technology 511,000 $ 19,765,480
Las Vegas Sands Corp. (n) 260,300 18,171,543
--------------
$ 37,937,023
- -------------------------------------------------------------------------------------------------------
General Merchandise - 2.3%
- -------------------------------------------------------------------------------------------------------
Costco Wholesale Corp. 457,000 $ 21,383,030
Kohl's Corp. (n) 214,700 13,420,897
--------------
$ 34,803,927
- -------------------------------------------------------------------------------------------------------
Internet - 3.6%
- -------------------------------------------------------------------------------------------------------
Google, Inc., "A" (n) 70,900 $ 26,837,777
Yahoo!, Inc. (n) 987,200 28,451,104
--------------
$ 55,288,881
- -------------------------------------------------------------------------------------------------------
Leisure & Toys - 3.6%
- -------------------------------------------------------------------------------------------------------
Electronic Arts, Inc. (n) 1,081,130 $ 55,105,196
- -------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.6%
- -------------------------------------------------------------------------------------------------------
Deere & Co. 110,800 $ 8,653,480
- -------------------------------------------------------------------------------------------------------
Major Banks - 1.3%
- -------------------------------------------------------------------------------------------------------
Bank of New York Co., Inc. 585,600 $ 19,764,000
- -------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.3%
- -------------------------------------------------------------------------------------------------------
Caremark Rx, Inc. 350,700 $ 20,319,558
- -------------------------------------------------------------------------------------------------------
Medical Equipment - 3.1%
- -------------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc. (l)(n) 479,140 $ 23,070,591
Cytyc Corp. (l)(n) 1,017,400 24,305,686
--------------
$ 47,376,277
- -------------------------------------------------------------------------------------------------------
Metals & Mining - 1.4%
- -------------------------------------------------------------------------------------------------------
BHP Billiton Ltd., ADR (l) 504,200 $ 21,226,820
- -------------------------------------------------------------------------------------------------------
Network & Telecom - 4.8%
- -------------------------------------------------------------------------------------------------------
Cisco Systems, Inc. (n) 1,897,300 $ 41,721,627
Juniper Networks, Inc. (n) 837,600 12,287,592
QUALCOMM, Inc. 534,900 20,149,683
--------------
$ 74,158,902
- -------------------------------------------------------------------------------------------------------
Oil Services - 4.3%
- -------------------------------------------------------------------------------------------------------
GlobalSantaFe Corp. 422,900 $ 20,815,138
Schlumberger Ltd. 492,500 30,190,250
Transocean, Inc. (n) 222,100 14,825,175
--------------
$ 65,830,563
- -------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 5.3%
- -------------------------------------------------------------------------------------------------------
American Express Co. 545,600 $ 28,665,824
State Street Corp. 402,800 24,893,040
UBS AG 493,400 28,010,318
--------------
$ 81,569,182
- -------------------------------------------------------------------------------------------------------
Pharmaceuticals - 8.8%
- -------------------------------------------------------------------------------------------------------
Allergan, Inc. 348,800 $ 39,958,528
GlaxoSmithKline PLC 835,600 23,685,006
Johnson & Johnson 504,600 32,627,436
Roche Holding AG (l) 214,980 39,648,022
--------------
$ 135,918,992
- -------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.3%
- -------------------------------------------------------------------------------------------------------
America Movil S.A. de C.V., "L", ADR 538,600 $ 20,095,166
- -------------------------------------------------------------------------------------------------------
Telephone Services - 2.4%
- -------------------------------------------------------------------------------------------------------
American Tower Corp., "A" (l)(n) 1,038,000 $ 37,222,680
- -------------------------------------------------------------------------------------------------------
Tobacco - 1.5%
- -------------------------------------------------------------------------------------------------------
Altria Group, Inc. 269,500 $ 22,511,335
- -------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $1,480,166,940) $1,491,846,572
- -------------------------------------------------------------------------------------------------------
Convertible Bonds - 0.0%
- -------------------------------------------------------------------------------------------------------
Electronics - 0.0%
- -------------------------------------------------------------------------------------------------------
Candescent Technologies Corp., 8%, 2003 (d)(z) $ 10,000,000 $ 0
- -------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS (IDENTIFIED COST, $--) $ 0
- -------------------------------------------------------------------------------------------------------
Short-Term Obligations - 3.0%
- -------------------------------------------------------------------------------------------------------
General Electric Co., 5.27%, due 9/01/06, at Amortized Cost
and Value (y) $ 45,304,000 $ 45,304,000
- -------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 4.5%
- -------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 68,525,437 $ 68,525,437
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $1,593,996,377) (k) $1,605,676,009
- -------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (4.6)% (69,954,434)
- -------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,535,721,575
- -------------------------------------------------------------------------------------------------------
(d) Non-income producing security - in default.
(k) As of August 31, 2006, the fund had one security that was fair valued, aggregating $0 and 0.00% of
market value, in accordance with the policies adopted by the Board of Trustees.
(l) All or a portion of this security is on loan.
(n) Non-income producing security.
(y) The rate shown represents an annualized yield at time of purchase.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal
restrictions on resale. These securities generally may be resold in transactions exempt from
registration or to the public if the securities are subsequently registered. Disposal of these
securities may involve time-consuming negotiations and prompt sale at an acceptable price may be
difficult. The fund holds the following restricted security:
CURRENT
ACQUISITION ACQUISITION MARKET TOTAL % OF
RESTRICTED SECURITIES DATE COST VALUE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
Candescent Technologies Corp., 8%, 2003 3/07/00 $8,000,000 $0.00 0.00%
The following abbreviations are used in this report and are defined:
ADR American Depository Receipt
GDR Global Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/06
This statement represents your fund's balance sheet, which details the assets and liabilities
comprising the total value of the fund.
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $66,732,419 of securities
on loan (identified cost, $1,593,996,377) $1,605,676,009
Cash 13,265
Receivable for fund shares sold 738,040
Interest and dividends receivable 1,075,374
Other assets 11,965
- -------------------------------------------------------------------------------------------------------
Total assets $1,607,514,653
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for fund shares reacquired $2,563,487
Collateral for securities loaned, at value 68,525,437
Payable to affiliates
Management fee 54,715
Shareholder servicing costs 193,130
Distribution and service fees 25,368
Administrative services fee 1,498
Program manager fees 14
Retirement plan administration and services fees 26
Payable for independent trustees' compensation 61,113
Accrued expenses and other liabilities 368,290
- -------------------------------------------------------------------------------------------------------
Total liabilities $71,793,078
- -------------------------------------------------------------------------------------------------------
Net assets $1,535,721,575
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -------------------------------------------------------------------------------------------------------
Paid-in capital $2,887,085,827
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 11,682,584
Accumulated net realized gain (loss) on investments and
foreign currency transactions (1,361,600,768)
Accumulated net investment loss (1,446,068)
- -------------------------------------------------------------------------------------------------------
Net assets $1,535,721,575
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 81,496,376
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $414,113,231
Shares outstanding 22,043,952
- -------------------------------------------------------------------------------------------------------
Net asset value per share $18.79
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $19.94
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $247,487,541
Shares outstanding 13,907,178
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.80
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $66,663,887
Shares outstanding 3,739,506
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.83
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $801,582,863
Shares outstanding 41,486,603
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.32
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $2,581,543
Shares outstanding 138,129
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $18.69
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $361,508
Shares outstanding 20,352
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $17.76
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $751,051
Shares outstanding 42,079
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $17.85
- -------------------------------------------------------------------------------------------------------
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,072,881
Shares outstanding 57,768
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $18.57
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $52,207
Shares outstanding 2,781
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $18.77
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $52,424
Shares outstanding 2,780
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $18.85
- -------------------------------------------------------------------------------------------------------
Class 529A shares
- -------------------------------------------------------------------------------------------------------
Net assets $531,364
Shares outstanding 28,544
- -------------------------------------------------------------------------------------------------------
Net asset value per share $18.62
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $19.76
- -------------------------------------------------------------------------------------------------------
Class 529B shares
- -------------------------------------------------------------------------------------------------------
Net assets $163,996
Shares outstanding 9,301
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.63
- -------------------------------------------------------------------------------------------------------
Class 529C shares
- -------------------------------------------------------------------------------------------------------
Net assets $307,079
Shares outstanding 17,403
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.65
- -------------------------------------------------------------------------------------------------------
Shares outstanding are rounded for presentation purposes.
On sales of $50,000 or more, the offering prices of Class A and Class 529A shares are reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class
529B, and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 8/31/06
This statement describes how much your fund earned in investment income and accrued in expenses. It
also describes any gains and/or losses generated by fund operations.
NET INVESTMENT LOSS
- -------------------------------------------------------------------------------------------------------
Income
Dividends $9,913,951
Interest 2,169,381
Foreign taxes withheld (343,944)
- -------------------------------------------------------------------------------------------------------
Total investment income $11,739,388
- -------------------------------------------------------------------------------------------------------
Expenses
Management fee $12,038,469
Distribution and service fees 5,701,848
Program manager fees 2,571
Shareholder servicing costs 3,011,685
Administrative services fee 215,758
Retirement plan administration and services fees 5,698
Independent trustees' compensation 40,245
Custodian fee 448,501
Shareholder communications 305,205
Auditing fees 34,872
Legal fees 26,000
Miscellaneous 236,830
- -------------------------------------------------------------------------------------------------------
Total expenses $22,067,682
- -------------------------------------------------------------------------------------------------------
Fees paid indirectly (155,583)
Reduction of expenses by investment adviser (1,616,002)
- -------------------------------------------------------------------------------------------------------
Net expenses $20,296,097
- -------------------------------------------------------------------------------------------------------
Net investment loss $(8,556,709)
- -------------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $32,819,250
Foreign currency transactions (11,644)
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $32,807,606
- -------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(19,500,441)
Translation of assets and liabilities in foreign currencies 2,952
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(19,497,489)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $13,310,117
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $4,753,408
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
YEARS ENDED 8/31
--------------------------------------
2006 2005
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment loss $(8,556,709) $(923,238)
Net realized gain (loss) on investments and foreign
currency transactions 32,807,606 62,251,745
Net unrealized gain (loss) on investments and foreign
currency translation (19,497,489) 125,826,686
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $4,753,408 $187,155,193
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(97,585,909) $(77,169,494)
- -------------------------------------------------------------------------------------------------------
Redemption fees $-- $755
- -------------------------------------------------------------------------------------------------------
Total change in net assets $(92,832,501) $109,986,454
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period 1,628,554,076 1,518,567,622
At end of period (including accumulated net investment
loss of $1,446,068 and $1,446,478, respectively) $1,535,721,575 $1,628,554,076
- -------------------------------------------------------------------------------------------------------
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 life of a particular share class, if shorter). 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 share class (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
-------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $18.76 $16.62 $16.57 $14.03 $19.22
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $(0.10) $0.01 $(0.08) $(0.07) $(0.13)
Net realized and unrealized gain (loss) on
investments and foreign currency 0.13 2.13 0.13 2.61 (4.97)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.03 $2.14 $0.05 $2.54 $(5.10)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $-- $-- $-- $-- $(0.09)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.79 $18.76 $16.62 $16.57 $14.03
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 0.16 12.88 0.30(b) 18.10(j) (26.70)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.36 1.38 1.37 1.41 1.45
Expenses after expense reductions (f) 1.27 1.28 1.32 N/A N/A
Net investment income (loss) (0.53) 0.05 (0.46) (0.46) (0.74)
Portfolio turnover 171 69 80 72 116
Net assets at end of period (000 Omitted) $414,113 $518,618 $563,761 $673,767 $731,283
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
-------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $17.88 $15.95 $16.00 $13.65 $18.80
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.22) $(0.10) $(0.19) $(0.16) $(0.24)
Net realized and unrealized gain (loss) on
investments and foreign currency 0.14 2.03 0.14 2.51 (4.82)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.08) $1.93 $(0.05) $2.35 $(5.06)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $-- $-- $-- $-- $(0.09)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.80 $17.88 $15.95 $16.00 $13.65
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (0.45) 12.10 (0.31)(b) 17.22(j) (27.08)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.02 2.02 2.02 2.06 2.10
Expenses after expense reductions (f) 1.92 1.92 1.97 N/A N/A
Net investment loss (1.19) (0.60) (1.10) (1.12) (1.39)
Portfolio turnover 171 69 80 72 116
Net assets at end of period (000 Omitted) $247,488 $381,085 $427,364 $505,090 $490,326
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C YEARS ENDED 8/31
-------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $17.92 $15.98 $16.03 $13.67 $18.84
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.22) $(0.10) $(0.19) $(0.16) $(0.24)
Net realized and unrealized gain (loss) on
investments and foreign currency 0.13 2.04 0.14 2.52 (4.84)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.09) $1.94 $(0.05) $2.36 $(5.08)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $-- $-- $-- $-- $(0.09)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.83 $17.92 $15.98 $16.03 $13.67
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (0.50) 12.14 (0.31)(b) 17.26(j) (27.13)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.02 2.02 2.02 2.06 2.10
Expenses after expense reductions (f) 1.93 1.92 1.97 N/A N/A
Net investment loss (1.19) (0.58) (1.10) (1.12) (1.39)
Portfolio turnover 171 69 80 72 116
Net assets at end of period (000 Omitted) $66,664 $89,290 $114,023 $141,307 $148,930
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 8/31
-------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $19.22 $16.97 $16.86 $14.24 $19.41
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $(0.03) $0.07 $(0.01) $(0.01) $(0.07)
Net realized and unrealized gain (loss) on
investments and foreign currency 0.13 2.18 0.12 2.63 (5.01)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.10 $2.25 $0.11 $2.62 $(5.08)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $-- $-- $-- $-- $(0.09)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.32 $19.22 $16.97 $16.86 $14.24
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 0.52 13.26 0.65(b) 18.40(j) (26.37)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.02 1.01 1.01 1.06 1.10
Expenses after expense reductions (f) 0.92 0.91 0.96 N/A N/A
Net investment income (loss) (0.17) 0.35 (0.06) (0.10) (0.39)
Portfolio turnover 171 69 80 72 116
Net assets at end of period (000 Omitted) $801,583 $633,593 $405,006 $163,758 $26,193
- -----------------------------------------------------------------------------------------------------------------------------
CLASS R YEARS ENDED 8/31
-------------------------------------------------------------
2006 2005 2004 2003(i)
Net asset value, beginning of period $18.68 $16.58 $16.55 $13.92
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.13) $(0.03) $(0.09) $(0.06)
Net realized and unrealized gain (loss) on investments
and foreign currency 0.14 2.13 0.12 2.69
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.01 $2.10 $0.03 $2.63
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.69 $18.68 $16.58 $16.55
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 0.05 12.67 0.18(b) 18.89(j)(n)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.51 1.53 1.49 1.60(a)
Expenses after expense reductions (f) 1.41 1.43 1.44 N/A
Net investment loss (0.68) (0.16) (0.52) (0.60)(a)
Portfolio turnover 171 69 80 72
Net assets at end of period (000 Omitted) $2,582 $3,784 $1,982 $221
- -------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $17.87 $17.19
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.23) $(0.08)
Net realized and unrealized gain (loss) on investments and foreign
currency 0.12 0.76
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.11) $0.68
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.76 $17.87
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) (0.62) 3.96(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.22 2.23(a)
Expenses after expense reductions (f) 2.03 2.13(a)
Net investment loss (1.27) (1.06)(a)
Portfolio turnover 171 69
Net assets at end of period (000 Omitted) $362 $204
- -------------------------------------------------------------------------------------------------------------
CLASS R2 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $17.89 $17.19
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.16) $(0.05)
Net realized and unrealized gain (loss) on investments and foreign
currency 0.12 0.75
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.04) $0.70
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.85 $17.89
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) (0.22) 4.07(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.92 1.95(a)
Expenses after expense reductions (f) 1.67 1.85(a)
Net investment loss (0.89) (0.80)(a)
Portfolio turnover 171 69
Net assets at end of period (000 Omitted) $751 $133
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 8/31
-----------------------------------------------
2006 2005 2004(i)
Net asset value, beginning of period $18.60 $16.55 $16.99
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.16) $(0.10) $(0.10)
Net realized and unrealized gain (loss) on investments and
foreign currency 0.13 2.15 (0.34)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.03) $2.05 $(0.44)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.57 $18.60 16.55
- ---------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) (0.16) 12.39 (2.59)(b)(n)
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.77 1.78 1.71(a)
Expenses after expense reductions (f) 1.58 1.68 1.66(a)
Net investment loss (0.83) (0.53) (0.74)(a)
Portfolio turnover 171 69 80
Net assets at end of period (000 Omitted) $1,073 $822 $309
- ---------------------------------------------------------------------------------------------------------------------
CLASS R4 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $18.75 $17.98
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.11) $(0.03)
Net realized and unrealized gain (loss) on investments and foreign
currency 0.13 0.80
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.02 $0.77
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.77 $18.75
- ---------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 0.11 4.28(n)
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.43 1.45(a)
Expenses after expense reductions (f) 1.33 1.35(a)
Net investment loss (0.58) (0.37)(a)
Portfolio turnover 171 69
Net assets at end of period (000 Omitted) $52 $52
- ---------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $18.78 $17.98
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.06) $(0.01)
Net realized and unrealized gain (loss) on investments and foreign
currency 0.13 0.81
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.07 $0.80
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.85 $18.78
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 0.37 4.45(n)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.13 1.15(a)
Expenses after expense reductions (f) 1.03 1.05(a)
Net investment loss (0.29) (0.07)(a)
Portfolio turnover 171 69
Net assets at end of period (000 Omitted) $52 $52
- ---------------------------------------------------------------------------------------------------------------------------
CLASS 529A YEARS ENDED 8/31
---------------------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $18.63 $16.55 $16.52 $14.03 $13.89
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.15) $(0.04) $(0.12) $(0.10) $(0.01)
Net realized and unrealized gain (loss) on
investments and foreign currency 0.14 2.12 0.15 2.59 0.15
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.01) $2.08 $0.03 $2.49 $0.14
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.62 $18.63 $16.55 $16.52 $14.03
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (0.05) 12.57 0.18(b) 17.75(j) 1.01(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.62 1.62 1.61 1.67 1.70(a)
Expenses after expense reductions (f) 1.52 1.52 1.56 N/A N/A
Net investment loss (0.77) (0.25) (0.68) (0.69) (0.74)(a)
Portfolio turnover 171 69 80 72 116
Net assets at end of period (000 Omitted) $531 $481 $394 $225 $5
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529B YEARS ENDED 8/31
---------------------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $17.76 $15.88 $15.97 $13.65 $13.52
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.26) $(0.15) $(0.22) $(0.19) $(0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency 0.13 2.03 0.13 2.51 0.15
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.13) $1.88 $(0.09) $2.32 $0.13
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.63 $17.76 $15.88 $15.97 $13.65
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (0.73) 11.84 (0.56)(b) 17.00(j) 0.96(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.27 2.27 2.25 2.33 2.35(a)
Expenses after expense reductions (f) 2.17 2.17 2.20 N/A N/A
Net investment loss (1.42) (0.88) (1.31) (1.37) (1.39)(a)
Portfolio turnover 171 69 80 72 116
Net assets at end of period (000 Omitted) $164 $151 $143 $79 $5
- -----------------------------------------------------------------------------------------------------------------------------
CLASS 529C YEARS ENDED 8/31
---------------------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $17.78 $15.90 $15.99 $13.67 $13.54
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.26) $(0.16) $(0.22) $(0.19) $(0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency 0.13 2.04 0.13 2.51 0.15
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.13) $1.88 $(0.09) $2.32 $0.13
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.65 $17.78 $15.90 $15.99 $13.67
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (0.73) 11.82 (0.56)(b) 16.97(j) 0.96(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.27 2.27 2.25 2.30 2.35(a)
Expenses after expense reductions (f) 2.17 2.17 2.20 N/A N/A
Net investment loss (1.43) (0.91) (1.29) (1.35) (1.38)(a)
Portfolio turnover 171 69 80 72 116
Net assets at end of period (000 Omitted) $307 $290 $221 $58 $5
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years resulted in a per share impact of less
than $0.01.
(a) Annualized.
(b) 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 shares outstanding on
the day the proceeds were recorded.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(i) 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.
(j) 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, the 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.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
(t) Total returns do not include any applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Strategic Growth Fund (the fund) is a 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, including securities of emerging market
issuers. 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. The markets of emerging markets countries are generally more
volatile than the markets of developed countries with more mature economies.
All of the risks of investing in foreign securities previously described are
heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales
reported that day, equity securities are generally valued at the last quoted
daily bid quotation as reported by an independent pricing service on the
market or exchange on which they are primarily traded. Short-term instruments
with a maturity at issuance of 60 days or less may be valued at amortized
cost, which approximates market value. Open-end investment companies are
generally valued at their net asset value per share. Securities and other
assets generally valued on the basis of information from an independent
pricing service may also be valued at a broker-dealer bid quotation. The
values of foreign securities and other assets and liabilities expressed in
foreign currencies are converted to U.S. dollars using the mean of bid and
asked prices for rates reported by an independent pricing service. The Board
of Trustees has delegated primary responsibility for determining or causing to
be determined the value of the fund's investments (including any fair
valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the fund's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments. These investments are generally
valued at fair value based on information from independent pricing services.
The adviser may rely on independent pricing services or other information
(such as the correlation with price movements of similar securities in the
same or other markets; the type, cost and investment characteristics of the
security; the business and financial condition of the issuer; and trading and
other market data) to assist in determining whether to fair value and at what
value to fair value an investment. The value of an investment for purposes of
calculating the fund's net asset value can differ depending on the source and
method used to determine value. When fair valuation is used, the value of
investments used to determine the fund's net asset value may differ from
quoted or published prices for the same investments. In addition, investments
may be valued at fair value if the adviser determines that an investment's
value has been materially affected by events occurring after the close of the
exchange or market on which the investment is principally traded (such as
foreign exchange or market) and prior to the determination of the fund's net
asset value, or after the halting of trading of a specific security where
trading does not resume prior to the close of the exchange or market on which
the security is principally traded. Events that occur on a frequent basis
after foreign markets close (such as developments in foreign markets and
significant movements in the U.S. markets) and prior to the determination of
the fund's net asset value may be deemed to have a material affect on the
value of securities traded in foreign markets. Accordingly, the fund's foreign
equity securities may often be valued at fair value.
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 no longer charges a
redemption fee. See the fund's prospectus for details. Any redemption fees
charged are accounted for as an addition to paid-in-capital.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Certain dividends from foreign securities will be recorded when the fund is
informed of the dividend if such information is obtained subsequent to 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, 2006, the fund's custodian fees were
reduced by $147,752 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, 2006, the fund's custodian expenses were reduced
by $7,831 under this agreement. These amounts are shown as a reduction of total
expenses on the Statement of Operations. Effective January 1, 2006, the
commission recapture agreement was terminated.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue
Code, and to distribute all of its taxable income, including realized capital
gains. Accordingly, no provision for federal income tax is required in the
financial statements. Foreign taxes, if any, have been accrued by the fund in
the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Certain capital accounts in the financial statements are periodically adjusted
for permanent differences in order to reflect their tax character. These
adjustments have no impact on net assets or net asset value per share.
Temporary differences which arise from recognizing certain items of income,
expense, gain or loss in different periods for financial statement and tax
purposes will reverse at some time in the future. Distributions in excess of
net investment income or net realized gains are temporary overdistributions
for financial statement purposes resulting from differences in the recognition
or classification of income or distributions for financial statement and tax
purposes.
Book/tax differences primarily relate to net operating losses, defaulted
bonds, and wash sale loss deferrals.
The fund declared no distributions for the years ended August 31, 2006 and
August 31, 2005.
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/06
Cost of investments $1,609,285,364
------------------------------------------------------------
Gross appreciation $80,111,216
Gross depreciation (83,720,571)
------------------------------------------------------------
Net unrealized appreciation (depreciation) $(3,609,355)
Capital loss carryforwards (1,346,311,781)
Other temporary differences (1,443,116)
As of August 31, 2006, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
8/31/09 $(172,262,091)
8/31/10 (844,273,922)
8/31/11 (299,742,793)
8/31/12 (30,032,975)
------------------------------------------------------------
$(1,346,311,781)
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.
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years
as of the effective date. This Interpretation prescribes a minimum threshold
for financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return, and requires certain expanded
disclosures. Management has recently begun to evaluate the application of the
Interpretation to the fund and has not at this time determined the impact,
if any, resulting from the adoption of this Interpretation on the fund's
financial statements.
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
management and related administrative services and facilities to the fund. 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, 2006 this waiver amounted to $1,605,129 and is
reflected as a reduction of total expenses in the Statement of Operations. The
management fee incurred for the year ended August 31, 2006 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 $50,875 and $729 for the year ended
August 31, 2006, 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 MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10 0.25 0.35 0.35% $1,648,844
Class B 0.75 0.25 1.00 1.00% 3,230,877
Class C 0.75 0.25 1.00 1.00% 788,829
Class R 0.25 0.25 0.50 0.50% 17,198
Class R1 0.50 0.25 0.75 0.75% 2,004
Class R2 0.25 0.25 0.50 0.50% 2,308
Class R3 0.25 0.25 0.50 0.50% 5,032
Class R4 -- 0.25 0.25 0.25% 133
Class 529A 0.25 0.25 0.50 0.35% 1,971
Class 529B 0.75 0.25 1.00 1.00% 1,616
Class 529C 0.75 0.25 1.00 1.00% 3,036
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $5,701,848
(d) 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.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August
31, 2006 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 in effect
and will be implemented on such date as the fund's Board of Trustees may determine.
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within 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. All contingent deferred sales charges are paid to MFD and
during the year ended August 31, 2006, were as follows:
AMOUNT
Class A $16,802
Class B 495,088
Class C 3,760
Class 529B 125
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% of the average daily net assets attributable to each
529 share class. The fee is based on average daily net assets and is currently
established at 0.25% annually of average daily 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, 2006, were as follows:
AMOUNT
Class 529A $1,408
Class 529B 404
Class 529C 759
--------------------------------------------------
Total Program Manager Fees $2,571
SHAREHOLDER SERVICING AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned
subsidiary of MFS, receives a fee from the fund for its services as shareholder
servicing agent calculated as a percentage of the average net assets of the
fund as determined periodically under the supervision of the fund's Board of
Trustees. For the year ended August 31, 2006, the fee was $1,566,367, which
equated to 0.0976% 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, 2006, these
costs amounted to $478,133. The fund may also pay shareholder servicing related
costs to non-related parties.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the fund.
Under an administrative services agreement, the fund partially reimburses MFS
the costs incurred to provide these services. The fund is charged a fixed
amount plus a fee based on calendar year average net assets. From July 1, 2005
through March 31, 2006, the fund's annual fixed amount was $10,000. Effective
April 1, 2006, the fund's annual fixed amount is $17,500. The administrative
services fee incurred for the year ended August 31, 2006 was equivalent to an
annual effective rate of 0.0134% 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 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. MFS may subsequently
pay all, or a portion, of the retirement plan administration and services fee
to affiliated or unaffiliated third parties. For the year ended August 31,
2006, the fund paid MFS an annual retirement plan administration and services
fee up to the following annual percentage rates of each class' average daily
net assets:
ANNUAL
EFFECTIVE TOTAL
FEE RATE RATE(g) AMOUNT
Class R1 0.45% 0.36% $1,203
Class R2 0.40% 0.25% 1,846
Class R3 0.25% 0.16% 2,516
Class R4 0.15% 0.15% 80
Class R5 0.10% 0.10% 53
- --------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $5,698
(g) Effective October 1, 2005, MFS has agreed in writing to waive a portion of
the retirement plan administration and services fee equal to 0.10% for
Class R1 shares, 0.15% for Class R2 shares, and 0.10% for Class R3 shares.
This agreement will continue until at least September 30, 2008. For the
year ended August 31, 2006, this waiver amounted to $1,864 and is
reflected as a reduction of total expenses in the Statement of Operations.
TRUSTEES' AND OFFICERS' 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 or officers of the fund who are also
officers of the investment adviser, 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 certain retired Independent
Trustees which resulted in a pension expense of $2,405. The fund also has an
unfunded retirement benefit deferral plan for certain Independent Trustees
which resulted in a net decrease in expense of $2,309. Both amounts are
included in Independent trustees' compensation for the year ended
August 31, 2006. The deferred liability for retirement benefits payable to
certain Trustees under both plans amounted to $56,381 at August 31, 2006, and
is included in payable for independent trustees' compensation.
DEFERRED TRUSTEE COMPENSATION - Under a Deferred Compensation Plan (the Plan)
Independent Trustees previously were allowed to elect to defer receipt of all
or a portion of their annual compensation. Trustees are no longer allowed to
defer compensation under the Plan. Amounts previously deferred 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 payable for independent trustees'
compensation is $3,947 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. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the year ended August 31, 2006, the fee paid to Tarantino LLC
was $11,140. MFS has agreed to reimburse the fund for a portion of the
payments made by the funds to Tarantino LLC in the amount of $9,009, 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.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$2,685,752,331 and $2,810,963,910, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
YEAR ENDED YEAR ENDED
8/31/06 8/31/05(i)
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 4,377,994 $83,738,691 4,757,164 $85,935,893
Class B 831,375 15,209,822 1,575,957 27,392,859
Class C 260,061 4,776,584 333,948 5,798,886
Class I 8,989,008 177,217,230 9,423,324 174,295,462
Class J (c) -- -- 22,747 391,281
Class R 25,065 477,701 181,581 3,303,225
Class R1 11,694 218,511 11,518 205,511
Class R2 39,226 724,819 8,385 149,704
Class R3 29,585 549,177 44,189 809,232
Class R4 -- -- 2,781 50,000
Class R5 -- -- 2,780 50,000
Class 529A 7,044 131,184 4,173 75,144
Class 529B 1,519 27,095 1,599 27,649
Class 529C 3,416 63,535 5,138 89,910
- ------------------------------------------------------------------------------------------------------------
14,575,987 $283,134,349 16,375,284 $298,574,756
Shares issued in connection with
acquisition of MFS Managed
Sectors Fund
Class A -- $-- 7,801,545 $143,704,457
Class B -- -- 1,752,230 30,821,723
Class C -- -- 51,143 901,145
Class I -- -- 112,114 2,114,473
- ------------------------------------------------------------------------------------------------------------
-- $-- 9,717,032 $177,541,798
Shares reacquired
Class A (9,985,755) $(191,838,092) (18,826,189) $(339,752,339)
Class B (8,233,984) (149,909,261) (8,809,726) (152,957,259)
Class C (1,504,250) (27,523,677) (2,536,107) (43,995,123)
Class I (463,984) (9,172,412) (435,238) (8,147,845)
Class J (c) -- -- (360,973) (6,137,743)
Class R (89,429) (1,705,603) (98,637) (1,804,140)
Class R1 (2,748) (49,551) (112) (2,057)
Class R2 (4,590) (80,306) (942) (17,054)
Class R3 (16,005) (305,472) (18,704) (347,920)
Class 529A (4,306) (80,216) (2,182) (38,496)
Class 529B (693) (12,635) (2,154) (37,584)
Class 529C (2,322) (43,033) (2,714) (48,488)
- ------------------------------------------------------------------------------------------------------------
(20,308,066) $(380,720,258) (31,093,678) $(553,286,048)
Net change
Class A (5,607,761) $(108,099,401) (6,267,480) $(110,111,989)
Class B (7,402,609) (134,699,439) (5,481,539) (94,742,677)
Class C (1,244,189) (22,747,093) (2,151,016) (37,295,092)
Class I 8,525,024 168,044,818 9,100,200 168,262,090
Class J (c) -- -- (338,226) (5,746,462)
Class R (64,364) (1,227,902) 82,944 1,499,085
Class R1 8,946 168,960 11,406 203,454
Class R2 34,636 644,513 7,443 132,650
Class R3 13,580 243,705 25,485 461,312
Class R4 -- -- 2,781 50,000
Class R5 -- -- 2,780 50,000
Class 529A 2,738 50,968 1,991 36,648
Class 529B 826 14,460 (555) (9,935)
Class 529C 1,094 20,502 2,424 41,422
- ------------------------------------------------------------------------------------------------------------
(5,732,079) $(97,585,909) (5,001,362) $(77,169,494)
(c) Class J shares closed on April 15, 2005.
(i) For the period from the class' inception, April 1, 2005 (Classes R1, R2, R4, and R5) through the stated period end.
The fund is one of several mutual funds in which the MFS funds-of-funds may
invest. The MFS funds-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 14%, 2%, 22% and 13%, respectively, of the value of
outstanding voting shares. In addition, the MFS Lifetime 2010 Fund, MFS
Lifetime 2020 Fund, MFS Lifetime 2030 Fund and MFS Lifetime 2040 Fund were
each the owners of record of less than 1% of the value of outstanding voting
shares.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other affiliated funds have established
uncommitted borrowing arrangements with certain banks. Borrowings may be made
for temporary financing needs. Interest is charged to each fund, based on its
borrowings, generally 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 committed line of credit, is allocated among the participating
funds at the end of each calendar quarter. For the year ended August 31, 2006,
the fund's commitment fee and interest expense were $10,726 and $236,
respectively, and are included in miscellaneous expense on the Statement
of Operations.
(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, 2006, 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, 2006, by
correspondence with the Fund's 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, 2006, 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 20, 2006
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2006, 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(h) OTHER DIRECTORSHIPS(j)
- ------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); 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 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (November 2000 until June
2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians' Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) 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 9/27/41) 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)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (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 8/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (2000 until 2005);
Hillview Investment Trust II Funds
(mutual fund complex), Trustee
(2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004); Fidelity
Management & Research Company,
Vice President (prior to March
2004); Fidelity Group of Funds,
President and Treasurer (prior to
March 2004)
Tracy Atkinson(k) 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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
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(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior to May
2005)
Ellen Moynihan(k) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance Officer compliance services), Principal
(since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (prior to
March 2003)
James O. Yost(k) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) Company, Senior Vice President
- ------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(k) "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.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant
retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters.
The terms of that settlement required that compensation and expenses related to the independent
compliance consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the
services he rendered to the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler
a total of $351,119.29.
The Trust held a shareholders' meeting in 2005 to elect Trustees, and will hold a shareholders' meeting at
least once every five years thereafter, to elect Trustees.
Each Trustee (except Mr. Butler and Mr. Uek) 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. Butler, Sherratt and Uek and Ms. 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 January 1, 2006, the Trustees served as board members of 98 funds within the MFS
Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 02116-3741 200 Clarendon Street, Boston, MA 02116
PORTFOLIO MANAGER
Eric B. Fischman
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, 2006 ("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, 2005 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 ("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 MFS peer funds, (iii) information provided
by MFS on the advisory fees of comparable portfolios of other clients of MFS,
including institutional separate accounts 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, 2005, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 4th quintile relative to the other funds in the
universe for this three-year period (the 1st quintile being the best
performers and the 5th quintile being the worst performers). The total return
performance of the Fund's Class A shares was in the 5th quintile for each of
the one and five-year periods ended December 31, 2005 relative to the Lipper
performance universe. Because of the passage of time, these performance
results may differ from the performance results for more recent periods,
including those shown elsewhere in this report.
The Trustees expressed concern about the ongoing substandard investment
performance of the Fund. 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 recent restructuring
of responsibilities among MFS' senior investment management executives and
changes to the Fund's portfolio management team in 2004 and 2005, including
the replacement of the primary portfolio manager in 2005. In addition, the
Trustees requested that they receive a separate update on the Fund's
performance at each of their meetings. 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 and plans to improve investment
performance were sufficient to support approval of the continuance of the
investment advisory agreement for an additional one year period, but that they
would continue to closely monitor the performance of the Fund.
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
that there is an advisory fee reduction in effect for the Fund through
February 28, 2009 as part of MFS' settlement with the New York Attorney
General concerning market timing and related matters. The Trustees also
considered that, according to the Lipper data, the Fund's effective advisory
fee rate (taking into account the advisory fee reduction) was lower than the
Lipper expense group median, and the total expense ratio was 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 the advisory fee
reduction noted above, 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 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, which may include 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, if applicable, to pay for investment research
(excluding third-party research, for which MFS pays directly), 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, 2006.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement will be available on or before
November 1, 2006 by clicking on the fund's name under "Select a fund" on the
MFS Web site (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
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The fund's Form N-Q is
available on the EDGAR database on the Commission's Internet Web site 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)
The fund will notify shareholders of amounts for use in preparing 2006 income
tax forms in January 2007.
MFS(R) PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about the investment products and services that we
offer, and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal
information. We maintain information and records about you, your investments,
and the services you use. Examples of the nonpublic personal information we
maintain include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or
others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. We may share nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with
which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you.
We maintain physical, electronic, and procedural safeguards to help protect
the personal information we collect about you.
If you have any questions about the MFS privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS send prospectuses, reports,
and proxies directly to your e-mail inbox. You'll get timely information and
less clutter in your mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply go to mfs.com, log in to
your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
KEEPING YOU INFORMED
MFS wants to ensure that you are consistently updated about your investments
with us. This shareholder report will not only show how your investment
performed during the time period, but will also provide you with informative
commentary from the portfolio management team. They will offer an overview of
market conditions and will also discuss the specific factors that may have
enhanced or detracted from your investment's performance.
MFS(R) VALUE FUND
LETTER FROM THE CEO 1
- ----------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- ----------------------------------------------------------------
MANAGEMENT REVIEW 3
- ----------------------------------------------------------------
PERFORMANCE SUMMARY 5
- ----------------------------------------------------------------
EXPENSE TABLE 8
- ----------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 10
- ----------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 15
- ----------------------------------------------------------------
STATEMENT OF OPERATIONS 18
- ----------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 20
- ----------------------------------------------------------------
FINANCIAL HIGHLIGHTS 22
- ----------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 36
- ----------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 48
- ----------------------------------------------------------------
TRUSTEES AND OFFICERS 49
- ----------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 55
- ----------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 59
- ----------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 59
- ----------------------------------------------------------------
FEDERAL TAX INFORMATION 59
- ----------------------------------------------------------------
MFS(R) PRIVACY NOTICE 60
- ----------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- ----------------------------------------------------------------
Fund objective: Seeks capital appreciation and reasonable income.
THE REPORT IS PREPARED FOR THE GENERAL INFORMATION OF SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
- -------------------------------------------------------------------------------
NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
- -------------------------------------------------------------------------------
8/31/06
EIF-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The story is as old as the tortoise and the hare, but we believe it is
still relevant today -- "slow and steady" is the way to go when it comes to
investing. While financial markets will naturally ebb and flow over time,
investors who remain committed to a long-term investment strategy are more
likely to achieve their goals than those who consistently chase short-term
performance.
The first half of 2006 brought a high degree of fluctuation in markets
around the globe as varying economic factors pulled markets in opposite
directions. The global economy, for example, continued to grow at its fastest
pace in three decades -- spurred by increased international trade, good job
growth, and wage increases. At the same time, central banks around the world
raised interest rates in sync in a collaborative attempt to curb inflation.
While this was a positive development in some regions, in other cases,
economic and market gains were tempered.
What does all of this mean to you as an investor? If you're focused on the
long term, these global developments become part of a longer cycle instead of
one-time events that can have a significant impact on your portfolio.
At MFS(R), our investment management process -- honed over 80 years --
combines a unique teamwork approach with an unwavering focus on helping you
realize your long-term financial goals. We believe in a three-pronged
investment strategy:
o ALLOCATE holdings across the major asset classes -- including stocks,
bonds, and cash.
o DIVERSIFY within each class to take advantage of different market
segments and investing styles.
o REBALANCE assets regularly to maintain a desired asset allocation.
Of course, these strategies cannot guarantee a profit or protect against a
loss. Investing and planning for the long term requires diligence and
patience, two traits that in our experience are essential to capitalizing on
the many opportunities the financial markets can offer -- through both up and
down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 13, 2006
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Common Stocks 98.6%
Cash & Other Net Assets 1.4%
TOP TEN HOLDINGS
Bank of America Corp. 4.7%
------------------------------------------------
Altria Group, Inc. 4.0%
------------------------------------------------
Lockheed Martin Corp. 3.3%
------------------------------------------------
Citigroup, Inc. 3.2%
------------------------------------------------
Allstate Corp. 3.2%
------------------------------------------------
Goldman Sachs Group, Inc. 3.0%
------------------------------------------------
Metlife, Inc. 2.9%
------------------------------------------------
Johnson & Johnson 2.8%
------------------------------------------------
Exxon Mobil Corp. 2.4%
------------------------------------------------
TOTAL S.A., ADR 2.4%
------------------------------------------------
EQUITY SECTORS
Financial Services 31.3%
------------------------------------------------
Energy 11.9%
------------------------------------------------
Industrial Goods & Services 11.3%
------------------------------------------------
Utilities & Communications 9.3%
------------------------------------------------
Health Care 8.2%
------------------------------------------------
Consumer Staples 8.1%
------------------------------------------------
Basic Materials 5.6%
------------------------------------------------
Autos & Housing 2.7%
------------------------------------------------
Retailing 2.7%
------------------------------------------------
Technology 2.6%
------------------------------------------------
Transportation 2.0%
------------------------------------------------
Leisure 1.8%
------------------------------------------------
Special Products & Services 1.1%
------------------------------------------------
Percentages are based on net assets as of 8/31/06.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2006, Class A shares of the MFS Value
Fund provided a return of 12.36%, at net asset value. In comparison, the
fund's benchmark, the Russell 1000 Value Index, returned 13.96%.
DETRACTORS FROM PERFORMANCE
Stock selection within the utilities and communications sector detracted
from relative results. Our holdings of Sprint Nextel were among the fund's
top detractors for the period. In our opinion, the stock was down due to
weaker-than-expected net new subscribers and worries regarding the quality
of their subscriber base. The fund's holdings in wireless phone service
provider Vodafone also held back relative performance. Not holding benchmark
constituents Bellsouth and AT&T also detracted as both stocks performed
strongly.
Sub-par stock selection in the energy sector was another area of relative
weakness. Our holdings in French integrated oil company TOTAL SA detracted
from results as the stock underperformed the fund's index.
Stock selection in the retailing sector was also disappointing. Overweighting
weak-performing retailer Gap detracted from the fund's relative performance.
Other stocks that held back relative results included health care company
Johnson & Johnson. We believe that Johnson & Johnson's share price was under
pressure during the period due to concerns surrounding its pharmaceutical
patent expirations and a maturation of the drug eluding stent business. Home
improvement product maker Masco and our underweighted position in global
financial services firm JP Morgan Chase* also hurt relative returns. Avoiding
household products maker and benchmark constituent Proctor & Gamble also had a
negative impact on relative performance.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the industrial goods and services sector was the primary
driver of positive performance relative to the benchmark. Our positioning in
defense contractor Lockheed Martin, which is not a benchmark constituent, was
beneficial to performance as the company continued to report quarterly results
that exceeded expectations and the stock outperformed the fund's index.
Underweighting the relatively weak leisure sector helped our performance
versus the benchmark. Avoiding media company Time Warner* for a majority of
the period was beneficial as the stock declined moderately.
Stock selection in the financial services sector also bolstered relative
performance. Investment banking firm Goldman Sachs contributed significantly
to relative returns. Throughout the year Goldman Sachs delivered earnings
results that exceeded expectations and completed a substantial share
repurchase program. Our holdings in Swiss investment management and banking
firm UBS AG and diversified financial services firm PNC Bank were also top
contributors.
Stocks in other sectors that contributed to performance included management
consulting firm Accenture, which was up markedly over the period, and
oilseeds, corn, and wheat producer Archer-Daniels Midland*. Elsewhere,
agrochemical company Syngenta added to relative results as the stock was up
over the period. Our overweighted position in tobacco giant Altria Group also
helped, due to good quarterly earnings and favorable litigation results.
Overweighting Merck also proved beneficial as the company reduced expenses and
delivered solid quarterly results over the period.
Respectfully,
Nevin Chitkara Steven Gorham
Portfolio Manager Portfolio Manager
* Security was not held in the portfolio at period end.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report, as stated on the cover, and do
not necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market
and other conditions, and MFS disclaims any responsibility to update such
views. These views may not be relied upon as investment advice or as an
indication of trading intent on behalf of any MFS portfolio. References to
specific securities are not recommendations of such securities and may not be
representative of any MFS portfolio's current or
future investments.
PERFORMANCE SUMMARY THROUGH 8/31/06
The following chart illustrates the historical performance of the fund's Class
A shares 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. The performance of other share classes will be greater
than or less than that of the class depicted below. Benchmark comparisons are
unmanaged; do not reflect sales charges, commissions or expenses; and cannot
be invested in directly. (See Notes to Performance Summary.)
PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR
SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN QUOTED. FOR MOST RECENT MONTH-END
PERFORMANCE, PLEASE VISIT MFS.COM. (FOR THE MOST RECENT MONTH-END PERFORMANCE
FOR CLASS I SHARES CALL 1-800-343-2829.) THE PERFORMANCE SHOWN DOES NOT
REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
MFS Value Russell 1000
Fund - Class A Value Index
8/96 $ 9,425 $10,000
8/97 13,011 13,954
8/98 14,248 14,497
8/99 17,760 18,857
8/00 20,530 19,641
8/01 21,184 19,421
8/02 19,142 16,870
8/03 20,333 18,832
8/04 23,816 22,131
8/05 27,474 25,861
8/06 30,870 29,471
TOTAL RETURNS THROUGH 8/31/06
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
- -----------------------------------------------------------------------------
A 1/02/96 12.36% 7.82% 12.60%
- -----------------------------------------------------------------------------
B 11/04/97 11.66% 7.12% 11.96%
- -----------------------------------------------------------------------------
C 11/05/97 11.65% 7.12% 11.96%
- -----------------------------------------------------------------------------
I 1/02/97 12.78% 8.19% 12.90%
- -----------------------------------------------------------------------------
W 5/01/06 12.44% 7.84% 12.60%
- -----------------------------------------------------------------------------
R 12/31/02 12.22% 7.71% 12.54%
- -----------------------------------------------------------------------------
R1 4/01/05 11.51% 7.59% 12.47%
- -----------------------------------------------------------------------------
R2 4/01/05 11.96% 7.70% 12.53%
- -----------------------------------------------------------------------------
R3 10/31/03 12.03% 7.61% 12.48%
- -----------------------------------------------------------------------------
R4 4/01/05 12.33% 7.81% 12.59%
- -----------------------------------------------------------------------------
R5 4/01/05 12.64% 7.90% 12.64%
- -----------------------------------------------------------------------------
529A 7/31/02 12.11% 7.58% 12.47%
- -----------------------------------------------------------------------------
529B 7/31/02 11.39% 7.04% 12.19%
- -----------------------------------------------------------------------------
529C 7/31/02 11.39% 7.04% 12.19%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmark
- -----------------------------------------------------------------------------
Russell 1000 Value Index (f) 13.96% 8.70% 11.41%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -----------------------------------------------------------------------------
A 5.90% 6.55% 11.93%
With Initial Sales Charge (5.75%)
- -----------------------------------------------------------------------------
B 7.66% 6.82% 11.96%
With CDSC (Declining over six years
from 4% to 0%) (x)
- -----------------------------------------------------------------------------
C 10.65% 7.12% 11.96%
With CDSC (1% for 12 months) (x)
- -----------------------------------------------------------------------------
529A 5.66% 6.31% 11.81%
With Initial Sales Charge (5.75%)
- -----------------------------------------------------------------------------
529B 7.39% 6.73% 12.19%
With CDSC (Declining over six
years from 4% to 0%) (x)
- -----------------------------------------------------------------------------
529C 10.39% 7.04% 12.19%
With CDSC (1% for 12 months) (x)
- -----------------------------------------------------------------------------
Class I, W, R, R1, R2, R3, R4, and R5 shares do not have a sales charge.
Please see Notes to Performance Summary for more details.
CDSC - Contingent Deferred Sales Charge.
(f) Source: FactSet Research Systems Inc.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
Russell 1000 Value Index - 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 R shares are available only to existing Class R shareholders. 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. Class W shares are intended for purchase only through fee-based
wrap programs sponsored by financial intermediaries, such as brokerage firms and
investment advisers, that have entered into an agreement with the fund's
distributor to offer Class W shares to their wrap program clients. The use of
Class W shares by a financial intermediary sponsor of a fee-based program will
depend on, among other things, the structure of the particular fee-based wrap
program. Class W shares may be purchased at net asset value without an initial
sales charge or CDSC upon redemption.
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, 2006 through August 31, 2006.
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, 2006 through August 31, 2006.
ACTUAL EXPENSES
The first line for each share class in the following table 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 following table 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(p)
Share Expense Account Value Account Value 3/01/06-
Class Ratio 3/01/06 8/31/06 8/31/06
- -------------------------------------------------------------------------------
Actual 1.14% $1,000.00 $1,054.10 $5.90
A ------------------------------------------------------------------------
Hypothetical(h) 1.14% $1,000.00 $1,019.46 $5.80
- --------------------------------------------------------------------------------
Actual 1.79% $1,000.00 $1,050.90 $9.25
B ------------------------------------------------------------------------
Hypothetical(h) 1.79% $1,000.00 $1,016.18 $9.10
- --------------------------------------------------------------------------------
Actual 1.79% $1,000.00 $1,050.60 $9.25
C ------------------------------------------------------------------------
Hypothetical(h) 1.79% $1,000.00 $1,016.18 $9.10
- --------------------------------------------------------------------------------
Actual 0.79% $1,000.00 $1,056.10 $4.09
I ------------------------------------------------------------------------
Hypothetical(h) 0.79% $1,000.00 $1,021.22 $4.02
- --------------------------------------------------------------------------------
Actual 0.91% $1,000.00 $1,010.50 (i) $3.08 (i)
W ------------------------------------------------------------------------
Hypothetical(h) 0.91% $1,000.00 $1,013.78 (i) $3.09 (i)
- --------------------------------------------------------------------------------
Actual 1.29% $1,000.00 $1,053.30 $6.68
R ------------------------------------------------------------------------
Hypothetical(h) 1.29% $1,000.00 $1,018.70 $6.56
- --------------------------------------------------------------------------------
Actual 1.90% $1,000.00 $1,049.80 $9.82
R1 ------------------------------------------------------------------------
Hypothetical(h) 1.90% $1,000.00 $1,015.63 $9.65
- --------------------------------------------------------------------------------
Actual 1.55% $1,000.00 $1,052.00 $8.02
R2 ------------------------------------------------------------------------
Hypothetical(h) 1.55% $1,000.00 $1,017.39 $7.88
- --------------------------------------------------------------------------------
Actual 1.45% $1,000.00 $1,052.30 $7.50
R3 ------------------------------------------------------------------------
Hypothetical(h) 1.45% $1,000.00 $1,017.90 $7.38
- --------------------------------------------------------------------------------
Actual 1.21% $1,000.00 $1,053.90 $6.26
R4 ------------------------------------------------------------------------
Hypothetical(h) 1.21% $1,000.00 $1,019.11 $6.16
- --------------------------------------------------------------------------------
Actual 0.89% $1,000.00 $1,055.30 $4.61
R5 ------------------------------------------------------------------------
Hypothetical(h) 0.89% $1,000.00 $1,020.72 $4.53
- --------------------------------------------------------------------------------
Actual 1.39% $1,000.00 $1,053.10 $7.19
529A ------------------------------------------------------------------------
Hypothetical(h) 1.39% $1,000.00 $1,018.20 $7.07
- --------------------------------------------------------------------------------
Actual 2.04% $1,000.00 $1,049.40 $10.54
529B ------------------------------------------------------------------------
Hypothetical(h) 2.04% $1,000.00 $1,014.92 $10.36
- --------------------------------------------------------------------------------
Actual 2.04% $1,000.00 $1,049.30 $10.54
529C ------------------------------------------------------------------------
Hypothetical(h) 2.04% $1,000.00 $1,014.92 $10.36
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(i) For the period from the class' inception May 1, 2006 through the stated
period end.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
8/31/06
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Common Stocks - 98.6%
- ------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------
Aerospace - 7.3%
- ------------------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 3,388,680 $ 279,904,968
Northrop Grumman Corp. 2,800,790 187,120,780
United Technologies Corp. 2,322,200 145,625,162
---------------
$ 612,650,910
- ------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 1.0%
- ------------------------------------------------------------------------------------------------------------
Diageo PLC 4,886,799 $ 87,037,863
- ------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.1%
- ------------------------------------------------------------------------------------------------------------
NIKE, Inc., "B" 1,097,860 $ 88,663,174
- ------------------------------------------------------------------------------------------------------------
Automotive - 0.4%
- ------------------------------------------------------------------------------------------------------------
Johnson Controls, Inc. (l) 479,440 $ 34,486,119
- ------------------------------------------------------------------------------------------------------------
Broadcasting - 1.4%
- ------------------------------------------------------------------------------------------------------------
Viacom, Inc., "B" (n) 1,827,051 $ 66,321,951
Walt Disney Co. (l) 1,053,280 31,229,752
WPP Group PLC 1,770,660 21,586,751
---------------
$ 119,138,454
- ------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 5.6%
- ------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc. 408,540 $ 40,204,421
Goldman Sachs Group, Inc. 1,669,160 248,120,634
Lehman Brothers Holdings, Inc. 877,430 55,988,808
Mellon Financial Corp. 1,979,150 73,683,755
Merrill Lynch & Co., Inc. 668,620 49,163,629
---------------
$ 467,161,247
- ------------------------------------------------------------------------------------------------------------
Business Services - 1.1%
- ------------------------------------------------------------------------------------------------------------
Accenture Ltd., "A" (l) 3,235,020 $ 95,950,693
- ------------------------------------------------------------------------------------------------------------
Chemicals - 3.3%
- ------------------------------------------------------------------------------------------------------------
Dow Chemical Co. 1,566,760 $ 59,740,559
Nalco Holding Co. (n) 1,016,120 18,909,993
PPG Industries, Inc. 1,672,680 105,981,005
Syngenta AG 608,320 89,346,845
---------------
$ 273,978,402
- ------------------------------------------------------------------------------------------------------------
Computer Software - 1.1%
- ------------------------------------------------------------------------------------------------------------
Oracle Corp. (n) 4,574,410 $ 71,589,517
Symantec Corp. (n) 1,242,280 23,156,099
---------------
$ 94,745,616
- ------------------------------------------------------------------------------------------------------------
Construction - 2.3%
- ------------------------------------------------------------------------------------------------------------
Masco Corp. (l) 5,789,120 $ 158,679,779
Sherwin-Williams Co. (l) 712,060 36,770,778
---------------
$ 195,450,557
- ------------------------------------------------------------------------------------------------------------
Containers - 0.2%
- ------------------------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp. (l)(n) 1,490,870 $ 16,981,009
- ------------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.4%
- ------------------------------------------------------------------------------------------------------------
Cooper Industries Ltd., "A" (l) 596,160 $ 48,813,581
Tyco International Ltd. 692,920 18,119,858
W.W. Grainger, Inc. (l) 803,320 53,661,776
---------------
$ 120,595,215
- ------------------------------------------------------------------------------------------------------------
Electronics - 1.0%
- ------------------------------------------------------------------------------------------------------------
Analog Devices, Inc. (l) 840,100 $ 25,740,664
Intel Corp. 2,769,540 54,116,812
---------------
$ 79,857,476
- ------------------------------------------------------------------------------------------------------------
Energy - Independent - 2.2%
- ------------------------------------------------------------------------------------------------------------
Apache Corp. 944,790 $ 61,675,891
Devon Energy Corp. 1,022,170 63,875,403
EOG Resources, Inc. (l) 836,470 54,219,985
---------------
$ 179,771,279
- ------------------------------------------------------------------------------------------------------------
Energy - Integrated - 9.5%
- ------------------------------------------------------------------------------------------------------------
BP PLC, ADR (l) 1,269,070 $ 86,360,214
Chevron Corp. 1,027,624 66,178,986
ConocoPhillips 2,537,380 160,946,013
Exxon Mobil Corp. 3,001,280 203,096,618
Hess Corp. 1,662,730 76,119,779
TOTAL S.A., ADR 2,949,710 198,898,945
---------------
$ 791,600,555
- ------------------------------------------------------------------------------------------------------------
Food & Beverages - 3.1%
- ------------------------------------------------------------------------------------------------------------
Kellogg Co. 2,105,430 $ 106,745,301
Nestle S.A. (l) 206,070 70,892,569
PepsiCo, Inc. (l) 663,826 43,334,561
Sara Lee Corp. 2,299,850 38,246,506
---------------
$ 259,218,937
- ------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.7%
- ------------------------------------------------------------------------------------------------------------
Bowater, Inc. (l) 565,690 $ 12,858,134
International Paper Co. (l) 1,378,720 47,938,094
---------------
$ 60,796,228
- ------------------------------------------------------------------------------------------------------------
General Merchandise - 0.5%
- ------------------------------------------------------------------------------------------------------------
Federated Department Stores, Inc. (l) 1,203,070 $ 45,692,599
- ------------------------------------------------------------------------------------------------------------
Health Maintenance Organizations - 1.1%
- ------------------------------------------------------------------------------------------------------------
CIGNA Corp. 372,680 $ 42,138,928
WellPoint, Inc. (n) 669,670 51,839,155
---------------
$ 93,978,083
- ------------------------------------------------------------------------------------------------------------
Insurance - 8.9%
- ------------------------------------------------------------------------------------------------------------
AFLAC, Inc. 382,100 $ 17,221,247
Allstate Corp. 4,675,050 270,872,397
Chubb Corp. 1,053,020 52,819,483
Genworth Financial, Inc., "A" 2,240,810 77,151,088
Hartford Financial Services Group, Inc. 953,605 81,876,525
MetLife, Inc. 4,430,480 243,809,314
---------------
$ 743,750,054
- ------------------------------------------------------------------------------------------------------------
Leisure & Toys - 0.4%
- ------------------------------------------------------------------------------------------------------------
Hasbro, Inc. 1,457,390 $ 29,585,017
- ------------------------------------------------------------------------------------------------------------
Machinery & Tools - 2.6%
- ------------------------------------------------------------------------------------------------------------
Deere & Co. (l) 2,475,026 $ 193,299,531
Finning International, Inc. 276,730 9,952,911
Illinois Tool Works, Inc. 370,240 16,253,536
---------------
$ 219,505,978
- ------------------------------------------------------------------------------------------------------------
Major Banks - 9.1%
- ------------------------------------------------------------------------------------------------------------
Bank of America Corp. 7,588,555 $ 390,582,926
Bank of New York Co., Inc. 2,422,930 81,773,888
PNC Financial Services Group, Inc. 1,658,230 117,386,102
SunTrust Banks, Inc. 2,272,250 173,599,900
---------------
$ 763,342,816
- ------------------------------------------------------------------------------------------------------------
Network & Telecom - 0.5%
- ------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc. (l)(n) 1,925,870 $ 42,349,881
- ------------------------------------------------------------------------------------------------------------
Oil Services - 0.2%
- ------------------------------------------------------------------------------------------------------------
Noble Corp. 221,980 $ 14,515,272
- ------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 7.7%
- ------------------------------------------------------------------------------------------------------------
American Express Co. 1,458,460 $ 76,627,488
Citigroup, Inc. 5,490,610 270,961,604
Fannie Mae 2,811,640 148,032,846
Freddie Mac 631,150 40,141,140
UBS AG (l) 1,950,281 110,409,714
---------------
$ 646,172,792
- ------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.1%
- ------------------------------------------------------------------------------------------------------------
Abbott Laboratories 1,031,230 $ 50,220,901
Eli Lilly & Co. 1,184,540 66,251,322
Johnson & Johnson 3,631,490 234,812,143
Merck & Co., Inc. 3,177,280 128,838,704
Wyeth (l) 2,261,130 110,117,031
---------------
$ 590,240,101
- ------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 1.7%
- ------------------------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 1,418,990 $ 95,001,381
Norfolk Southern Corp. (l) 1,142,260 48,808,770
---------------
$ 143,810,151
- ------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.4%
- ------------------------------------------------------------------------------------------------------------
Air Products & Chemicals, Inc. 967,298 $ 64,122,184
Praxair, Inc. (l) 913,900 52,466,999
---------------
$ 116,589,183
- ------------------------------------------------------------------------------------------------------------
Specialty Stores - 1.1%
- ------------------------------------------------------------------------------------------------------------
Gap, Inc. 3,970,670 $ 66,746,963
Home Depot, Inc. 828,500 28,409,265
---------------
$ 95,156,228
- ------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.8%
- ------------------------------------------------------------------------------------------------------------
Vodafone Group PLC 32,689,923 $ 70,833,293
- ------------------------------------------------------------------------------------------------------------
Telephone Services - 2.8%
- ------------------------------------------------------------------------------------------------------------
Embarq Corp. 857,879 $ 40,448,995
Sprint Nextel Corp. 8,236,590 139,363,103
Verizon Communications, Inc. 1,448,480 50,957,526
---------------
$ 230,769,624
- ------------------------------------------------------------------------------------------------------------
Tobacco - 4.0%
- ------------------------------------------------------------------------------------------------------------
Altria Group, Inc. 4,025,180 $ 336,223,285
- ------------------------------------------------------------------------------------------------------------
Trucking - 0.3%
- ------------------------------------------------------------------------------------------------------------
Con-way, Inc. (l) 142,160 $ 6,802,356
United Parcel Service, Inc., "B" (l) 259,650 18,188,483
---------------
$ 24,990,839
- ------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 5.7%
- ------------------------------------------------------------------------------------------------------------
Dominion Resources, Inc. (l) 2,328,680 $ 186,038,245
Entergy Corp. 434,050 33,703,983
Exelon Corp. 510,540 31,132,729
FPL Group, Inc. (l) 2,699,110 119,975,440
PPL Corp. (l) 837,310 29,280,731
Public Service Enterprise Group, Inc. 345,020 24,158,300
TXU Corp. 799,610 52,942,178
---------------
$ 477,231,606
- ------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $6,493,316,300) $ 8,262,820,536
- ------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 1.2%
- ------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 100,915,456 $ 100,915,456
- ------------------------------------------------------------------------------------------------------------
Repurchase Agreements - 1.4%
- ------------------------------------------------------------------------------------------------------------
Merrill Lynch, 5.25%, dated 8/31/06, total to be received
$114,192,746 (secured by U.S. Treasury and Federal Agency
obligations and Mortgage Backed Securities in a jointly
traded account), at Cost $ 114,176,000 $ 114,176,000
- ------------------------------------------------------------------------------------------------------------
Short-term Obligations - 0.5%
- ------------------------------------------------------------------------------------------------------------
CRC Funding LLC, 5.26%, due 9/01/06 (t)(y) $ 39,567,000 $ 39,567,000
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $6,747,974,756) $ 8,517,478,992
- ------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (1.7)% (141,796,941)
- ------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 8,375,682,051
- ------------------------------------------------------------------------------------------------------------
(l) All or a portion of this security is on loan.
(n) Non-income producing security.
(t) Security exempt from registration with the U.S. Securities and Exchange Commission under Section 4(2) of
the Securities Act of 1933.
(y) The rate shown represents an annualized yield at time of purchase.
The following abbreviations are used in this report and are defined:
ADR American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/06
This statement represents your fund's balance sheet, which details the assets
and liabilities comprising the total value of the fund.
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $98,600,103 of securities
on loan (identified cost, $6,747,974,756) $8,517,478,992
Cash 85
Receivable for investments sold 37,473,277
Receivable for fund shares sold 13,202,023
Interest and dividends receivable 23,568,019
Other assets 35,623
- -------------------------------------------------------------------------------------------------------
Total assets $8,591,758,019
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $96,692,889
Payable for fund shares reacquired 16,715,765
Collateral for securities loaned, at value 100,915,456
Payable to affiliates
Management fee 272,646
Shareholder servicing costs 661,168
Distribution and service fees 209,795
Administrative services fee 3,356
Program manager fees 84
Retirement plan administration and services fees 1,091
Payable for independent trustees' compensation 10,557
Accrued expenses and other liabilities 593,161
- -------------------------------------------------------------------------------------------------------
Total liabilities $216,075,968
- -------------------------------------------------------------------------------------------------------
Net assets $8,375,682,051
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in capital $6,381,614,684
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 1,769,510,426
Accumulated net realized gain (loss) on investments and
foreign currency transactions 190,777,980
Undistributed net investment income 33,778,961
- -------------------------------------------------------------------------------------------------------
Net assets $8,375,682,051
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 332,709,320
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $4,929,524,706
Shares outstanding 195,595,060
- -------------------------------------------------------------------------------------------------------
Net asset value per share $25.20
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per
share) $26.74
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,139,651,203
Shares outstanding 45,514,252
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $25.04
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $881,538,386
Shares outstanding 35,246,365
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $25.01
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,162,665,270
Shares outstanding 45,925,427
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $25.32
- -------------------------------------------------------------------------------------------------------
Class W shares
- -------------------------------------------------------------------------------------------------------
Net assets $8,952,011
Shares outstanding 355,223
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $25.20
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $101,162,207
Shares outstanding 4,022,695
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $25.15
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $4,639,476
Shares outstanding 186,087
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $24.93
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $4,520,321
Shares outstanding 180,611
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $25.03
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $30,000,772
Shares outstanding 1,196,497
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $25.07
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $46,731,456
Shares outstanding 1,856,349
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $25.17
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $60,124,327
Shares outstanding 2,383,934
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $25.22
- -------------------------------------------------------------------------------------------------------
Class 529A shares
- -------------------------------------------------------------------------------------------------------
Net assets $3,947,300
Shares outstanding 157,342
- -------------------------------------------------------------------------------------------------------
Net asset value per share $25.09
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per
share) $26.62
- -------------------------------------------------------------------------------------------------------
Class 529B shares
- -------------------------------------------------------------------------------------------------------
Net assets $946,021
Shares outstanding 38,041
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $24.87
- -------------------------------------------------------------------------------------------------------
Class 529C shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,278,595
Shares outstanding 51,437
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $24.86
- -------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering prices of Class A and Class 529A shares are reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class
529B, and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 8/31/06
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------
Income
Dividends $199,375,915
Interest 5,456,846
Foreign taxes withheld (1,317,642)
- ------------------------------------------------------------------------------------------------------
Total investment income $203,515,119
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $47,845,272
Distribution and service fees 37,839,914
Program manager fees 13,439
Shareholder servicing costs 14,038,501
Administrative services fee 481,313
Retirement plan administration and services fees 128,097
Independent trustees' compensation 107,799
Custodian fee 1,107,614
Shareholder communications 620,100
Auditing fees 44,872
Legal fees 147,420
Miscellaneous 637,818
- ------------------------------------------------------------------------------------------------------
Total expenses $103,012,159
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (592,919)
Reduction of expenses by investment adviser (302,287)
- ------------------------------------------------------------------------------------------------------
Net expenses $102,116,953
- ------------------------------------------------------------------------------------------------------
Net investment income $101,398,166
- ------------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $303,516,978
Foreign currency transactions 122,565
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency
transactions $303,639,543
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $521,307,044
Translation of assets and liabilities in foreign currencies 8,773
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and
foreign currency translation $521,315,817
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency $824,955,360
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $926,353,526
- ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
YEARS ENDED 8/31
--------------------------------------
2006 2005
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income $101,398,166 $75,352,542
Net realized gain (loss) on investments and foreign
currency transactions 303,639,543 375,822,875
Net unrealized gain (loss) on investments and foreign
currency translation 521,315,817 503,440,230
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $926,353,526 $954,615,647
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A $(56,268,368) $(46,363,055)
Class B (6,779,390) (7,662,195)
Class C (4,984,908) (5,049,720)
Class I (15,180,640) (10,452,013)
Class W (388) --
Class R (1,084,796) (695,925)
Class R1 (14,051) (235)
Class R2 (12,119) (89)
Class R3 (160,191) (25,014)
Class R4 (168,024) (145)
Class R5 (571,771) (180)
Class 529A (32,149) (21,518)
Class 529B (2,874) (2,457)
Class 529C (4,307) (3,600)
Statements of Changes in Net Assets - continued
YEARS ENDED 8/31
--------------------------------------
2006 2005
DISTRIBUTIONS DECLARED TO SHAREHOLDERS - CONTINUED
- -------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions
Class A (217,446,760) --
Class B (58,304,573) --
Class C (41,125,028) --
Class I (44,433,140) --
Class R (5,057,671) --
Class R1 (65,732) --
Class R2 (32,165) --
Class R3 (644,654) --
Class R4 (108,618) --
Class R5 (2,214,112) --
Class 529A (147,960) --
Class 529B (34,246) --
Class 529C (54,564) --
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(454,933,199) $(70,276,146)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $224,602,050 $662,205,274
- -------------------------------------------------------------------------------------------------------
Redemption fees $-- $15,186
- -------------------------------------------------------------------------------------------------------
Total change in net assets $696,022,377 $1,546,559,961
- -------------------------------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------------------------------
At beginning of period 7,679,659,674 6,133,099,713
At end of period (including undistributed net investment
income of $33,778,961 and $17,522,206, respectively) $8,375,682,051 $7,679,659,674
- -------------------------------------------------------------------------------------------------------
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 life of a particular share class, if shorter). 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 share class (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
------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning
of period $23.81 $20.88 $18.03 $17.21 $19.28
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.34 $0.28 $0.23 $0.24 $0.20
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.48 2.91 2.84 0.81 (2.05)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.82 $3.19 $3.07 $1.05 $(1.85)
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.29) $(0.26) $(0.22) $(0.23) $(0.15)
From net realized gain on
investments and foreign currency
transactions (1.14) -- -- -- (0.07)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(1.43) $(0.26) $(0.22) $(0.23) $(0.22)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.20 $23.81 $20.88 $18.03 $17.21
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 12.36 15.36 17.13(b) 6.22 (9.64)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions(f) 1.17 1.16 1.18 1.20 1.25
Expenses after expense reductions(f) 1.16 1.16 1.18 N/A N/A
Net investment income 1.40 1.23 1.14 1.41 1.05
Portfolio turnover 26 24 42 55 48
Net assets at end of period
(000 Omitted) $4,929,525 $4,554,484 $3,527,854 $3,039,085 $1,820,568
- -------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning
of period $23.66 $20.77 $17.94 $17.13 $19.19
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.17 $0.13 $0.10 $0.12 $0.07
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.49 2.90 2.83 0.81 (2.02)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.66 $3.03 $2.93 $0.93 $(1.95)
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.14) $(0.14) $(0.10) $(0.12) $(0.04)
From net realized gain on
investments and foreign currency
transactions (1.14) -- -- -- (0.07)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(1.28) $(0.14) $(0.10) $(0.12) $(0.11)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.04 $23.66 $20.77 $17.94 $17.13
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 11.66 14.61 16.35(b) 5.50 (10.20)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions(f) 1.82 1.81 1.82 1.85 1.90
Expenses after expense reductions(f) 1.81 1.81 1.82 N/A N/A
Net investment income 0.72 0.58 0.49 0.76 0.40
Portfolio turnover 26 24 42 55 48
Net assets at end of period
(000 Omitted) $1,139,651 $1,262,029 $1,199,074 $1,069,389 $923,330
- -------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C YEARS ENDED 8/31
-------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $23.64 $20.75 $17.93 $17.12 $19.18
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.18 $0.13 $0.10 $0.12 $0.07
Net realized and unrealized gain (loss)
on investments and foreign currency 2.47 2.90 2.82 0.81 (2.02)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.65 $3.03 $2.92 $0.93 $(1.95)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.14) $(0.14) $(0.10) $(0.12) $(0.04)
From net realized gain on investments
and foreign currency transactions (1.14) -- -- -- (0.07)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(1.28) $(0.14) $(0.10) $(0.12) $(0.11)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.01 $23.64 $20.75 $17.93 $17.12
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 11.65 14.63 16.32(b) 5.52 (10.21)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.82 1.81 1.82 1.85 1.90
Expenses after expense reductions (f) 1.81 1.81 1.82 N/A N/A
Net investment income 0.74 0.58 0.49 0.76 0.40
Portfolio turnover 26 24 42 55 48
Net assets at end of period (000 Omitted) $881,538 $863,486 $761,669 $648,318 $473,537
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 8/31
-------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $23.91 $20.95 $18.10 $17.27 $19.35
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.43 $0.37 $0.30 $0.30 $0.27
Net realized and unrealized gain (loss)
on investments and foreign currency 2.49 2.91 2.84 0.82 (2.06)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.92 $3.28 $3.14 $1.12 $(1.79)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.37) $(0.32) $(0.29) $(0.29) $(0.22)
From net realized gain on investments
and foreign currency transactions (1.14) -- -- -- (0.07)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(1.51) $(0.32) $(0.29) $(0.29) $(0.29)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.32 $23.91 $20.95 $18.10 $17.27
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 12.78 15.78 17.47(b) 6.61 (9.35)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.82 0.81 0.83 0.85 0.90
Expenses after expense reductions (f) 0.81 0.81 0.83 N/A N/A
Net investment income 1.77 1.59 1.50 1.76 1.40
Portfolio turnover 26 24 42 55 48
Net assets at end of period (000 Omitted) $1,162,665 $899,654 $593,364 $296,961 $76,932
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS W YEAR ENDED 8/31
---------------
2006(i)
Net asset value, beginning of period $25.04
- ---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment income (d) $0.24
Net realized and unrealized gain (loss) on investments and foreign currency 0.02(g)
- ---------------------------------------------------------------------------------------------------
Total from investment operations $0.26
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------
From net investment income $(0.10)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $25.20
- ---------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 1.05(n)
- ---------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.92(a)
Expenses after expense reductions (f) 0.91(a)
Net investment income 3.32(a)
Portfolio turnover 26
Net assets at end of period (000 Omitted) $8,952
- ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R YEARS ENDED 8/31
--------------------------------------------------------------
2006 2005 2004 2003(i)
Net asset value, beginning of period $23.76 $20.84 $18.01 $16.53
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.30 $0.25 $0.21 $0.15
Net realized and unrealized gain (loss) on
investments and foreign currency 2.49 2.90 2.82 1.45
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.79 $3.15 $3.03 $1.60
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.26) $(0.23) $(0.20) $(0.12)
From net realized gain on investments and
foreign currency transactions (1.14) -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.40) $(0.23) $(0.20) $(0.12)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.15 $23.76 $20.84 $18.01
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 12.22 15.21 16.92(b) 9.76(n)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.31 1.31 1.33 1.42(a)
Expenses after expense reductions (f) 1.31 1.31 1.33 N/A
Net investment income 1.24 1.10 1.02 1.26(a)
Portfolio turnover 26 24 42 55
Net assets at end of period (000 Omitted) $101,162 $85,302 $47,970 $14,583
- -------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $23.63 $23.17
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.22 $0.09
Net realized and unrealized gain (loss) on investments and
foreign currency 2.39 0.42(g)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $2.61 $0.51
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.17) $(0.05)
From net realized gain on investments and foreign currency transactions (1.14) --
- -------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.31) $(0.05)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $24.93 $23.63
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 11.51 2.21(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.02 2.04(a)
Expenses after expense reductions (f) 1.92 2.04(a)
Net investment income 0.93 0.89(a)
Portfolio turnover 26 24
Net assets at end of period (000 Omitted) $4,639 $574
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R2 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $23.67 $23.17
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.30 $0.11
Net realized and unrealized gain (loss) on investments and foreign
currency 2.42 0.43(g)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $2.72 $0.54
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.22) $(0.04)
From net realized gain on investments and foreign currency transactions (1.14) --
- -------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.36) $(0.04)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.03 $23.67
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 11.96 2.34(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.71 1.73(a)
Expenses after expense reductions (f) 1.57 1.73(a)
Net investment income 1.33 1.49(a)
Portfolio turnover 26 24
Net assets at end of period (000 Omitted) $4,520 $732
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 8/31
-----------------------------------------------
2006 2005 2004(i)
Net asset value, beginning of period $23.71 $20.84 $18.73
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.31 $0.21 $0.11
Net realized and unrealized gain (loss) on investments and
foreign currency 2.43 2.88 2.12
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.74 $3.09 $2.23
- ---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------
From net investment income $(0.24) $(0.22) $(0.12)
From net realized gain on investments and foreign currency
transactions (1.14) -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.38) $(0.22) $(0.12)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.07 $23.71 $20.84
- ---------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 12.03 14.91 11.93(b)(n)
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.56 1.57 1.59(a)
Expenses after expense reductions (f) 1.47 1.57 1.59(a)
Net investment income 1.27 0.93 0.80(a)
Portfolio turnover 26 24 42
Net assets at end of period (000 Omitted) $30,001 $8,316 $414
- ---------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $23.81 $23.29
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.42 $0.15
Net realized and unrealized gain (loss) on investments and foreign
currency 2.39 0.44(g)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $2.81 $0.59
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.31) $(0.07)
From net realized gain on investments and foreign currency transactions (1.14) --
- -------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.45) $(0.07)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.17 $23.81
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 12.33 2.53(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.22 1.23(a)
Expenses after expense reductions (f) 1.22 1.23(a)
Net investment income 1.80 1.94(a)
Portfolio turnover 26 24
Net assets at end of period (000 Omitted) $46,731 $400
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $23.83 $23.29
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.45 $0.15
Net realized and unrealized gain (loss) on investments and foreign
currency 2.43 0.47(g)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $2.88 $0.62
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.35) $(0.08)
From net realized gain on investments and foreign currency transactions (1.14) --
- -------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.49) $(0.08)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.22 $23.83
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 12.64 2.68(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.92 0.92(a)
Expenses after expense reductions (f) 0.91 0.92(a)
Net investment income 1.80 1.57(a)
Portfolio turnover 26 24
Net assets at end of period (000 Omitted) $60,124 $51
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529A YEARS ENDED 8/31
-------------------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $23.71 $20.80 $18.00 $17.21 $16.84
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.28 $0.23 $0.18 $0.20 $0.03
Net realized and unrealized gain (loss) on
investments and foreign currency 2.48 2.90 2.80 0.81 0.34
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.76 $3.13 $2.98 $1.01 $0.37
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.24) $(0.22) $(0.18) $(0.22) $--
From net realized gain on investments and
foreign currency transactions (1.14) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.38) $(0.22) $(0.18) $(0.22) $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $25.09 $23.71 $20.80 $18.00 $17.21
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 12.11 15.09 16.63(b) 5.98 2.20(n)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.42 1.41 1.43 1.48 1.50(a)
Expenses after expense reductions (f) 1.41 1.41 1.43 N/A N/A
Net investment income 1.18 0.99 0.91 1.20 2.23(a)
Portfolio turnover 26 24 42 55 48
Net assets at end of period (000 Omitted) $3,947 $2,914 $1,673 $806 $10
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529B YEARS ENDED 8/31
-------------------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $23.52 $20.67 $17.87 $17.12 $16.76
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.13 $0.08 $0.05 $0.09 $0.02
Net realized and unrealized gain (loss) on
investments and foreign currency 2.45 2.87 2.81 0.80 0.34
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.58 $2.95 $2.86 $0.89 $0.36
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.09) $(0.10) $(0.06) $(0.14) $--
From net realized gain on investments and
foreign currency transactions (1.14) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.23) $(0.10) $(0.06) $(0.14) $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $24.87 $23.52 $20.67 $17.87 $17.12
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 11.39 14.32 16.03(b) 5.29 2.15(n)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.06 2.06 2.07 2.13 2.15(a)
Expenses after expense reductions (f) 2.06 2.06 2.07 N/A N/A
Net investment income 0.53 0.34 0.27 0.52 1.33(a)
Portfolio turnover 26 24 42 55 48
Net assets at end of period (000 Omitted) $946 $655 $439 $181 $6
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C YEARS ENDED 8/31
-------------------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $23.51 $20.66 $17.86 $17.11 $16.75
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.12 $0.08 $0.05 $0.09 $0.02
Net realized and unrealized gain (loss) on
investments and foreign currency 2.46 2.87 2.81 0.80 0.34
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.58 $2.95 $2.86 $0.89 $0.36
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.09) $(0.10) $(0.06) $(0.14) $--
From net realized gain on investments and
foreign currency transactions (1.14) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.23) $(0.10) $(0.06) $(0.14) $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $24.86 $23.51 $20.66 $17.86 $17.11
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 11.39 14.32 16.03(b) 5.31 2.15(n)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.06 2.06 2.07 2.13 2.15(a)
Expenses after expense reductions (f) 2.06 2.06 2.07 N/A N/A
Net investment income 0.51 0.36 0.26 0.55 1.75(a)
Portfolio turnover 26 24 42 55 48
Net assets at end of period (000 Omitted) $1,279 $1,062 $643 $352 $21
- --------------------------------------------------------------------------------------------------------------------------
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years resulted in a per share impact of less
than $0.01.
(a) Annualized.
(b) 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.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(g) 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.
(i) 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), April 1, 2005 (Classes R1, R2, R4, and R5) and May 1, 2006 (Class W) through the stated
period end.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
(t) Total returns do not include any applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Value Fund (the fund) is a 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, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales
reported that day, equity securities are generally valued at the last quoted
daily bid quotation as reported by an independent pricing service on the
market or exchange on which they are primarily traded. Short-term instruments
with a maturity at issuance of 60 days or less may be valued at amortized
cost, which approximates market value. Open-end investment companies are
generally valued at their net asset value per share. Securities and other
assets generally valued on the basis of information from an independent
pricing service may also be valued at a broker-dealer bid quotation. The
values of foreign securities and other assets and liabilities expressed in
foreign currencies are converted to U.S. dollars using the mean of bid and
asked prices for rates reported by an independent pricing service. The Board
of Trustees has delegated primary responsibility for determining or causing to
be determined the value of the fund's investments (including any fair
valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the fund's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments. These investments are generally
valued at fair value based on information from independent pricing services.
The adviser may rely on independent pricing services or other information
(such as the correlation with price movements of similar securities in the
same or other markets; the type, cost and investment characteristics of the
security; the business and financial condition of the issuer; and trading and
other market data) to assist in determining whether to fair value and at what
value to fair value an investment. The value of an investment for purposes of
calculating the fund's net asset value can differ depending on the source and
method used to determine value. When fair valuation is used, the value of
investments used to determine the fund's net asset value may differ from
quoted or published prices for the same investments. In addition, investments
may be valued at fair value if the adviser determines that an investment's
value has been materially affected by events occurring after the close of the
exchange or market on which the investment is principally traded (such as
foreign exchange or market) and prior to the determination of the fund's net
asset value, or after the halting of trading of a specific security where
trading does not resume prior to the close of the exchange or market on which
the security is principally traded. Events that occur on a frequent basis
after foreign markets close (such as developments in foreign markets and
significant movements in the U.S. markets) and prior to the determination of
the fund's net asset value may be deemed to have a material affect on the
value of securities traded in foreign markets. Accordingly, the fund's foreign
equity securities may often be valued at fair value.
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 no longer charges a
redemption fee. See the fund's prospectus for details. Any redemption fees
charged are accounted for as an addition to paid-in-capital.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Certain dividends from foreign securities will be recorded when the fund is
informed of the dividend if such information is obtained subsequent to 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, 2006, the fund's custodian fees were
reduced by $585,027 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, 2006, the fund's custodian expenses were reduced
by $7,892 under this agreement. These amounts are shown as a reduction of total
expenses on the Statement of Operations. Effective January 1, 2006, the
commission recapture agreement was terminated.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue
Code, and to distribute all of its taxable income, including realized capital
gains. Accordingly, no provision for federal income tax is required in the
financial statements. Foreign taxes, if any, have been accrued by the fund in
the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Certain capital accounts in the financial statements are periodically adjusted
for permanent differences in order to reflect their tax character. These
adjustments have no impact on net assets or net asset value per share. Temporary
differences which arise from recognizing certain items of income, expense, gain
or loss in different periods for financial statement and tax purposes will
reverse at some time in the future. Distributions in excess of net investment
income or net realized gains are temporary overdistributions for financial
statement purposes resulting from differences in the recognition or
classification of income or distributions for financial statement and tax
purposes.
Book/tax differences primarily relate to wash sale loss deferrals, treating a
portion of the proceeds from redemptions as a distribution for tax purposes,
and redemptions in-kind.
The tax character of distributions declared to shareholders is as follows:
8/31/06 8/31/05
Ordinary income (including any short-term
capital gains) $90,625,348 $70,276,146
Long-term capital gain 364,307,851 --
- --------------------------------------------------------------------------------
Total distributions $454,933,199 $70,276,146
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/06
Cost of investments $6,766,419,187
------------------------------------------------------------
Gross appreciation $1,931,616,823
Gross depreciation (180,557,018)
------------------------------------------------------------
Net unrealized appreciation (depreciation) $1,751,059,805
Undistributed ordinary income 41,676,548
Undistributed long-term capital gain 201,335,214
Other temporary differences (4,200)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years as
of the effective date. This Interpretation prescribes a minimum threshold for
financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return, and requires certain expanded disclosures.
Management has recently begun to evaluate the application of the Interpretation
to the fund, and has not at this time determined the impact, if any, resulting
from the adoption of this Interpretation on the fund's financial statements.
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 management and related administrative services and
facilities to the fund. The management fee is computed daily and paid monthly
at an annual rate of 0.60% of the fund's average daily net assets.
The investment adviser has agreed in writing to reduce its management fee to
0.55% of average daily net assets in excess of $7.5 billion. This written
agreement may be rescinded only upon consent of the fund's Board of Trustees.
This management fee reduction amounted to $237,106, which is shown as a
reduction of total expenses in the Statement of Operations.
The management fee incurred for the year ended August 31, 2006 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 $351,536 and $4,067 for the year ended August 31,
2006, 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 MFD and another component of the plan is a service fee
paid to MFD. MFD may subsequently pay all, or a portion, of the distribution
and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.35% $16,424,010
Class B 0.75% 0.25% 1.00% 1.00% 12,008,803
Class C 0.75% 0.25% 1.00% 1.00% 8,699,575
Class W 0.10% -- 0.10% 0.10% 885
Class R 0.25% 0.25% 0.50% 0.50% 525,280
Class R1 0.50% 0.25% 0.75% 0.75% 16,820
Class R2 0.25% 0.25% 0.50% 0.50% 8,184
Class R3 0.25% 0.25% 0.50% 0.50% 87,782
Class R4 -- 0.25% 0.25% 0.25% 36,852
Class 529A 0.25% 0.25% 0.50% 0.35% 11,862
Class 529B 0.75% 0.25% 1.00% 1.00% 8,005
Class 529C 0.75% 0.25% 1.00% 1.00% 11,856
- ---------------------------------------------------------------------------------------------------------------------
Total distribution and service fees $37,839,914
(d) 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.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August
31, 2006 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% the of the Class 529A distribution fee is not yet in
effect and will be implemented on such date as the fund's Board of Trustees may determine.
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within 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. All contingent deferred sales charges are paid to MFD and
during the year ended August 31, 2006, were as follows:
AMOUNT
Class A $44,814
Class B $1,853,454
Class C $71,267
Class 529B $19
Class 529C $6
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% of the average daily net assets attributable to each
529 share class. The fee is based on average daily net assets and is currently
established at 0.25% annually of average daily 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, 2006, were as follows:
AMOUNT
Class 529A $8,474
Class 529B 2,001
Class 529C 2,964
--------------------------------------------------
Total Program Manager Fees $13,439
SHAREHOLDER SERVICING AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned
subsidiary of MFS, receives a fee from the fund for its services as shareholder
servicing agent calculated as a percentage of the average net assets of the fund
as determined periodically under the supervision of the fund's Board of
Trustees. For the year ended August 31, 2006, the fee was $7,779,550, which
equated to 0.0975% 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, 2006, these
costs amounted to $1,412,511. The fund may also pay shareholder servicing
related costs to non-related parties.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the fund.
Under an administrative services agreement, the fund partially reimburses MFS
the costs incurred to provide these services. The fund is charged a fixed
amount plus a fee based on calendar year average net assets. From July 1, 2005
through March 31, 2006, the fund's annual fixed amount was $10,000. Effective
April 1, 2006, the fund's annual fixed amount is $17,500.
The administrative services fee incurred for the year ended August 31, 2006
was equivalent to an annual effective rate of 0.0060% 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 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. MFS may subsequently
pay all, or a portion, of the retirement plan administration and services fee
to affiliated or unaffiliated third parties. For the year ended August 31,
2006, the fund paid MFS an annual retirement plan administration and services
fee up to the following annual percentage rates of each class' average daily
net assets:
ANNUAL
EFFECTIVE TOTAL
FEE RATE RATE(g) AMOUNT
Class R1 0.45% 0.35% $10,061
Class R2 0.40% 0.25% 6,546
Class R3 0.25% 0.15% 43,891
Class R4 0.15% 0.15% 22,111
Class R5 0.10% 0.10% 45,488
- --------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $128,097
(g) Effective October 1, 2005, MFS has agreed in writing to waive a portion of
the retirement plan administration and services fee equal to 0.10% for
Class R1 shares, 0.15% for Class R2 shares, and 0.10% for Class R3 shares.
This agreement will continue until at least September 30, 2008. For the
year ended August 31, 2006, this waiver amounted to $21,340 and is
reflected as a reduction of total expenses in the Statement of Operations.
TRUSTEES' AND OFFICERS' 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 or officers of the fund who are also
officers of the investment adviser, 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 certain retired Independent
Trustees which resulted in a pension expense of $1,325. This amount is
included in Independent trustees' compensation for the year ended August 31,
2006. The deferred liability for retirement benefits payable to certain
retired Trustees amounted to $10,557 at August 31, 2006, and is included in
payable for independent 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. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the year ended August 31, 2006, the fee paid to Tarantino LLC
was $52,613. MFS has agreed to reimburse the fund for a portion of the
payments made by the funds to Tarantino LLC in the amount of $43,841, 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.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$2,018,887,478 and $2,084,433,780, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
YEAR ENDED YEAR ENDED
8/31/06 (i) 8/31/05 (i)
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 60,803,749 $1,470,033,391 67,622,518 $1,551,532,325
Class B 4,311,711 103,369,845 7,612,220 172,399,903
Class C 5,194,373 124,008,983 6,816,382 154,637,648
Class I 9,361,214 225,782,424 10,315,188 235,628,710
Class W 355,829 8,707,026 -- --
Class R 2,171,753 51,431,346 2,089,842 47,454,343
Class R1 219,186 5,288,225 24,912 587,129
Class R2 192,249 4,708,059 31,006 733,871
Class R3 1,329,770 31,972,342 427,084 9,909,445
Class R4 2,221,181 53,759,704 16,787 398,880
Class R5 2,712,139 63,685,240 2,147 50,000
Class 529A 36,431 876,014 59,455 1,361,336
Class 529B 9,630 228,856 8,352 188,972
Class 529C 8,588 204,251 16,465 377,276
- ------------------------------------------------------------------------------------------------------------
88,927,803 $2,144,055,706 95,042,358 $2,175,259,838
Shares issued to shareholders in
reinvestment of distributions
Class A 9,462,744 $221,685,921 1,675,437 $37,750,899
Class B 2,278,450 53,009,523 274,776 6,154,187
Class C 1,259,073 29,257,616 143,635 3,216,693
Class I 2,428,532 57,190,569 445,520 10,091,634
Class W 16 388 -- --
Class R 246,252 5,756,203 28,217 638,219
Class R1 3,439 79,783 10 235
Class R2 1,901 44,284 4 89
Class R3 34,444 803,843 1,089 25,006
Class R4 11,675 276,619 6 145
Class R5 138 3,249 7 180
Class 529A 7,720 180,072 951 21,439
Class 529B 1,606 37,120 110 2,457
Class 529C 2,549 58,871 161 3,597
- ------------------------------------------------------------------------------------------------------------
15,738,539 $368,384,061 2,569,923 $57,904,780
Shares reacquired
Class A (65,973,843) $(1,589,756,950) (46,979,425) $(1,074,415,928)
Class B (14,415,374) (346,071,665) (12,281,886) (279,614,054)
Class C (7,736,571) (185,371,128) (7,135,699) (161,831,639)
Class I (3,495,733) (85,149,119) (1,453,062) (33,305,489)
Class W (622) (15,405) -- --
Class R (1,985,641) (48,501,782) (829,372) (19,020,335)
Class R1 (60,823) (1,476,315) (637) (15,038)
Class R2 (44,464) (1,089,173) (85) (1,994)
Class R3 (518,447) (12,427,593) (97,308) (2,238,363)
Class R4 (393,300) (9,578,895) -- --
Class R5 (330,497) (8,024,795) -- --
Class 529A (9,716) (232,975) (17,903) (414,122)
Class 529B (1,056) (25,650) (1,826) (43,149)
Class 529C (4,854) (116,272) (2,618) (59,233)
- ------------------------------------------------------------------------------------------------------------
(94,970,941) $(2,287,837,717) (68,799,821) $(1,570,959,344)
Net change
Class A 4,292,650 $101,962,362 22,318,530 $514,867,296
Class B (7,825,213) (189,692,297) (4,394,890) (101,059,964)
Class C (1,283,125) (32,104,529) (175,682) (3,977,298)
Class I 8,294,013 197,823,874 9,307,646 212,414,855
Class W 355,223 8,692,009 -- --
Class R 432,364 8,685,767 1,288,687 29,072,227
Class R1 161,802 3,891,693 24,285 572,326
Class R2 149,686 3,663,170 30,925 731,966
Class R3 845,767 20,348,592 330,865 7,696,088
Class R4 1,839,556 44,457,428 16,793 399,025
Class R5 2,381,780 55,663,694 2,154 50,180
Class 529A 34,435 823,111 42,503 968,653
Class 529B 10,180 240,326 6,636 148,280
Class 529C 6,283 146,850 14,008 321,640
- ------------------------------------------------------------------------------------------------------------
9,695,401 $224,602,050 28,812,460 $662,205,274
(i) For the period from the class' inception, April 1, 2005 (Classes R1, R2, R4, and R5), and May 1, 2006
(Class W) through the stated period end.
The fund is one of several mutual funds in which the MFS funds-of-funds may
invest. The MFS funds-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 Growth Allocation Fund, MFS Conservative
Allocation Fund, and MFS Aggressive Growth Allocation Fund were the owners of
record of approximately 4%, 4%, 1% and 2% respectively, of the value of
outstanding voting shares. In addition, the MFS Lifetime Retirement Income Fund,
MFS Lifetime 2010 Fund, MFS Lifetime 2020 Fund, MFS Lifetime 2030 Fund, and MFS
Lifetime 2040 Fund were all the owners of record of less than 1% of the value of
outstanding voting shares.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other affiliated funds have established
uncommitted borrowing arrangements with certain banks. Borrowings may be made
for temporary financing needs. Interest is charged to each fund, based on its
borrowings, generally 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 committed line of credit, is allocated among the participating funds at
the end of each calendar quarter. For the year ended August 31, 2006, the fund's
commitment fee and interest expense were $50,317 and $1,635, respectively, and
are included in miscellaneous expense on the Statement of Operations.
(7) REDEMPTION IN-KIND
On January 3, 2006 and March 20, 2006, the fund paid redemption proceeds by a
distribution in-kind of portfolio securities that were valued at $8,016,656 and
$15,129,983, respectively. The redeeming shareholders received a pro rata share
of each of the securities held by the fund. The distribution of such securities
generated realized gains of $2,435,994 and $5,084,784, respectively, for the
fund. The fund is not required to recognize gains and losses generated from
distributions in-kind.
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, 2006, 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, 2006, by correspondence with the Fund's
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, 2006, 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 20, 2006
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2006, 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(h) OTHER DIRECTORSHIPS(j)
- ------------------- ---------------- --------------- ----------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); 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 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (November 2000 until June
2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians' Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) 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 9/27/41) 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)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (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 8/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (2000 until 2005);
Hillview Investment Trust II Funds
(mutual fund complex), Trustee
(2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004); Fidelity
Management & Research Company,
Vice President (prior to March
2004); Fidelity Group of Funds,
President and Treasurer (prior to
March 2004)
Tracy Atkinson(k) 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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
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(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior to May
2005)
Ellen Moynihan(k) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance Officer compliance services), Principal
(since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (prior to
March 2003)
James O. Yost(k) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) Company, Senior Vice President
- ------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(k) "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.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant
retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters. The
terms of that settlement required that compensation and expenses related to the independent compliance
consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services he rendered to
the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of $351,119.29.
The Trust held a shareholders' meeting in 2005 to elect Trustees, and will hold a shareholders' meeting at
least once every five years thereafter, to elect Trustees.
Each Trustee (except Mr. Butler and Mr. Uek) 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. Butler, Sherratt and Uek and Ms. 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 January 1, 2006, the Trustees served as board members of 98 funds within the MFS
Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 02116-3741 200 Clarendon Street, Boston, MA 02116
PORTFOLIO MANAGERS
Nevin Chitkara
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, 2006 ("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, 2005 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 ("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 MFS peer funds, (iii) information provided
by MFS on the advisory fees of comparable portfolios of other clients of MFS,
including institutional separate accounts 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, 2005, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 2nd quintile relative to the other funds in the
universe for this three-year period (the 1st quintile being the best
performers and the 5th quintile being the worst performers). The total return
performance of the Fund's Class A shares was in the 2nd quintile for each of
the one and five-year periods ended December 31, 2005 relative to the Lipper
performance universe. Because of the passage of time, these performance
results may 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
that MFS has agreed in writing to waive a portion of its advisory fee on
assets over $7.5 billion, which may not be changed without the Trustees'
approval. 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 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 the breakpoint described above. 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 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, which may include 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, if applicable, to pay for investment research
(excluding third-party research for which MFS pays directly), 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, 2006.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement will be available on or before November
1, 2006 by clicking on the fund's name under "Select a fund" on the MFS Web
site (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
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The fund's Form N-Q is
available on the EDGAR database on the Commission's Internet Web site 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)
The fund will notify shareholders of amounts for use in preparing 2006 income
tax forms in January 2007. The following information is provided pursuant to
provisions of the Internal Revenue Code.
The fund designates the maximum amount allowable as qualified dividend income
eligible for the 15% tax rate.
The fund designates $388,547,450 as capital gain dividends paid during the
fiscal year.
For corporate shareholders, 100.00% of the ordinary income dividends paid
during the fiscal year qualify for the corporate dividends received deduction.
MFS(R) PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about the investment products and services that we
offer, and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information.
We maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or
others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. We may share nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with
which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you.
We maintain physical, electronic, and procedural safeguards to help protect
the personal information we collect about you.
If you have any questions about the MFS privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS send prospectuses, reports,
and proxies directly to your e-mail inbox. You'll get timely information and
less clutter in your mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply go to mfs.com, log in to
your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
KEEPING YOU INFORMED
MFS wants to ensure that you are consistently updated about your investments
with us. This shareholder report will not only show how your investment
performed during the time period, but will also provide you with informative
commentary from the portfolio management team. They will offer an overview of
market conditions and will also discuss the specific factors that may have
enhanced or detracted from your investment's performance.
MFS(R) NEW DISCOVERY FUND
LETTER FROM THE CEO 1
- ------------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------------------------
MANAGEMENT REVIEW 3
- ------------------------------------------------------------------
PERFORMANCE SUMMARY 5
- ------------------------------------------------------------------
EXPENSE TABLE 8
- ------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 10
- ------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 15
- ------------------------------------------------------------------
STATEMENT OF OPERATIONS 18
- ------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 20
- ------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 21
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 30
- ------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 41
- ------------------------------------------------------------------
TRUSTEES AND OFFICERS 42
- ------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 48
- ------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 53
- ------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 53
- ------------------------------------------------------------------
FEDERAL TAX INFORMATION 53
- ------------------------------------------------------------------
MFS(R) PRIVACY NOTICE 54
- ------------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------------
Fund objective: Seeks to provide capital appreciation.
THE REPORT IS PREPARED FOR THE GENERAL INFORMATION OF SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
- -------------------------------------------------------------------------------
NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
- -------------------------------------------------------------------------------
8/31/06
NDF-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The story is as old as the tortoise and the hare, but we believe it is
still relevant today -- "slow and steady" is the way to go when it comes to
investing. While financial markets will naturally ebb and flow over time,
investors who remain committed to a long-term investment strategy are more
likely to achieve their goals than those who consistently chase short-term
performance.
The first half of 2006 brought a high degree of fluctuation in markets
around the globe as varying economic factors pulled markets in opposite
directions. The global economy, for example, continued to grow at its fastest
pace in three decades -- spurred by increased international trade, good job
growth, and wage increases. At the same time, central banks around the world
raised interest rates in sync in a collaborative attempt to curb inflation.
While this was a positive development in some regions, in other cases, economic
and market gains were tempered.
What does all of this mean to you as an investor? If you're focused on the
long term, these global developments become part of a longer cycle instead of
one-time events that can have a significant impact on your portfolio.
At MFS(R), our investment management process -- honed over 80 years --
combines a unique teamwork approach with an unwavering focus on helping you
realize your long-term financial goals. We believe in a three-pronged
investment strategy:
o ALLOCATE holdings across the major asset classes -- including stocks,
bonds, and cash.
o DIVERSIFY within each class to take advantage of different market
segments and investing styles.
o REBALANCE assets regularly to maintain a desired asset allocation.
Of course, these strategies cannot guarantee a profit or protect against a
loss. Investing and planning for the long term requires diligence and patience,
two traits that in our experience are essential to capitalizing on the many
opportunities the financial markets can offer -- through both up and down
economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 13, 2006
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Common Stocks 99.5%
Cash & Other Net Assets 0.5%
TOP TEN HOLDINGS
NICE Systems Ltd., ADR 3.1%
------------------------------------------------
Millipore Corp. 2.5%
------------------------------------------------
Aspect Medical Systems, Inc. 2.1%
------------------------------------------------
Thoratec Corp. 2.0%
------------------------------------------------
Conceptus, Inc. 1.9%
------------------------------------------------
MSC Industrial Direct Co., Inc., "A" 1.8%
------------------------------------------------
Medicis Pharmaceutical Corp., "A" 1.8%
------------------------------------------------
Nuance Communications, Inc. 1.8%
------------------------------------------------
Cyberonics, Inc. 1.8%
------------------------------------------------
Texas Roadhouse, Inc., "A" 1.7%
------------------------------------------------
EQUITY SECTORS
Health Care 24.2%
------------------------------------------------
Technology 18.9%
------------------------------------------------
Special Products & Services 12.5%
------------------------------------------------
Leisure 11.5%
------------------------------------------------
Retailing 10.4%
------------------------------------------------
Financial Services 5.5%
------------------------------------------------
Industrial Goods & Services 5.3%
------------------------------------------------
Energy 5.1%
------------------------------------------------
Basic Materials 2.3%
------------------------------------------------
Consumer Staples 2.1%
------------------------------------------------
Utilities & Communications 1.7%
------------------------------------------------
Percentages are based on net assets as of 8/31/06.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2006, Class A shares of the MFS New
Discovery Fund provided a total return of 0.65%, at net asset value. This
compares with a return of 6.00% for the fund's benchmark, the Russell 2000
Growth Index.
DETRACTORS FROM PERFORMANCE
Stock selection and, to a lesser extent, our overweighted position in the
weak-performing retailing sector detracted from relative performance. Our
holdings in lifestyle merchandising company Urban Outfitters (not an index
constituent) was among the fund's top detractors over the period. Urban
Outfitters' decreasing margins as a result of inventory overhang and additional
markdowns to clear seasonal inventories, along with falling same-store sales,
weighed on its stock performance.
Our overweighted positions in the leisure sector also held back results as the
sector underperformed the benchmark. In the leisure sector, entertainment
software games and accessories maker Take-Two Interactive Software* and video
game maker Activision (not an index constituent) hurt relative returns.
The fund's overweighting in the health care sector was unfavorable to relative
returns as the sector underperformed the benchmark. Holdings in medical device
makers Cyberonics and AtriCure (not an index constituent), medical equipment
company Aspect Medical Systems, disposable medical products maker Merit Medical
Systems*, and specialty drug distributor Allion Healthcare* held back relative
results. Cyberonics lowered revenue guidance for the first quarter of 2007 and
delayed profitability expectations. Additionally, investigations into
Cyberonics' stock option practices, which caused a delay in the filing of the
company's annual report, and uncertainty whether NASDAQ would delist its stocks
led to the company's poor results. Shares of Aspect Medical Systems declined on
concerns about the decreasing sales growth of sensors.
Weak stock selection in the special products and services sector and a
combination of stock selection and underweighted positions in the strong-
performing energy and basic materials sectors hindered relative returns. No
individual stocks within these sectors were among the top detractors for the
period.
Elsewhere, semiconductor materials and devices maker Cree and digital map
information provider NAVTEQ Corp, neither of which are index constituents, were
among the fund's top detractors.
CONTRIBUTORS TO PERFORMANCE
Although underweighting the weak-performing autos and housing sector bolstered
relative performance, no individual securities in this sector were among the
fund's top contributors.
Several stocks in the health care and technology sectors generated positive
returns relative to the benchmark. In health care, permanent birth control
device maker Conceptus and animal health products distributor MWI Veterinary
Supply aided relative returns. Conceptus was boosted by strong revenue from the
company's Essure product (a permanent sterilization device for women). The
company also benefited from the announcement earlier this year that health care
services provider Cigna would start to cover the Essure procedure. In addition,
our holdings in Medical device maker Advanced Medical Optics and diagnostic
device maker IDEXX Laboratories, neither of which are index constituents, also
contributed to relative returns.
In technology, NAND flash memory storage products maker SanDisk* (not an index
constituent) and information technology automation software products provider
Opsware aided results. In our opinion, SanDisk has been able to drive costs down
at an equal pace while benefiting from the elasticity of demand driven by lower
priced innovative consumer products. More recently, stock performance was driven
by the M-Systems acquisition, which extends the life of SanDisk's intellectual
property and the capacity upgrades for Apple's iPod Nano and SanDisk's own
Sansa, which drove tightness in the NAND flash memory storage products market.
Opsware's stock price increased as the company exceeded its revenue guidance
and, in February 2006, announced that Cisco Systems will distribute and
integrate Opsware's Network Automation product set under the Cisco brand.
Elsewhere, infrastructure services provider for electric power and gas
industries Quanta Services was among the fund's top contributors.
Respectfully,
Thomas H. Wetherald
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 portfolio. References to specific securities
are not recommendations of such securities, and may not be representative of any
MFS portfolio's current or future investments.
PERFORMANCE SUMMARY THROUGH 8/31/06
The following chart illustrates the historical performance of the fund's Class A
shares 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. The performance of other share classes will be greater than or
less than that of the class depicted below. Benchmark comparisons are unmanaged;
do not reflect sales charges, commissions or expenses; and cannot be invested in
directly. (See Notes to Performance Summary.)
PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR SHARES, WHEN
SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT PERFORMANCE MAY
BE LOWER OR HIGHER THAN QUOTED. FOR MOST RECENT MONTH-END PERFORMANCE, PLEASE
VISIT MFS.COM. (FOR THE MOST RECENT MONTH-END PERFORMANCE FOR CLASS I SHARES
CALL 1-800-343-2829.) 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 the stated period end.)
MFS New
Discovery Fund Russell 2000
-- 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
8/06 23,329 14,705
TOTAL RETURNS THROUGH 8/31/06
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr Life (t)
- ------------------------------------------------------------------------------
A 1/02/97 0.65% 0.96% 9.84%
- ------------------------------------------------------------------------------
B 11/03/97 0.00% 0.31% 9.19%
- ------------------------------------------------------------------------------
C 11/03/97 0.00% 0.30% 9.21%
- ------------------------------------------------------------------------------
I 1/02/97 0.98% 1.31% 10.22%
- ------------------------------------------------------------------------------
R 12/31/02 0.48% 0.85% 9.78%
- ------------------------------------------------------------------------------
R1 4/01/05 -0.12% 0.72% 9.70%
- ------------------------------------------------------------------------------
R2 4/01/05 0.25% 0.81% 9.75%
- ------------------------------------------------------------------------------
R3 10/31/03 0.36% 0.76% 9.72%
- ------------------------------------------------------------------------------
R4 4/01/05 0.59% 0.94% 9.82%
- ------------------------------------------------------------------------------
R5 4/01/05 0.89% 1.02% 9.87%
- ------------------------------------------------------------------------------
529A 7/31/02 0.36% 0.76% 9.72%
- ------------------------------------------------------------------------------
529B 7/31/02 -0.25% 0.23% 9.43%
- ------------------------------------------------------------------------------
529C 7/31/02 -0.25% 0.21% 9.41%
- ------------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmark
- ------------------------------------------------------------------------------
Russell 2000 Growth Index (f) 6.00% 6.20% 4.07%
- ------------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- ------------------------------------------------------------------------------
A -5.13% -0.23% 9.17%
With Initial Sales Charge (5.75%)
- ------------------------------------------------------------------------------
B -4.00% -0.09% 9.19%
With CDSC (Declining over six years
from 4% to 0%) (x)
- ------------------------------------------------------------------------------
C -1.00% 0.30% 9.21%
With CDSC (1% for 12 months) (x)
- ------------------------------------------------------------------------------
529A -5.41% -0.43% 9.05%
With Initial Sales Charge (5.75%)
- ------------------------------------------------------------------------------
529B -4.24% -0.16% 9.43%
With CDSC (Declining over six
years from 4% to 0%) (x)
- ------------------------------------------------------------------------------
529C -1.25% 0.21% 9.41%
With CDSC (1% for 12 months) (x)
- ------------------------------------------------------------------------------
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.
CDSC - Contingent Deferred Sales Charge.
(f) Source: FactSet Research Systems Inc.
(t) For the period from the commencement of the fund's investment operations,
January 2, 1997, through the stated period end.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
Russell 2000 Growth Index - 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 R shares are available only to existing Class R shareholders. 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, 2006 through August 31, 2006.
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, 2006 through August 31, 2006.
ACTUAL EXPENSES
The first line for each share class in the following table 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 following table 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(p)
Share Expense Account Value Account Value 3/01/06-
Class Ratio 3/01/06 8/31/06 8/31/06
- --------------------------------------------------------------------------------
Actual 1.44% $1,000.00 $924.80 $6.99
A ------------------------------------------------------------------------
Hypothetical (h) 1.44% $1,000.00 $1,017.95 $7.32
- -------------------------------------------------------------------------------
Actual 2.08% $1,000.00 $922.00 $10.08
B ------------------------------------------------------------------------
Hypothetical (h) 2.08% $1,000.00 $1,014.72 $10.56
- -------------------------------------------------------------------------------
Actual 2.07% $1,000.00 $922.10 $10.03
C ------------------------------------------------------------------------
Hypothetical (h) 2.07% $1,000.00 $1,014.77 $10.51
- -------------------------------------------------------------------------------
Actual 1.07% $1,000.00 $926.30 $5.20
I ------------------------------------------------------------------------
Hypothetical (h) 1.07% $1,000.00 $1,019.81 $5.45
- -------------------------------------------------------------------------------
Actual 1.57% $1,000.00 $923.90 $7.61
R ------------------------------------------------------------------------
Hypothetical (h) 1.57% $1,000.00 $1,017.29 $7.98
- -------------------------------------------------------------------------------
Actual 2.17% $1,000.00 $921.30 $10.51
R1 ------------------------------------------------------------------------
Hypothetical (h) 2.17% $1,000.00 $1,014.27 $11.02
- -------------------------------------------------------------------------------
Actual 1.84% $1,000.00 $922.70 $8.92
R2 ------------------------------------------------------------------------
Hypothetical (h) 1.84% $1,000.00 $1,015.93 $9.35
- -------------------------------------------------------------------------------
Actual 1.73% $1,000.00 $923.50 $8.39
R3 ------------------------------------------------------------------------
Hypothetical (h) 1.73% $1,000.00 $1,016.48 $8.79
- -------------------------------------------------------------------------------
Actual 1.50% $1,000.00 $924.20 $7.28
R4 ------------------------------------------------------------------------
Hypothetical (h) 1.50% $1,000.00 $1,017.64 $7.63
- -------------------------------------------------------------------------------
Actual 1.20% $1,000.00 $926.00 $5.83
R5 ------------------------------------------------------------------------
Hypothetical (h) 1.20% $1,000.00 $1,019.16 $6.11
- -------------------------------------------------------------------------------
Actual 1.68% $1,000.00 $923.00 $8.14
529A ------------------------------------------------------------------------
Hypothetical (h) 1.68% $1,000.00 $1,016.74 $8.54
- -------------------------------------------------------------------------------
Actual 2.33% $1,000.00 $920.20 $11.28
529B ------------------------------------------------------------------------
Hypothetical (h) 2.33% $1,000.00 $1,013.46 $11.82
- -------------------------------------------------------------------------------
Actual 2.33% $1,000.00 $920.30 $11.28
529C ------------------------------------------------------------------------
Hypothetical (h) 2.33% $1,000.00 $1,013.46 $11.82
- -------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
8/31/06
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized
by broad-based asset classes.
Common Stocks - 99.5%
- -----------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- -----------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.2%
- -----------------------------------------------------------------------------------------------------------
Castle Brands, Inc. (n) 226,690 $ 1,394,143
- -----------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.6%
- -----------------------------------------------------------------------------------------------------------
Carter's, Inc. (l)(n) 441,890 $ 10,207,659
Volcom, Inc. (n) 89,755 2,099,369
------------
$ 12,307,028
- -----------------------------------------------------------------------------------------------------------
Biotechnology - 4.6%
- -----------------------------------------------------------------------------------------------------------
Bruker BioSciences Corp. (n) 269,890 $ 1,905,423
CV Therapeutics, Inc. (l)(n) 514,630 5,789,587
Gen-Probe, Inc. (n) 191,440 9,305,898
Millipore Corp. (n) 303,320 19,467,078
------------
$ 36,467,986
- -----------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 0.7%
- -----------------------------------------------------------------------------------------------------------
Cowen Group, Inc. (l)(n) 104,480 $ 1,471,078
Thomas Weisel Partners Group LLC (l)(n) 278,480 4,046,314
------------
$ 5,517,392
- -----------------------------------------------------------------------------------------------------------
Business Services - 7.7%
- -----------------------------------------------------------------------------------------------------------
Bright Horizons Family Solutions, Inc. (l)(n) 219,843 $ 8,771,736
Corporate Executive Board Co. 113,680 9,962,915
CoStar Group, Inc. (l)(n) 281,030 11,319,888
Equinix, Inc. (l)(n) 145,530 8,392,715
LoopNet, Inc. (n) 262,480 3,425,364
TALX Corp. (l) 366,830 9,060,701
Ultimate Software Group, Inc. (l)(n) 420,840 9,510,984
------------
$ 60,444,303
- -----------------------------------------------------------------------------------------------------------
Chemicals - 1.1%
- -----------------------------------------------------------------------------------------------------------
Nalco Holding Co. (n) 486,680 $ 9,057,115
- -----------------------------------------------------------------------------------------------------------
Computer Software - 5.5%
- -----------------------------------------------------------------------------------------------------------
NAVTEQ Corp. (l)(n) 274,020 $ 7,277,971
Open Solutions, Inc. (l)(n) 293,030 8,656,106
Opsware, Inc. (l)(n) 1,790,510 12,623,096
TIBCO Software, Inc. (n) 1,661,830 13,061,984
Witness Systems, Inc. (n) 124,999 2,031,234
------------
$ 43,650,391
- -----------------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.6%
- -----------------------------------------------------------------------------------------------------------
MICROS Systems, Inc. (n) 101,802 $ 4,872,244
- -----------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 6.0%
- -----------------------------------------------------------------------------------------------------------
Central Garden & Pet Co. (l)(n) 216,375 $ 9,483,716
DTS, Inc. (l)(n) 110,940 2,039,077
ITT Educational Services, Inc. (l)(n) 178,610 11,804,335
Monster Worldwide, Inc. (n) 114,720 4,673,693
Move, Inc. (n) 787,172 3,605,248
PlanetOut, Inc. (l)(n) 449,010 1,917,273
Strayer Education, Inc. (l) 129,450 13,644,030
------------
$ 47,167,372
- -----------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.8%
- -----------------------------------------------------------------------------------------------------------
MSC Industrial Direct Co., Inc., "A" 365,280 $ 14,377,421
- -----------------------------------------------------------------------------------------------------------
Electronics - 6.3%
- -----------------------------------------------------------------------------------------------------------
ARM Holdings PLC 6,009,580 $ 13,594,082
Cree, Inc. (l)(n) 508,220 9,463,056
Entegris, Inc. (l)(n) 985,876 10,706,613
Kronos, Inc. (l)(n) 265,660 8,107,943
Volterra Semiconductor Corp. (l)(n) 538,380 8,118,770
------------
$ 49,990,464
- -----------------------------------------------------------------------------------------------------------
Energy - Independent - 2.0%
- -----------------------------------------------------------------------------------------------------------
EXCO Resources, Inc. (l)(n) 684,710 $ 9,147,726
Forest Oil Corp. (l)(n) 192,210 6,510,153
------------
$ 15,657,879
- -----------------------------------------------------------------------------------------------------------
Engineering - Construction - 2.4%
- -----------------------------------------------------------------------------------------------------------
InfraSource Services, Inc. (l)(n) 520,550 $ 9,000,310
Quanta Services, Inc. (l)(n) 544,430 9,652,744
------------
$ 18,653,054
- -----------------------------------------------------------------------------------------------------------
Food & Beverages - 0.7%
- -----------------------------------------------------------------------------------------------------------
Diamond Foods, Inc. (l) 351,926 $ 5,254,255
- -----------------------------------------------------------------------------------------------------------
Gaming & Lodging - 3.2%
- -----------------------------------------------------------------------------------------------------------
Four Seasons Hotels, Inc. 73,900 $ 4,663,829
Shuffle Master, Inc. (l)(n) 344,400 9,584,652
WMS Industries, Inc. (l)(n) 416,220 11,154,696
------------
$ 25,403,177
- -----------------------------------------------------------------------------------------------------------
General Merchandise - 1.0%
- -----------------------------------------------------------------------------------------------------------
Stage Stores, Inc. (l) 295,160 $ 7,780,418
- -----------------------------------------------------------------------------------------------------------
Internet - 1.6%
- -----------------------------------------------------------------------------------------------------------
CNET Networks, Inc. (l)(n) 1,008,590 $ 9,511,004
Vocus, Inc. (l)(n) 204,479 2,735,929
------------
$ 12,246,933
- -----------------------------------------------------------------------------------------------------------
Leisure & Toys - 2.9%
- -----------------------------------------------------------------------------------------------------------
Activision, Inc. (n) 855,780 $ 11,039,562
THQ, Inc. (l)(n) 463,934 11,969,497
------------
$ 23,009,059
- -----------------------------------------------------------------------------------------------------------
Machinery & Tools - 1.1%
- -----------------------------------------------------------------------------------------------------------
Ritchie Bros. Auctioneers, Inc. 179,570 $ 8,789,952
- -----------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 5.3%
- -----------------------------------------------------------------------------------------------------------
AMICAS, Inc. (l)(n) 494,640 $ 1,602,634
Healthcare Services Group, Inc. (l) 409,230 9,285,429
IDEXX Laboratories, Inc. (n) 105,865 9,740,639
MWI Veterinary Supply, Inc. (n) 312,700 10,853,817
VCA Antech, Inc. (n) 130,490 4,621,956
WebMD Health Corp. (l)(n) 162,840 6,018,566
------------
$ 42,123,041
- -----------------------------------------------------------------------------------------------------------
Medical Equipment - 10.9%
- -----------------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc. (l)(n) 188,790 $ 9,090,238
Aspect Medical Systems, Inc. (l)(n) 868,560 16,780,579
AtriCure, Inc. (l)(n) 349,390 2,078,870
Conceptus, Inc. (l)(n) 877,610 15,138,773
Cyberonics, Inc. (l)(n) 856,690 13,946,913
Immucor, Inc. (n) 271,705 5,643,313
Thoratec Corp. (l)(n) 1,075,200 15,762,432
Ventana Medical Systems, Inc. (l)(n) 165,820 7,733,845
------------
$ 86,174,963
- -----------------------------------------------------------------------------------------------------------
Metals & Mining - 0.5%
- -----------------------------------------------------------------------------------------------------------
Inmet Mining Corp. 96,580 $ 4,065,514
- -----------------------------------------------------------------------------------------------------------
Network & Telecom - 3.1%
- -----------------------------------------------------------------------------------------------------------
NICE Systems Ltd., ADR (n) 993,854 $ 24,806,596
- -----------------------------------------------------------------------------------------------------------
Oil Services - 3.1%
- -----------------------------------------------------------------------------------------------------------
Atwood Oceanics, Inc. (l)(n) 123,630 $ 5,316,090
Dresser-Rand Group, Inc. (l)(n) 510,370 10,437,067
Natural Gas Services Group, Inc. (l)(n) 287,160 4,080,544
Universal Compression Holdings, Inc. (n) 81,380 4,429,513
------------
$ 24,263,214
- -----------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 4.8%
- -----------------------------------------------------------------------------------------------------------
Commerce Bancorp, Inc. (l) 228,380 $ 7,607,338
Investors Financial Services Corp. (l) 266,400 12,350,304
New York Community Bancorp, Inc. (l) 565,840 9,285,434
Placer Sierra Bancshares 52,300 1,242,648
Signature Bank (n) 229,160 7,527,906
------------
$ 38,013,630
- -----------------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.8%
- -----------------------------------------------------------------------------------------------------------
Nuance Communications, Inc. (l)(n) 1,792,609 $ 14,071,981
- -----------------------------------------------------------------------------------------------------------
Pharmaceuticals - 3.4%
- -----------------------------------------------------------------------------------------------------------
Auxilium Pharmaceuticals, Inc. (l)(n) 494,892 $ 4,290,714
Endo Pharmaceuticals Holdings, Inc. (n) 246,190 8,131,656
Medicis Pharmaceutical Corp., "A" (l) 481,670 14,108,114
------------
$ 26,530,484
- -----------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.8%
- -----------------------------------------------------------------------------------------------------------
Morningstar, Inc. (l)(n) 100,446 $ 3,843,064
Playboy Enterprises, Inc., "B" (l)(n) 297,960 2,836,579
-----------
$ 6,679,643
- -----------------------------------------------------------------------------------------------------------
Restaurants - 4.6%
- -----------------------------------------------------------------------------------------------------------
Chipotle Mexican Grill, Inc., "A" (l)(n) 123,600 $ 6,098,424
Peet's Coffee & Tea, Inc. (l)(n) 150,790 3,801,416
Red Robin Gourmet Burgers, Inc. (l)(n) 306,080 12,919,637
Texas Roadhouse, Inc., "A" (l)(n) 1,134,440 13,704,035
------------
$ 36,523,512
- -----------------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.7%
- -----------------------------------------------------------------------------------------------------------
NuCO2, Inc. (l)(n) 197,720 $ 5,387,870
- -----------------------------------------------------------------------------------------------------------
Specialty Stores - 7.8%
- -----------------------------------------------------------------------------------------------------------
A.C. Moore Arts & Crafts, Inc. (l)(n) 351,780 $ 6,254,648
Aeropostale, Inc. (l)(n) 244,150 6,201,410
CarMax, Inc. (l)(n) 147,380 5,554,752
Celebrate Express, Inc. (n) 201,880 2,634,534
Citi Trends, Inc. (n) 268,650 8,443,670
Dick's Sporting Goods, Inc. (l)(n) 187,680 7,756,814
Hibbett Sporting Goods, Inc. (l)(n) 356,510 8,745,190
Monro Muffler Brake, Inc. (l) 180,400 5,814,292
Urban Outfitters, Inc. (l)(n) 652,390 10,235,999
------------
$ 61,641,309
- -----------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.4%
- -----------------------------------------------------------------------------------------------------------
Global Signal, Inc., REIT 73,300 $ 3,518,400
- -----------------------------------------------------------------------------------------------------------
Telephone Services - 1.3%
- -----------------------------------------------------------------------------------------------------------
Level 3 Communications, Inc. (l)(n) 2,353,570 $ 10,426,315
- -----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $778,807,747) $786,267,058
- -----------------------------------------------------------------------------------------------------------
Short-Term Obligations - 0.5%
- -----------------------------------------------------------------------------------------------------------
General Electric Co., 5.27%, due 9/01/06, at Amortized Cost
and Value (y) $ 4,335,000 $ 4,335,000
- -----------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 23.7%
- -----------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost
and Net Asset Value 186,967,549 $186,967,549
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $970,110,296) $977,569,607
- -----------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (23.7)% (187,329,910)
- -----------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $790,239,697
- -----------------------------------------------------------------------------------------------------------
(l) All or a portion of this security is on loan.
(n) Non-income producing security.
(y) The rate shown represents an annualized yield at time of purchase.
The following abbreviations are used in this report and are defined:
ADR American Depository Receipt
REIT Real Estate Investment Trust
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/06
This statement represents your fund's balance sheet, which details the assets and liabilities
comprising the total value of the fund.
ASSETS
- -----------------------------------------------------------------------------------------------------
Investments, at value, including $182,043,142 of securities
on loan (identified cost, $970,110,296) $977,569,607
Cash 745
Receivable for investments sold 10,700,999
Receivable for fund shares sold 519,959
Interest and dividends receivable 152,527
Other assets 4,904
- -----------------------------------------------------------------------------------------------------
Total assets $988,948,741
- -----------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------
Payable for investments purchased $7,825,882
Payable for fund shares reacquired 3,550,990
Collateral for securities loaned, at value 186,967,549
Payable to affiliates
Management fee 34,702
Shareholder servicing costs 129,933
Distribution and service fees 18,323
Administrative services fee 806
Program manager fees 30
Retirement plan administration and services fees 404
Payable for independent trustees' compensation 12,499
Accrued expenses and other liabilities 167,926
- -----------------------------------------------------------------------------------------------------
Total liabilities $198,709,044
- -----------------------------------------------------------------------------------------------------
Net assets $790,239,697
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------
Paid-in capital $957,885,933
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 7,459,309
Accumulated net realized gain (loss) on investments and
foreign currency transactions (175,093,812)
Accumulated net investment loss (11,733)
- -----------------------------------------------------------------------------------------------------
Net assets $790,239,697
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 46,888,681
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- -----------------------------------------------------------------------------------------------------
Net assets $409,470,982
Shares outstanding 24,147,078
- -----------------------------------------------------------------------------------------------------
Net asset value per share $16.96
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value
per share) $17.99
- -----------------------------------------------------------------------------------------------------
Class B shares
- -----------------------------------------------------------------------------------------------------
Net assets $132,519,134
Shares outstanding 8,182,708
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.20
- -----------------------------------------------------------------------------------------------------
Class C shares
- -----------------------------------------------------------------------------------------------------
Net assets $47,292,643
Shares outstanding 2,916,249
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.22
- -----------------------------------------------------------------------------------------------------
Class I shares
- -----------------------------------------------------------------------------------------------------
Net assets $119,052,634
Shares outstanding 6,811,113
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $17.48
- -----------------------------------------------------------------------------------------------------
Class R shares
- -----------------------------------------------------------------------------------------------------
Net assets $11,691,438
Shares outstanding 693,039
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $16.87
- -----------------------------------------------------------------------------------------------------
Class R1 shares
- -----------------------------------------------------------------------------------------------------
Net assets $856,977
Shares outstanding 53,033
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $16.16
- -----------------------------------------------------------------------------------------------------
Class R2 shares
- -----------------------------------------------------------------------------------------------------
Net assets $361,822
Shares outstanding 22,295
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $16.23
- -----------------------------------------------------------------------------------------------------
Class R3 shares
- -----------------------------------------------------------------------------------------------------
Net assets $4,417,241
Shares outstanding 263,238
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $16.78
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R4 shares
- -----------------------------------------------------------------------------------------------------
Net assets $2,404,350
Shares outstanding 141,929
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $16.94
- -----------------------------------------------------------------------------------------------------
Class R5 shares
- --------------------------------------------------------------------------------
Net assets $59,998,603
Shares outstanding 3,527,025
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $17.01
- -----------------------------------------------------------------------------------------------------
Class 529A shares
- -----------------------------------------------------------------------------------------------------
Net assets $1,630,024
Shares outstanding 97,070
- -----------------------------------------------------------------------------------------------------
Net asset value per share $16.79
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value
per share) $17.81
- -----------------------------------------------------------------------------------------------------
Class 529B shares
- -----------------------------------------------------------------------------------------------------
Net assets $211,387
Shares outstanding 13,183
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.03
- -----------------------------------------------------------------------------------------------------
Class 529C shares
- -----------------------------------------------------------------------------------------------------
Net assets $332,462
Shares outstanding 20,721
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.04
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering prices of Class A and Class 529A shares are reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class
529B, and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 8/31/06
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT LOSS
- -------------------------------------------------------------------------------------------------------
Income
Dividends $2,382,226
Income on securities loaned 568,750
Interest 164,664
Foreign taxes withheld (25,633)
- -------------------------------------------------------------------------------------------------------
Total investment income $3,090,007
- -------------------------------------------------------------------------------------------------------
Expenses
Management fee $8,192,481
Distribution and service fees 4,158,494
Program manager fees 5,475
Shareholder servicing costs 2,026,342
Administrative services fee 127,806
Retirement plan administration and services fees 54,902
Independent trustees' compensation 22,936
Custodian fee 271,943
Shareholder communications 129,851
Auditing fees 44,872
Legal fees 18,525
Miscellaneous 281,505
- -------------------------------------------------------------------------------------------------------
Total expenses $15,335,132
- -------------------------------------------------------------------------------------------------------
Fees paid indirectly (101,239)
Reduction of expenses by investment adviser (918,888)
- -------------------------------------------------------------------------------------------------------
Net expenses $14,315,005
- -------------------------------------------------------------------------------------------------------
Net investment loss $(11,224,998)
- -------------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $95,716,193
Foreign currency transactions 2,232
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $95,718,425
- -------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(76,087,080)
Translation of assets and liabilities in foreign currencies (176)
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(76,087,256)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $19,631,169
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $8,406,171
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations,
any distributions, and any shareholder transactions.
YEARS ENDED 8/31
-----------------------------------------
2006 2005
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------
Net investment loss $(11,224,998) $(13,154,686)
Net realized gain (loss) on investments and foreign
currency transactions 95,718,425 148,915,854
Net unrealized gain (loss) on investments and foreign
currency translation (76,087,256) 113,723,737
- -----------------------------------------------------------------------------------------------------------
Change in net assets from operations $8,406,171 $249,484,905
- -----------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(212,974,517) $(489,681,518)
- -----------------------------------------------------------------------------------------------------------
Redemption fees $17,161 $12,723
- -----------------------------------------------------------------------------------------------------------
Total change in net assets $(204,551,185) $(240,183,890)
- -----------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------
At beginning of period 994,790,882 1,234,974,772
At end of period (including accumulated net investment loss
of $11,733 and $12,736, respectively) $790,239,697 $994,790,882
- -----------------------------------------------------------------------------------------------------------
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
life of a particular share class, if shorter). 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
share class (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
-----------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $16.85 $13.53 $14.57 $11.99 $16.17
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.20) $(0.16) $(0.18) $(0.13) $(0.18)
Net realized and unrealized gain
(loss) on investments and foreign
currency 0.31 3.48 (0.86) 2.71 (4.00)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.11 $3.32 $(1.04) $2.58 $(4.18)
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions $-- $-- $-- $-- $(0.00)(w)
- --------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to
paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $--
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.96 $16.85 $13.53 $14.57 $11.99
- --------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 0.65 24.54 (7.14)(b) 21.52 (25.85)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.57 1.57 1.51 1.58 1.58
Expenses after expense reductions (f) 1.47 1.47 1.51 N/A N/A
Net investment loss (1.12) (1.05) (1.20) (1.11) (1.21)
Portfolio turnover 99 112 122 104 102
Net assets at end of period
(000 Omitted) $409,471 $603,396 $824,708 $1,004,473 $822,193
- --------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
-----------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $16.20 $13.09 $14.19 $11.75 $15.95
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.30) $(0.25) $(0.27) $(0.21) $(0.28)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.30 3.36 (0.83) 2.65 (3.92)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.00 $3.11 $(1.10) $2.44 $(4.20)
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions $-- $-- $-- $-- $(0.00)(w)
- --------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to
paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $--
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.20 $16.20 $13.09 $14.19 $11.75
- --------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 0.00 23.76 (7.75)(b) 20.77 (26.33)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.22 2.22 2.15 2.23 2.23
Expenses after expense reductions (f) 2.12 2.12 2.15 N/A N/A
Net investment loss (1.77) (1.70) (1.84) (1.76) (1.86)
Portfolio turnover 99 112 122 104 102
Net assets at end of period (000 Omitted) $132,519 $203,722 $231,653 $271,580 $232,792
- --------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C YEARS ENDED 8/31
-----------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $16.22 $13.10 $14.21 $11.77 $15.97
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.30) $(0.25) $(0.27) $(0.21) $(0.28)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.30 3.37 (0.84) 2.65 (3.92)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.00 $3.12 $(1.11) $2.44 $(4.20)
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions $-- $-- $-- $-- $(0.00)(w)
- --------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $--
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.22 $16.22 $13.10 $14.21 $11.77
- --------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 0.00 23.82 (7.81)(b) 20.73 (26.34)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.22 2.22 2.15 2.23 2.23
Expenses after expense reductions (f) 2.12 2.12 2.15 N/A N/A
Net investment loss (1.77) (1.70) (1.84) (1.76) (1.86)
Portfolio turnover 99 112 122 104 102
Net assets at end of period (000 Omitted) $47,293 $58,454 $67,102 $84,391 $87,271
- --------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 8/31
----------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $17.31 $13.85 $14.86 $12.19 $16.37
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.14) $(0.11) $(0.13) $(0.09) $(0.13)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.31 3.57 (0.88) 2.76 (4.05)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.17 $3.46 $(1.01) $2.67 $(4.18)
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $-- $-- $-- $-- $(0.00)(w)
- --------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $--
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.48 $17.31 $13.85 $14.86 $12.19
- --------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 0.98 24.98 (6.80)(b) 21.90 (25.58)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.22 1.23 1.16 1.23 1.23
Expenses after expense reductions (f) 1.12 1.13 1.16 N/A N/A
Net investment loss (0.77) (0.70) (0.84) (0.75) (0.86)
Portfolio turnover 99 112 122 104 102
Net assets at end of period (000 Omitted) $119,053 $107,842 $103,031 $90,872 $47,641
- --------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R YEARS ENDED 8/31
-----------------------------------------------------------
2006 2005 2004 2003(i)
Net asset value, beginning of period $16.79 $13.50 $14.57 $11.38
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.22) $(0.18) $(0.20) $(0.11)
Net realized and unrealized gain (loss) on
investments and foreign currency 0.30 3.47 (0.87) 3.30
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations $0.08 $3.29 $(1.07) $3.19
- ---------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital (d) $0.00(w) $0.00(w) $0.00(w) $--
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.87 $16.79 $13.50 $14.57
- ---------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 0.48 24.37 (7.34)(b) 28.03(n)
- ---------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.72 1.73 1.66 1.78(a)
Expenses after expense reductions (f) 1.62 1.63 1.66 N/A
Net investment loss (1.27) (1.17) (1.32) (1.26)(a)
Portfolio turnover 99 112 122 104
Net assets at end of period (000 Omitted) $11,691 $16,926 $7,262 $1,824
- ---------------------------------------------------------------------------------------------------------------
CLASS R1 YEARS ENDED 8/31
---------------------
2006 2005(i)
Net asset value, beginning of period $16.18 $14.50
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.31) $(0.10)
Net realized and unrealized gain (loss) on investments
and foreign currency 0.29 1.78
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.02) $1.68
- ---------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.16 $16.18
- ---------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) (0.12) 11.59(n)
- ---------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.43 2.43(a)
Expenses after expense reductions (f) 2.22 2.33(a)
Net investment loss (1.86) (1.69)(a)
Portfolio turnover 99 112
Net assets at end of period (000 Omitted) $857 $206
- ---------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R2 YEARS ENDED 8/31
---------------------
2006 2005(i)
Net asset value, beginning of period $16.19 $14.50
- --------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.25) $(0.08)
Net realized and unrealized gain (loss) on investments
and foreign currency 0.29 1.77
- --------------------------------------------------------------------------------------------------
Total from investment operations $0.04 $1.69
- --------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $16.23 $16.19
- --------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 0.25 11.66(n)
- --------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.12 2.12(a)
Expenses after expense reductions (f) 1.88 2.02(a)
Net investment loss (1.52) (1.02)(a)
Portfolio turnover 99 112
Net assets at end of period (000 Omitted) $362 $135
- --------------------------------------------------------------------------------------------------
CLASS R3 YEARS ENDED 8/31
-----------------------------------
2006 2005 2004(i)
Net asset value, beginning of period $16.72 $13.47 $15.35
- ---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.24) $(0.22) $(0.11)
Net realized and unrealized gain (loss) on investments
and foreign currency 0.30 3.47 (1.77)
- ---------------------------------------------------------------------------------------------------
Total from investment operations $0.06 $3.25 $(1.88)
- ---------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $16.78 $16.72 13.47
- ---------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 0.36 24.13 (12.25)(b)(n)
- ---------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.96 1.98 1.73(a)
Expenses after expense reductions (f) 1.77 1.88 1.73(a)
Net investment loss (1.41) (1.42) (1.23)(a)
Portfolio turnover 99 112 122
Net assets at end of period (000 Omitted) $4,417 $1,573 $454
- ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 YEARS ENDED 8/31
---------------------
2006 2005(i)
Net asset value, beginning of period $16.84 $15.04
- -------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------
Net investment loss (d) $(0.21) $(0.04)
Net realized and unrealized gain (loss) on investments
and foreign currency 0.31 1.84
- -------------------------------------------------------------------------------------
Total from investment operations $0.10 $1.80
- -------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w)
- -------------------------------------------------------------------------------------
Net asset value, end of period $16.94 $16.84
- -------------------------------------------------------------------------------------
Total return (%) (r)(s) 0.59 11.97(n)
- -------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.62 1.63(a)
Expenses after expense reductions (f) 1.52 1.53(a)
Net investment loss (1.15) (0.66)(a)
Portfolio turnover 99 112
Net assets at end of period (000 Omitted) $2,404 $334
- -------------------------------------------------------------------------------------
CLASS R5 YEARS ENDED 8/31
---------------------
2006 2005(i)
Net asset value, beginning of period $16.86 $15.04
- -------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------
Net investment loss (d) $(0.15) $(0.04)
Net realized and unrealized gain (loss) on investments
and foreign currency 0.30 1.86
- -------------------------------------------------------------------------------------
Total from investment operations $0.15 $1.82
- -------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w)
- -------------------------------------------------------------------------------------
Net asset value, end of period $17.01 $16.86
- -------------------------------------------------------------------------------------
Total return (%) (r)(s) 0.89 12.10(n)
- -------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.32 1.32(a)
Expenses after expense reductions (f) 1.22 1.22(a)
Net investment loss (0.84) (0.67)(a)
Portfolio turnover 99 112
Net assets at end of period (000 Omitted) $59,999 $56
- -------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529A YEARS ENDED 8/31
---------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $16.73 $13.47 $14.53 $11.99 $11.95
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.24) $(0.20) $(0.21) $(0.16) $(0.01)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.30 3.46 (0.85) 2.70 0.05
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.06 $3.26 $(1.06) $2.54 $0.04
- -------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $--
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.79 $16.73 $13.47 $14.53 $11.99
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 0.36 24.20 (7.30)(b) 21.18 0.33(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.83 1.83 1.75 1.84 1.83(a)
Expenses after expense reductions (f) 1.72 1.73 1.75 N/A N/A
Net investment loss (1.37) (1.27) (1.43) (1.35) (1.20)(a)
Portfolio turnover 99 112 122 104 102
Net assets at end of period (000 Omitted) $1,630 $1,637 $390 $180 $10
- -------------------------------------------------------------------------------------------------------------------
CLASS 529B YEARS ENDED 8/31
---------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $16.07 $13.02 $14.15 $11.75 $11.71
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.33) $(0.28) $(0.30) $(0.24) $(0.02)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.29 3.33 (0.83) 2.64 0.06
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.04) $3.05 $(1.13) $2.40 $0.04
- -------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $--
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.03 $16.07 $13.02 $14.15 $11.75
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (0.25) 23.43 (7.99)(b) 20.43 0.34(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.47 2.47 2.40 2.49 2.48(a)
Expenses after expense reductions (f) 2.37 2.37 2.40 N/A N/A
Net investment loss (2.02) (1.93) (2.07) (1.99) (1.87)(a)
Portfolio turnover 99 112 122 104 102
Net assets at end of period (000 Omitted) $211 $177 $135 $84 $6
- -------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C YEARS ENDED 8/31
---------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $16.08 $13.03 $14.16 $11.77 $11.73
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.34) $(0.28) $(0.31) $(0.24) $(0.02)
Net realized and unrealized gain (loss)
on investments and foreign currency 0.30 3.33 (0.82) 2.63 0.06
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.04) $3.05 $(1.13) $2.39 $0.04
- -------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $--
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.04 $16.08 $13.03 $14.16 $11.77
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (0.25) 23.41 (7.98)(b) 20.31 0.34(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.48 2.47 2.40 2.50 2.48(a)
Expenses after expense reductions (f) 2.37 2.37 2.40 N/A N/A
Net investment loss (2.02) (1.93) (2.08) (1.99) (1.88)(a)
Portfolio turnover 99 112 122 104 102
Net assets at end of period (000 Omitted) $332 $333 $240 $147 $5
- -------------------------------------------------------------------------------------------------------------------
(a) Annualized.
(b) 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.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(i) 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.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
(t) Total returns do not include any applicable sales charges.
(w) Per share amount was less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS New Discovery Fund (the fund) is a 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 will generally focus on securities of small size companies which may be
more volatile than those of larger companies. The fund can invest in foreign
securities, including securities of emerging market issuers. 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. The markets of
emerging markets countries are generally more volatile than the markets of
developed countries with more mature economies. All of the risks of investing in
foreign securities previously described are heightened when investing in
emerging markets countries.
INVESTMENT VALUATIONS - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales reported
that day, equity securities are generally valued at the last quoted daily bid
quotation as reported by an independent pricing service on the market or
exchange on which they are primarily traded. Short-term instruments with a
maturity at issuance of 60 days or less may be valued at amortized cost, which
approximates market value. Open-end investment companies are generally valued at
their net asset value per share. Securities and other assets generally valued on
the basis of information from an independent pricing service may also be valued
at a broker-dealer bid quotation. The values of foreign securities and other
assets and liabilities expressed in foreign currencies are converted to U.S.
dollars using the mean of bid and asked prices for rates reported by an
independent pricing service. The Board of Trustees has delegated primary
responsibility for determining or causing to be determined the value of the
fund's investments (including any fair valuation) to the adviser pursuant to
valuation policies and procedures approved by the Board. If the adviser
determines that reliable market quotations are not readily available,
investments are valued at fair value as determined in good faith by the adviser
in accordance with such procedures under the oversight of the Board of Trustees.
Under the fund's valuation policies and procedures, market quotations are not
considered to be readily available for many types of debt instruments. These
investments are generally valued at fair value based on information from
independent pricing services. The adviser may rely on independent pricing
services or other information (such as the correlation with price movements of
similar securities in the same or other markets; the type, cost and investment
characteristics of the security; the business and financial condition of the
issuer; and trading and other market data) to assist in determining whether to
fair value and at what value to fair value an investment. The value of an
investment for purposes of calculating the fund's net asset value can differ
depending on the source and method used to determine value. When fair valuation
is used, the value of investments used to determine the fund's net asset value
may differ from quoted or published prices for the same investments. In
addition, investments may be valued at fair value if the adviser determines that
an investment's value has been materially affected by events occurring after the
close of the exchange or market on which the investment is principally traded
(such as foreign exchange or market) and prior to the determination of the
fund's net asset value, or after the halting of trading of a specific security
where trading does not resume prior to the close of the exchange or market on
which the security is principally traded. Events that occur on a frequent basis
after foreign markets close (such as developments in foreign markets and
significant movements in the U.S. markets) and prior to the determination of the
fund's net asset value may be deemed to have a material affect on the value of
securities traded in foreign markets. Accordingly, the fund's foreign equity
securities may often be valued at fair value.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The fund requires that the
securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the fund to obtain those securities
in the event of a default under the repurchase agreement. The fund monitors, on
a daily basis, the value of the collateral to ensure that its value, including
accrued interest, is greater than amounts owed to the fund under each such
repurchase agreement. The fund, along with other affiliated entities of
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
FOREIGN CURRENCY TRANSLATION - Purchases and sales of foreign investments,
income, and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an amount
at least equal to the market value of the securities loaned. State Street
provides the fund with indemnification against Borrower default. The fund bears
the risk of loss with respect to the investment of cash collateral. On loans
collateralized by cash, the cash collateral is invested in a money market fund
or short-term securities. A portion of the income generated upon investment of
the collateral is remitted to the Borrowers, and the remainder is allocated
between the fund and the lending agent. On loans collateralized by U.S. Treasury
securities, a fee is received from the Borrower, and is allocated between the
fund and the lending agent. The dividend and interest income earned on the
securities loaned is accounted for in the same manner as other dividend and
interest income.
SHORT TERM FEES - For purchases made on or after July 1, 2004 and before April
1, 2005, the fund charged 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. Effective April 1, 2005, the fund charges 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. Certain dividends from
foreign securities will be recorded when the fund is informed of the dividend if
such information is obtained subsequent to 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, 2006, the fund's custodian fees were
reduced by $72,814 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, 2006, the fund's custodian expenses were reduced
by $28,425 under this agreement. These amounts are shown as a reduction of total
expenses on the Statement of Operations. Effective January 1, 2006, the
commission recapture agreement was terminated.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue Code,
and to distribute all of its taxable income, including realized capital gains.
Accordingly, no provision for federal income tax is required in the financial
statements. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Certain capital accounts in the financial statements are periodically adjusted
for permanent differences in order to reflect their tax character. These
adjustments have no impact on net assets or net asset value per share. Temporary
differences which arise from recognizing certain items of income, expense, gain
or loss in different periods for financial statement and tax purposes will
reverse at some time in the future. Distributions in excess of net investment
income or net realized gains are temporary overdistributions for financial
statement purposes resulting from differences in the recognition or
classification of income or distributions for financial statement and tax
purposes.
Book/tax differences primarily relate to net operating losses and wash sale loss
deferrals.
The fund declared no distributions for the years ended August 31, 2006 and
August 31, 2005.
The federal tax cost and the tax basis components of distributable earnings were
as follows:
AS OF 8/31/06
Cost of investments $971,410,113
----------------------------------------------------------
Gross appreciation $72,646,419
Gross depreciation (66,486,925)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $6,159,494
Capital loss carryforwards (173,770,410)
Other temporary differences (35,320)
As of August 31, 2006, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
8/31/11 $(173,770,410)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years as
of the effective date. This Interpretation prescribes a minimum threshold for
financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return, and requires certain expanded disclosures.
Management has recently begun to evaluate the application of the Interpretation
to the fund, and has not at this time determined the impact, if any, resulting
from the adoption of this Interpretation on the fund's financial statements.
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 management and related administrative services and
facilities to the fund.
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 agreed in
writing 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 written agreement may be rescinded only upon consent of the fund's
Board of Trustees. This management fee reduction amounted to $910,276, which is
shown as a reduction of total expenses in the Statement of Operations. The
management fee incurred for the year ended August 31, 2006 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 $42,788 and $1,049 for the year ended August 31,
2006, 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 MFD and another component of the plan is a service fee
paid to MFD. MFD may subsequently pay all, or a portion, of the distribution
and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.35% $1,739,182
Class B 0.75% 0.25% 1.00% 1.00% 1,761,987
Class C 0.75% 0.25% 1.00% 1.00% 547,430
Class R 0.25% 0.25% 0.50% 0.50% 76,302
Class R1 0.50% 0.25% 0.75% 0.75% 4,456
Class R2 0.25% 0.25% 0.50% 0.50% 1,068
Class R3 0.25% 0.25% 0.50% 0.50% 13,534
Class R4 -- 0.25% 0.25% 0.25% 3,381
Class 529A 0.25% 0.25% 0.50% 0.35% 5,786
Class 529B 0.75% 0.25% 1.00% 1.00% 1,895
Class 529C 0.75% 0.25% 1.00% 1.00% 3,473
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $4,158,494
(d) 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.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August
31, 2006 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 in effect and
will be implemented on such date as the fund's Board of Trustees may determine.
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within 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. All contingent deferred sales charges are paid to MFD and during the
year ended August 31, 2006, were as follows:
AMOUNT
Class A $32,065
Class B 163,245
Class C 4,619
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% of the average daily net assets attributable to each 529 share
class. The fee is based on average daily net assets and is currently established
at 0.25% annually of average daily 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, 2006, were as follows:
AMOUNT
Class 529A $4,133
Class 529B 474
Class 529C 868
--------------------------------------------------
Total Program Manager Fees $5,475
SHAREHOLDER SERVICING AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned
subsidiary of MFS, receives a fee from the fund for its services as shareholder
servicing agent calculated as a percentage of the average net assets of the fund
as determined periodically under the supervision of the fund's Board of
Trustees. For the year ended August 31, 2006, the fee was $889,306, which
equated to 0.0978% 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, 2006, these
costs amounted to $336,554. The fund may also pay shareholder servicing related
costs to non-related parties.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the fund. Under
an administrative services agreement, the fund partially reimburses MFS the
costs incurred to provide these services. The fund is charged a fixed amount
plus a fee based on calendar year average net assets. From July 1, 2005 through
March 31, 2006, the fund's annual fixed amount was $10,000. Effective April 1,
2006, the fund's annual fixed amount is $17,500. The administrative services fee
incurred for the year ended August 31, 2006 was equivalent to an annual
effective rate of 0.0140% 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 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. MFS may subsequently pay
all, or a portion, of the retirement plan administration and services fee to
affiliated or unaffiliated third parties. For the year ended August 31, 2006,
the fund paid MFS an annual retirement plan administration and services fee up
to the following annual percentage rates of each class' average daily net
assets:
ANNUAL
EFFECTIVE TOTAL
FEE RATE RATE(g) AMOUNT
Class R1 0.45% 0.35% $2,674
Class R2 0.40% 0.26% 854
Class R3 0.25% 0.16% 6,767
Class R4 0.15% 0.15% 2,029
Class R5 0.10% 0.10% 42,578
- --------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $54,902
(g) Effective October 1, 2005, MFS has agreed in writing to waive a portion of
the retirement plan administration and services fee equal to 0.10% for Class
R1 shares, 0.15% for Class R2 shares, and 0.10% for Class R3 shares. This
agreement will continue until at least September 30, 2008. For the year
ended August 31, 2006, this waiver amounted to $3,457 and is reflected as a
reduction of total expenses in the Statement of Operations.
TRUSTEES' AND OFFICERS' 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 or officers of the fund who are also officers of the investment
adviser, 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 certain
retired Independent Trustees which resulted in a pension expense of $1,324. This
amount is included in Independent trustees' compensation for the year ended
August 31, 2006. The deferred liability for retirement benefits payable to
certain retired Trustees amounted to $11,911 at August 31, 2006, and is included
in payable for independent 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. The funds can terminate the
Agreement with Tarantino LLC at any time under the terms of the Agreement. For
the year ended August 31, 2006, the fee paid to Tarantino LLC was $5,829. MFS
has agreed to reimburse the fund for a portion of the payments made by the funds
to Tarantino LLC in the amount of $5,155, 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.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$905,201,151 and $1,132,023,866, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
YEAR ENDED YEAR ENDED
8/31/06 8/31/05(i)
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 7,953,074 $139,051,896 11,949,697 $183,836,975
Class B 1,176,971 19,953,581 1,638,877 24,312,243
Class C 418,367 7,100,792 597,878 8,856,962
Class I 1,827,818 33,352,164 2,114,298 33,670,053
Class R 236,757 4,181,606 823,683 12,721,175
Class R1 61,944 999,073 14,762 221,653
Class R2 20,328 341,919 8,365 136,805
Class R3 243,261 4,169,079 91,932 1,476,280
Class R4 171,176 3,009,174 19,816 323,940
Class R5 4,426,023 77,317,122 3,325 50,000
Class 529A 11,358 199,860 90,426 1,445,550
Class 529B 2,886 46,842 1,657 24,184
Class 529C 3,525 58,773 6,597 99,344
- ----------------------------------------------------------------------------------------------------------
16,553,488 $289,781,881 17,361,313 $267,175,164
Shares reacquired
Class A (19,617,262) $(340,453,738) (37,108,405) $(566,755,888)
Class B (5,571,782) (93,109,606) (6,760,662) (100,122,589)
Class C (1,106,411) (18,501,073) (2,114,075) (31,372,384)
Class I (1,248,388) (22,194,362) (3,323,601) (52,205,115)
Class R (551,980) (9,634,623) (353,416) (5,455,149)
Class R1 (21,640) (361,890) (2,033) (32,078)
Class R2 (6,398) (104,910) -- --
Class R3 (74,071) (1,264,874) (31,541) (507,609)
Class R4 (49,063) (884,331) -- --
Class R5 (902,323) (15,966,127) -- --
Class 529A (12,151) (209,557) (21,518) (328,291)
Class 529B (747) (12,139) (961) (14,285)
Class 529C (3,536) (59,168) (4,267) (63,294)
- -----------------------------------------------------------------------------------------------------------
(29,165,752) $(502,756,398) (49,720,479) $(756,856,682)
Net change
Class A (11,664,188) $(201,401,842) (25,158,708) $(382,918,913)
Class B (4,394,811) (73,156,025) (5,121,785) (75,810,346)
Class C (688,044) (11,400,281) (1,516,197) (22,515,422)
Class I 579,430 11,157,802 (1,209,303) (18,535,062)
Class R (315,223) (5,453,017) 470,267 7,266,026
Class R1 40,304 637,183 12,729 189,575
Class R2 13,930 237,009 8,365 136,805
Class R3 169,190 2,904,205 60,391 968,671
Class R4 122,113 2,124,843 19,816 323,940
Class R5 3,523,700 61,350,995 3,325 50,000
Class 529A (793) (9,697) 68,908 1,117,259
Class 529B 2,139 34,703 696 9,899
Class 529C (11) (395) 2,330 36,050
- -----------------------------------------------------------------------------------------------------------
(12,612,264) $(212,974,517) (32,359,166) $(489,681,518)
(i) For the period from the class' inception, April 1, 2005 (Classes R1, R2, R4, and R5), through the stated
period end.
The fund is one of several mutual funds in which the MFS funds-of-funds may
invest. The MFS funds-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 7% of
the value of outstanding voting shares. In addition, the MFS Lifetime 2030 Fund
and the MFS Lifetime 2040 Fund were each the owners of record of less than 1% of
the value of outstanding voting shares.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other affiliated funds have established
uncommitted borrowing arrangements with certain banks. Borrowings may be made
for temporary financing needs. Interest is charged to each fund, based on its
borrowings, generally 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 committed line of credit, is allocated among the participating funds at
the end of each calendar quarter. For the year ended August 31, 2006, the fund's
commitment fee and interest expense were $6,055 and $13,039, respectively, and
are included in miscellaneous expense on the Statement of Operations.
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, 2006, 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, 2006, by correspondence with the Fund's
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, 2006, 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 20, 2006
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2006, 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(h) OTHER DIRECTORSHIPS(j)
- ------------------- ---------------- --------------- ----------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); 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 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (November 2000 until June
2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians' Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) 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 9/27/41) 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)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (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 8/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (2000 until 2005);
Hillview Investment Trust II Funds
(mutual fund complex), Trustee
(2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004); Fidelity
Management & Research Company,
Vice President (prior to March
2004); Fidelity Group of Funds,
President and Treasurer (prior to
March 2004)
Tracy Atkinson(k) 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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
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(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior to May
2005)
Ellen Moynihan(k) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance Officer compliance services), Principal
(since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (prior to
March 2003)
James O. Yost(k) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) Company, Senior Vice President
- ------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously since
appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(k) "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.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant retained
by MFS pursuant to its settlement with the SEC concerning market timing and related matters. The terms of
that settlement required that compensation and expenses related to the independent compliance consultant be
borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services he rendered to the
independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of $351,119.29.
The Trust held a shareholders' meeting in 2005 to elect Trustees, and will hold a shareholders' meeting at
least once every five years thereafter, to elect Trustees.
Each Trustee (except Mr. Butler and Mr. Uek) 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. Butler, Sherratt and Uek and Ms. 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 January 1, 2006, the Trustees served as board members of 98 funds within the MFS
Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 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 H. 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, 2006 ("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, 2005 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 ("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 MFS peer funds, (iii) information provided by MFS on the advisory
fees of comparable portfolios of other clients of MFS, including institutional
separate accounts 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, 2005, which the Trustees believed was a
long enough period to reflect differing market conditions. The Fund's
performance was in the 5th quintile relative to the other funds in the universe
for this three-year period (the 1st quintile being the best performers and the
5th quintile being the worst performers). The total return performance of the
Fund's Class A shares was in the 4th quintile for the one-year and five-year
periods ended December 31, 2005 relative to the Lipper performance universe.
Because of the passage of time, these performance results may differ from the
performance results for more recent periods, including those shown elsewhere in
this report.
The Trustees expressed concern to MFS about the ongoing substandard investment
performance of the Fund. 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 recent restructuring of
responsibilities among MFS' senior investment management executives and changes
to the portfolio management team in 2004 and 2005. In addition, the Trustees
requested that they receive a separate update on the Fund's performance at each
of their meetings. After reviewing these and related factors, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that MFS' responses and efforts and plans to
improve investment performance were sufficient to support approval of the
continuance of the investment advisory agreement for an additional one year
period, but that they would continue to closely monitor the performance of the
Fund.
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 that MFS
has agreed in writing to waive a portion of its advisory fee, which may not be
changed without the Trustees' approval. The Trustees also considered that,
according to the Lipper data, the Fund's effective advisory fee rate was at the
Lipper expense group median, and the Fund's total expense ratio was 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 as a result of the advisory fee waiver
described above. 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 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, which may include 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, if applicable, to pay for investment research
and other similar services (excluding third-party research, for which MFS pays
directly), 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, 2006.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement will be available on or before November 1, 2006 by
clicking on the fund's name under "Select a fund" on the MFS Web site (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
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The fund's Form N-Q is available on
the EDGAR database on the Commission's Internet Web site 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)
The fund will notify shareholders of amounts for use in preparing 2006 income
tax forms in January 2007.
MFS(R) PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about the investment products and services that we
offer, and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information.
We maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or
others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. We may share nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with which
we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you. We
maintain physical, electronic, and procedural safeguards to help protect the
personal information we collect about you.
If you have any questions about the MFS privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS send prospectuses, reports,
and proxies directly to your e-mail inbox. You'll get timely information and
less clutter in your mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply go to mfs.com, log in to
your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
KEEPING YOU INFORMED
MFS wants to ensure that you are consistently updated about your investments
with us. This shareholder report will not only show how your investment
performed during the time period, but will also provide you with informative
commentary from the portfolio management team. They will offer an overview of
market conditions and will also discuss the specific factors that may have
enhanced or detracted from your investment's performance.
MFS(R) CORE EQUITY FUND
LETTER FROM THE CEO 1
- -----------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- -----------------------------------------------------------------
MANAGEMENT REVIEW 3
- -----------------------------------------------------------------
PERFORMANCE SUMMARY 5
- -----------------------------------------------------------------
EXPENSE TABLE 8
- -----------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 10
- -----------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 18
- -----------------------------------------------------------------
STATEMENT OF OPERATIONS 21
- -----------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 23
- -----------------------------------------------------------------
FINANCIAL HIGHLIGHTS 24
- -----------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 32
- -----------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 42
- -----------------------------------------------------------------
TRUSTEES AND OFFICERS 43
- -----------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 49
- -----------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 53
- -----------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 53
- -----------------------------------------------------------------
FEDERAL TAX INFORMATION 53
- -----------------------------------------------------------------
MFS(R) PRIVACY NOTICE 54
- -----------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- -----------------------------------------------------------------
Fund objective: Seeks to provide long-term growth of capital.
THE REPORT IS PREPARED FOR THE GENERAL INFORMATION OF SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
- -------------------------------------------------------------------------------
NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
- -------------------------------------------------------------------------------
8/31/06
RGI-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The story is as old as the tortoise and the hare, but we believe it is
still relevant today -- "slow and steady" is the way to go when it comes to
investing. While financial markets will naturally ebb and flow over time,
investors who remain committed to a long-term investment strategy are more
likely to achieve their goals than those who consistently chase short-term
performance.
The first half of 2006 brought a high degree of fluctuation in markets
around the globe as varying economic factors pulled markets in opposite
directions. The global economy, for example, continued to grow at its fastest
pace in three decades -- spurred by increased international trade, good job
growth, and wage increases. At the same time, central banks around the world
raised interest rates in sync in a collaborative attempt to curb inflation.
While this was a positive development in some regions, in other cases,
economic and market gains were tempered.
What does all of this mean to you as an investor? If you're focused on the
long term, these global developments become part of a longer cycle instead of
one-time events that can have a significant impact on your portfolio.
At MFS(R), our investment management process -- honed over 80 years --
combines a unique teamwork approach with an unwavering focus on helping you
realize your long-term financial goals. We believe in a three-pronged
investment strategy:
o ALLOCATE holdings across the major asset classes -- including stocks,
bonds, and cash.
o DIVERSIFY within each class to take advantage of different market
segments and investing styles.
o REBALANCE assets regularly to maintain a desired asset allocation.
Of course, these strategies cannot guarantee a profit or protect against a
loss. Investing and planning for the long term requires diligence and
patience, two traits that in our experience are essential to capitalizing on
the many opportunities the financial markets can offer -- through both up and
down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 13, 2006
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Common Stocks 99.1%
Cash & Other Net Assets 0.9%
TOP TEN HOLDINGS
Exxon Mobil Corp. 3.3%
------------------------------------------------
Altria Group, Inc. 3.2%
------------------------------------------------
Bank of America Corp. 2.2%
------------------------------------------------
Hewlett-Packard Co. 2.2%
------------------------------------------------
Praxair, Inc. 1.8%
------------------------------------------------
Lockheed Martin Corp. 1.6%
------------------------------------------------
Johnson & Johnson 1.6%
------------------------------------------------
Chevron Corp. 1.5%
------------------------------------------------
Intel Corp. 1.4%
------------------------------------------------
American Express Co. 1.3%
------------------------------------------------
EQUITY SECTORS
Financial Services 21.2%
------------------------------------------------
Technology 14.7%
------------------------------------------------
Health Care 13.1%
------------------------------------------------
Energy 8.3%
------------------------------------------------
Utilities & Communications 7.4%
------------------------------------------------
Consumer Staples 6.7%
------------------------------------------------
Retailing 5.8%
------------------------------------------------
Industrial Goods & Services 5.8%
------------------------------------------------
Leisure 5.7%
------------------------------------------------
Basic Materials 5.4%
------------------------------------------------
Special Products & Services 2.0%
------------------------------------------------
Transportation 1.6%
------------------------------------------------
Autos & Housing 1.4%
------------------------------------------------
Percentages are based on net assets as of 8/31/06.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2006, Class A shares of the MFS Core
Equity Fund provided a total return of 6.25%, at net asset value. This compares
with a return of 8.75% for the fund's benchmark the Russell 3000 Index. The
Russell 3000 Index became the fund's benchmark effective July 20, 2006. For the
period August 31, 2005 to July 19, 2006, the fund's benchmark was the Standard &
Poor's 500 Stock Index (S&P 500 Stock Index). The return for the S&P 500 Stock
Index for the twelve months ended August 31, 2006 was 8.88%.
DETRACTORS FROM PERFORMANCE
Stock selection in the leisure sector was the greatest detractor from
performance relative to the S&P 500 Stock Index over the period. Within this
sector, our holdings in satellite radio service company XM Satellite Radio* (not
a benchmark constituent) hurt results. Weaker-than-expected subscriber growth
and a slower rollout of new products led to lower-than-expected earnings and put
pressure on its share price during the period.
Stock selection in the utilities and communications sector also held back
results. Within this sector, holdings in wireless services provider Sprint
Nextel and our avoidance of strong-performing telecommunications services
provider BellSouth hindered relative performance. Shares of Sprint Nextel
struggled after the company lowered its wireless subscriber guidance for 2006 as
its merger integration with Nextel disappointed investors.
Security selection in the retailing sector also hurt performance, although no
individual stocks were among the fund's top relative detractors.
Elsewhere, the fund's positions in network equipment manufacturer Juniper
Networks and computer maker Dell* held back performance. Integrated logistics
company UTi Worldwide, newsprint manufacturer Abitibi-Consolidated, managed
health services company Health Net*, none of which are benchmark constituents,
detracted from relative returns. Additionally, our underweighted position in
strong-performing banking firm JPMorgan Chase was also a drag on results.
CONTRIBUTORS TO PERFORMANCE
Security selection in the basic materials sector bolstered relative performance
during the period. Within basic materials, agrichemical products company
Monsanto and diversified mining company Companhia Vale do Rio Doce* (not a
benchmark constituent) were among the fund's top contributing holdings.
Monsanto's stock price gained substantially over the period as it demonstrated
continued strong growth in its seeds and traits business. Companhia Vale do Rio
Doce benefited from strong demand and increased prices for commodities,
particularly iron ore.
The technology sector also aided relative results as several individual holdings
in this sector performed well. These included flash memory storage products
maker SanDisk and business intelligence software company MicroStrategy* (not a
benchmark constituent). Not owning benchmark constituent Microsoft also helped
results as the software giant performed poorly over the period.
Stock selection in the industrial goods and services sector also contributed to
returns, although no individual holdings were among the fund's top relative
performers.
Other individual securities that helped results included banking firm Golden
West Financial*, freight railway operator Norfolk Southern, tobacco and consumer
goods manufacturer Altria Group, and integrated oil and gas company Hess.
Respectfully,
Katrina A. Mead
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 portfolio. References to specific securities
are not recommendations of such securities, and may not be representative of any
MFS portfolio's current or future investments.
PERFORMANCE SUMMARY THROUGH 8/31/06
The following chart illustrates the historical performance of the fund's Class
A shares 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. The performance of other share classes will be greater
than or less than that of the class depicted below. Benchmark comparisons are
unmanaged; do not reflect sales charges, commissions or expenses; and cannot
be invested in directly. (See Notes to Performance Summary.)
PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR
SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN QUOTED. FOR MOST RECENT MONTH-END
PERFORMANCE, PLEASE VISIT MFS.COM. (FOR THE MOST RECENT MONTH-END PERFORMANCE
FOR CLASS I SHARES CALL 1-800-343-2829.) THE PERFORMANCE SHOWN DOES NOT
REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
MFS Core Russell Standard & Poor's
Equity Fund 3000 500 Stock
- Class A Index Index
8/96 $ 9,425 $10,000 $10,000
8/97 12,839 13,837 14,065
8/98 13,652 14,322 15,203
8/99 17,562 19,833 21,258
8/00 19,978 23,926 24,727
8/01 16,082 18,060 18,696
8/02 13,509 14,936 15,332
8/03 15,086 17,016 17,182
8/04 16,576 18,940 19,150
8/05 19,308 21,841 21,555
8/06 20,515 23,753 23,470
TOTAL RETURNS THROUGH 8/31/06
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
- -----------------------------------------------------------------------------
A 1/02/96 6.25% 4.99% 8.09%
- -----------------------------------------------------------------------------
B 1/02/97 5.60% 4.33% 7.35%
- -----------------------------------------------------------------------------
C 1/02/97 5.56% 4.32% 7.33%
- -----------------------------------------------------------------------------
I 1/02/97 6.66% 5.37% 8.45%
- -----------------------------------------------------------------------------
R 12/31/02 6.11% 4.87% 8.03%
- -----------------------------------------------------------------------------
R1 4/01/05 5.43% 4.75% 7.97%
- -----------------------------------------------------------------------------
R2 4/01/05 5.85% 4.86% 8.02%
- -----------------------------------------------------------------------------
R3 10/31/03 5.96% 4.80% 7.99%
- -----------------------------------------------------------------------------
R4 4/01/05 6.14% 4.97% 8.08%
- -----------------------------------------------------------------------------
R5 4/01/05 6.54% 5.07% 8.13%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmarks
- -----------------------------------------------------------------------------
Russell 3000 Index (f) 8.75% 5.63% 9.04%
- -----------------------------------------------------------------------------
Standard & Poor's 500 Stock Index (e)(f) 8.88% 4.65% 8.91%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -----------------------------------------------------------------------------
A 0.14% 3.75% 7.45%
With Initial Sales Charge (5.75%)
- -----------------------------------------------------------------------------
B 1.60% 3.99% 7.35%
With CDSC (Declining over six years
from 4% to 0%) (x)
- -----------------------------------------------------------------------------
C 4.56% 4.32% 7.33%
With CDSC (1% for 12 months) (x)
- -----------------------------------------------------------------------------
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.
CDSC - Contingent Deferred Sales Charge.
(e) Effective July 20, 2006, we no longer use the Standard & Poor's 500 Stock
Index as a benchmark because we believe the Russell 3000 Index better reflects
the fund's investment policies and objectives.
(f) Source: FactSet Research Systems Inc.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITIONS
Russell 3000 Index - constructed to provide a comprehensive barometer for the
3,000 largest U.S. companies based on total market capitalization, which
represents approximately 98% of the investable U.S. equity market.
Standard & Poor's 500 Stock Index - 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 R shares are available only to existing Class R shareholders. 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.
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, 2006 through
August 31, 2006.
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, 2006 through
August 31, 2006.
ACTUAL EXPENSES
The first line for each share class in the following table 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 following table 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(p)
Share Expense Account Value Account Value 3/01/06-
Class Ratio 3/01/06 8/31/06 8/31/06
- --------------------------------------------------------------------------------
Actual 1.35% $1,000.00 $1,006.10 $6.83
A -----------------------------------------------------------------------
Hypothetical (h) 1.35% $1,000.00 $1,018.40 $6.87
- --------------------------------------------------------------------------------
Actual 2.00% $1,000.00 $1,003.50 $10.10
B -----------------------------------------------------------------------
Hypothetical (h) 2.00% $1,000.00 $1,015.12 $10.16
- --------------------------------------------------------------------------------
Actual 2.00% $1,000.00 $1,003.50 $10.10
C -----------------------------------------------------------------------
Hypothetical (h) 2.00% $1,000.00 $1,015.12 $10.16
- --------------------------------------------------------------------------------
Actual 1.00% $1,000.00 $1,008.60 $5.06
I -----------------------------------------------------------------------
Hypothetical (h) 1.00% $1,000.00 $1,020.16 $5.09
- --------------------------------------------------------------------------------
Actual 1.50% $1,000.00 $1,005.60 $7.58
R -----------------------------------------------------------------------
Hypothetical (h) 1.50% $1,000.00 $1,017.64 $7.63
- --------------------------------------------------------------------------------
Actual 2.08% $1,000.00 $1,002.30 $10.50
R1 -----------------------------------------------------------------------
Hypothetical (h) 2.08% $1,000.00 $1,014.72 $10.56
- --------------------------------------------------------------------------------
Actual 1.74% $1,000.00 $1,004.70 $8.79
R2 -----------------------------------------------------------------------
Hypothetical (h) 1.74% $1,000.00 $1,016.43 $8.84
- --------------------------------------------------------------------------------
Actual 1.65% $1,000.00 $1,005.00 $8.34
R3 -----------------------------------------------------------------------
Hypothetical (h) 1.65% $1,000.00 $1,016.89 $8.39
- --------------------------------------------------------------------------------
Actual 1.38% $1,000.00 $1,006.10 $6.98
R4 -----------------------------------------------------------------------
Hypothetical (h) 1.38% $1,000.00 $1,018.25 $7.02
- --------------------------------------------------------------------------------
Actual 1.09% $1,000.00 $1,007.70 $5.52
R5 -----------------------------------------------------------------------
Hypothetical (h) 1.09% $1,000.00 $1,019.71 $5.55
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
8/31/06
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Common Stocks - 99.1%
- -------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- -------------------------------------------------------------------------------------------------------------
Aerospace - 2.6%
- -------------------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 47,810 $ 3,949,106
United Technologies Corp. 38,350 2,404,929
---------------
$ 6,354,035
- -------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.2%
- -------------------------------------------------------------------------------------------------------------
NIKE, Inc., "B" 37,670 $ 3,042,229
- -------------------------------------------------------------------------------------------------------------
Automotive - 0.7%
- -------------------------------------------------------------------------------------------------------------
Harley-Davidson, Inc. 6,270 $ 366,858
Johnson Controls, Inc. 18,820 1,353,723
---------------
$ 1,720,581
- -------------------------------------------------------------------------------------------------------------
Biotechnology - 2.6%
- -------------------------------------------------------------------------------------------------------------
Amgen, Inc. (n) 34,340 $ 2,332,716
Genzyme Corp. (n) 12,690 840,459
Human Genome Sciences, Inc. (l)(n) 69,490 780,373
ImClone Systems, Inc. (l)(n) 23,530 703,547
Millipore Corp. (n) 12,600 808,668
Neurochem, Inc. (n) 51,550 917,075
---------------
$ 6,382,838
- -------------------------------------------------------------------------------------------------------------
Broadcasting - 2.1%
- -------------------------------------------------------------------------------------------------------------
News Corp., "A" 137,920 $ 2,624,618
Viacom, Inc., "B" (n) 69,780 2,533,014
---------------
$ 5,157,632
- -------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.5%
- -------------------------------------------------------------------------------------------------------------
Affiliated Managers Group, Inc. (l)(n) 6,990 $ 646,785
Chicago Mercantile Exchange Holdings, Inc. 2,040 897,600
Franklin Resources, Inc. 4,880 480,241
Goldman Sachs Group, Inc. 7,450 1,107,443
Legg Mason, Inc. (l) 25,520 2,328,955
MarketAxess Holdings, Inc. (l)(n) 89,360 841,771
---------------
$ 6,302,795
- -------------------------------------------------------------------------------------------------------------
Business Services - 1.0%
- -------------------------------------------------------------------------------------------------------------
CheckFree Corp. (n) 13,610 $ 487,238
Cognizant Technology Solutions Corp., "A" (n) 9,680 676,729
First Data Corp. 16,330 701,700
Ultimate Software Group, Inc. (n) 25,530 576,978
---------------
$ 2,442,645
- -------------------------------------------------------------------------------------------------------------
Cable TV - 0.7%
- -------------------------------------------------------------------------------------------------------------
Comcast Corp., "Special A" (n) 34,660 $ 1,209,981
EchoStar Communications Corp., "A" (n) 18,790 596,583
---------------
$ 1,806,564
- -------------------------------------------------------------------------------------------------------------
Chemicals - 1.3%
- -------------------------------------------------------------------------------------------------------------
Monsanto Co. 66,730 $ 3,165,671
- -------------------------------------------------------------------------------------------------------------
Computer Software - 3.5%
- -------------------------------------------------------------------------------------------------------------
Adobe Systems, Inc. (n) 63,430 $ 2,057,669
FileNet Corp. (n) 30,740 1,074,056
Salesforce.com, Inc. (l)(n) 71,500 2,465,320
TIBCO Software, Inc. (n) 375,880 2,954,417
---------------
$ 8,551,462
- -------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 3.6%
- -------------------------------------------------------------------------------------------------------------
Apple Computer, Inc. (n) 43,900 $ 2,978,615
Hewlett-Packard Co. 150,930 5,518,001
Satyam Computer Services Ltd., ADR (l) 9,640 367,959
---------------
$ 8,864,575
- -------------------------------------------------------------------------------------------------------------
Construction - 0.7%
- -------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc. 17,300 $ 379,389
Masco Corp. (l) 48,960 1,341,994
---------------
$ 1,721,383
- -------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 3.1%
- -------------------------------------------------------------------------------------------------------------
Avon Products, Inc. 45,440 $ 1,304,582
DTS, Inc. (l)(n) 22,050 405,279
eBay, Inc. (n) 31,140 867,560
Estee Lauder Cos., Inc., "A" 37,390 1,378,195
ITT Educational Services, Inc. (n) 2,810 185,713
Monster Worldwide, Inc. (n) 15,180 618,433
Scotts Miracle-Gro Co. (l) 58,830 2,524,984
Strayer Education, Inc. 2,540 267,716
---------------
$ 7,552,462
- -------------------------------------------------------------------------------------------------------------
Containers - 0.3%
- -------------------------------------------------------------------------------------------------------------
Crown Holdings, Inc. (n) 44,850 $ 824,792
- -------------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.4%
- -------------------------------------------------------------------------------------------------------------
MSC Industrial Direct Co., Inc., "A" 8,000 $ 314,880
Rockwell Automation, Inc. 37,980 2,141,312
Tyco International Ltd. 36,460 953,429
---------------
$ 3,409,621
- -------------------------------------------------------------------------------------------------------------
Electronics - 4.3%
- -------------------------------------------------------------------------------------------------------------
Applied Materials, Inc. (l) 47,430 $ 800,618
Intel Corp. 171,560 3,352,282
Marvell Technology Group Ltd. (n) 59,900 1,048,849
SanDisk Corp. (n) 42,170 2,484,656
Tessera Technologies, Inc. (l)(n) 52,130 1,715,077
Varian Semiconductor Equipment Associates, Inc. (l)(n) 20,405 720,501
Volterra Semiconductor Corp. (l)(n) 39,410 594,303
---------------
$ 10,716,286
- -------------------------------------------------------------------------------------------------------------
Energy - Independent - 1.8%
- -------------------------------------------------------------------------------------------------------------
Apache Corp. 14,590 $ 952,435
CONSOL Energy, Inc. 13,680 498,910
Devon Energy Corp. 18,210 1,137,943
EOG Resources, Inc. 19,450 1,260,749
Occidental Petroleum Corp. 12,380 631,256
---------------
$ 4,481,293
- -------------------------------------------------------------------------------------------------------------
Energy - Integrated - 5.3%
- -------------------------------------------------------------------------------------------------------------
Chevron Corp. 56,510 $ 3,639,244
Exxon Mobil Corp. 121,372 8,213,243
Hess Corp. 25,670 1,175,173
---------------
$ 13,027,660
- -------------------------------------------------------------------------------------------------------------
Food & Beverages - 1.4%
- -------------------------------------------------------------------------------------------------------------
Diamond Foods, Inc. (l) 78,913 $ 1,178,171
General Mills, Inc. 19,140 1,037,962
PepsiCo, Inc. 8,909 581,580
Tyson Foods, Inc., "A" 41,880 616,892
---------------
$ 3,414,605
- -------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.1%
- -------------------------------------------------------------------------------------------------------------
CVS Corp. 40,100 $ 1,345,355
Kroger Co. 30,110 716,919
Walgreen Co. 14,070 695,902
---------------
$ 2,758,176
- -------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.4%
- -------------------------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc. (l) 331,020 $ 893,754
- -------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.0%
- -------------------------------------------------------------------------------------------------------------
Global Cash Access Holdings, Inc. (n) 31,650 $ 488,360
Hilton Hotels Corp. 13,970 355,816
International Game Technology 10,300 398,404
Las Vegas Sands Corp. (n) 4,880 340,673
Penn National Gaming, Inc. (n) 6,240 206,669
Shuffle Master, Inc. (l)(n) 11,150 310,304
Station Casinos, Inc. (l) 8,620 502,115
---------------
$ 2,602,341
- -------------------------------------------------------------------------------------------------------------
General Merchandise - 1.1%
- -------------------------------------------------------------------------------------------------------------
Kohl's Corp. (n) 28,260 $ 1,766,533
Stage Stores, Inc. 36,500 962,140
---------------
$ 2,728,673
- -------------------------------------------------------------------------------------------------------------
Health Maintenance Organizations - 1.3%
- -------------------------------------------------------------------------------------------------------------
UnitedHealth Group, Inc. 25,840 $ 1,342,388
WellPoint, Inc. (n) 23,630 1,829,198
---------------
$ 3,171,586
- -------------------------------------------------------------------------------------------------------------
Insurance - 4.5%
- -------------------------------------------------------------------------------------------------------------
Ace Ltd. 40,250 $ 2,167,865
AFLAC, Inc. 22,420 1,010,469
Chubb Corp. 35,060 1,758,610
Endurance Specialty Holdings Ltd. 34,320 1,107,506
Genworth Financial, Inc., "A" 42,620 1,467,407
MetLife, Inc. 30,220 1,663,007
St. Paul Travelers Cos., Inc. 44,030 1,932,917
---------------
$ 11,107,781
- -------------------------------------------------------------------------------------------------------------
Internet - 1.0%
- -------------------------------------------------------------------------------------------------------------
CNET Networks, Inc. (l)(n) 71,080 $ 670,284
Google, Inc., "A" (n) 3,370 1,275,646
Yahoo!, Inc. (n) 21,270 613,001
---------------
$ 2,558,931
- -------------------------------------------------------------------------------------------------------------
Leisure & Toys - 0.4%
- -------------------------------------------------------------------------------------------------------------
Electronic Arts, Inc. (n) 9,560 $ 487,273
THQ, Inc. (l)(n) 15,680 404,544
---------------
$ 891,817
- -------------------------------------------------------------------------------------------------------------
Machinery & Tools - 1.8%
- -------------------------------------------------------------------------------------------------------------
Deere & Co. 32,330 $ 2,524,973
Eaton Corp. 18,710 1,244,215
Gardner Denver, Inc. (n) 17,030 612,569
---------------
$ 4,381,757
- -------------------------------------------------------------------------------------------------------------
Major Banks - 4.9%
- -------------------------------------------------------------------------------------------------------------
Bank of America Corp. 107,524 $ 5,534,260
Bank of New York Co., Inc. 81,890 2,763,788
PNC Financial Services Group, Inc. 34,210 2,421,726
SunTrust Banks, Inc. 19,850 1,516,540
---------------
$ 12,236,314
- -------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.5%
- -------------------------------------------------------------------------------------------------------------
Allion Healthcare, Inc. (l)(n) 138,610 $ 602,953
AMICAS, Inc. (l)(n) 104,910 339,908
Cardinal Health, Inc. 9,180 618,916
Caremark Rx, Inc. 17,250 999,465
Healthcare Services Group, Inc. (l) 37,680 854,959
McKesson Corp. 6,700 340,360
---------------
$ 3,756,561
- -------------------------------------------------------------------------------------------------------------
Medical Equipment - 2.0%
- -------------------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc. (l)(n) 9,530 $ 458,869
Aspect Medical Systems, Inc. (l)(n) 35,350 682,962
Baxter International, Inc. 22,840 1,013,639
Boston Scientific Corp. (n) 44,460 775,382
Medtronic, Inc. 11,080 519,652
St. Jude Medical, Inc. (n) 21,450 780,995
Thoratec Corp. (n) 55,120 808,059
---------------
$ 5,039,558
- -------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.9%
- -------------------------------------------------------------------------------------------------------------
BHP Billiton PLC 90,030 $ 1,716,696
Inmet Mining Corp. 11,070 465,989
---------------
$ 2,182,685
- -------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.9%
- -------------------------------------------------------------------------------------------------------------
Williams Cos., Inc. 87,150 $ 2,146,505
- -------------------------------------------------------------------------------------------------------------
Network & Telecom - 2.2%
- -------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc. (n) 83,860 $ 1,844,081
Juniper Networks, Inc. (n) 121,800 1,786,806
NICE Systems Ltd., ADR (n) 38,750 967,200
Nortel Networks Corp. (n) 441,950 923,675
---------------
$ 5,521,762
- -------------------------------------------------------------------------------------------------------------
Oil Services - 1.2%
- -------------------------------------------------------------------------------------------------------------
Cameron International Corp. (n) 7,150 $ 342,556
Dresser-Rand Group, Inc. (l)(n) 33,590 686,915
GlobalSantaFe Corp. 18,140 892,851
National-Oilwell Varco, Inc. (n) 6,140 400,942
Noble Corp. 9,130 597,011
---------------
$ 2,920,275
- -------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 6.9%
- -------------------------------------------------------------------------------------------------------------
American Express Co. 62,930 $ 3,306,342
Commerce Bancorp, Inc. (l) 49,830 1,659,837
Countrywide Financial Corp. 92,890 3,139,682
Fannie Mae 36,940 1,944,891
Investors Financial Services Corp. (l) 53,790 2,493,704
JPMorgan Chase & Co. 36,100 1,648,326
SLM Corp. 61,440 2,981,683
---------------
$ 17,174,465
- -------------------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 0.1%
- -------------------------------------------------------------------------------------------------------------
Nuance Communications, Inc. (l)(n) 46,850 $ 367,772
- -------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 5.7%
- -------------------------------------------------------------------------------------------------------------
Allergan, Inc. 16,180 $ 1,853,581
Eli Lilly & Co. 49,330 2,759,027
Endo Pharmaceuticals Holdings, Inc. (n) 19,480 643,424
Johnson & Johnson 59,730 3,862,142
Medicis Pharmaceutical Corp., "A" (l) 12,310 360,560
Merck & Co., Inc. 64,310 2,607,771
Wyeth 40,280 1,961,636
---------------
$ 14,048,141
- -------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.6%
- -------------------------------------------------------------------------------------------------------------
New York Times Co., "A" (l) 63,990 $ 1,441,055
- -------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.6%
- -------------------------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 16,170 $ 1,082,581
Norfolk Southern Corp. 11,230 479,858
---------------
$ 1,562,439
- -------------------------------------------------------------------------------------------------------------
Real Estate - 2.4%
- -------------------------------------------------------------------------------------------------------------
BRE Properties, Inc., "A", REIT 16,990 $ 1,003,939
Equity Office Properties Trust, REIT 32,400 1,201,716
Maguire Properties, Inc., REIT 33,310 1,329,402
Simon Property Group, Inc., REIT 14,290 1,211,649
Taubman Centers, Inc., REIT 29,600 1,192,584
---------------
$ 5,939,290
- -------------------------------------------------------------------------------------------------------------
Restaurants - 0.9%
- -------------------------------------------------------------------------------------------------------------
Applebee's International, Inc. 16,600 $ 344,450
Red Robin Gourmet Burgers, Inc. (l)(n) 12,620 532,690
Texas Roadhouse, Inc. (l)(n) 41,430 500,474
YUM! Brands, Inc. 16,470 805,054
---------------
$ 2,182,668
- -------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 2.5%
- -------------------------------------------------------------------------------------------------------------
NuCO2, Inc. (l)(n) 59,230 $ 1,614,018
Praxair, Inc. 79,260 4,550,317
---------------
$ 6,164,335
- -------------------------------------------------------------------------------------------------------------
Specialty Stores - 2.4%
- -------------------------------------------------------------------------------------------------------------
Advance Auto Parts, Inc. 29,240 $ 880,709
Aeropostale, Inc. (n) 40,880 1,038,352
Chico's FAS, Inc. (n) 23,530 433,893
Home Depot, Inc. 59,350 2,035,111
PetSmart, Inc. 36,280 910,628
Urban Outfitters, Inc. (l)(n) 20,190 316,781
Williams-Sonoma, Inc. 12,760 375,910
---------------
$ 5,991,384
- -------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.8%
- -------------------------------------------------------------------------------------------------------------
Global Signal, Inc., REIT 6,900 $ 331,200
Rogers Communications, Inc., "B" 32,020 1,652,234
---------------
$ 1,983,434
- -------------------------------------------------------------------------------------------------------------
Telephone Services - 2.4%
- -------------------------------------------------------------------------------------------------------------
AT&T, Inc. 76,730 $ 2,388,605
Embarq Corp. 8,021 378,190
Sprint Nextel Corp. 44,530 753,448
TELUS Corp. (non-voting shares) 50,580 2,412,125
---------------
$ 5,932,368
- -------------------------------------------------------------------------------------------------------------
Tobacco - 3.2%
- -------------------------------------------------------------------------------------------------------------
Altria Group, Inc. 94,400 $ 7,885,232
- -------------------------------------------------------------------------------------------------------------
Trucking - 1.0%
- -------------------------------------------------------------------------------------------------------------
FedEx Corp. 11,020 $ 1,113,351
UTi Worldwide, Inc. 62,130 1,432,096
---------------
$ 2,545,447
- -------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.3%
- -------------------------------------------------------------------------------------------------------------
Dominion Resources, Inc. 13,320 $ 1,064,135
Duke Energy Corp. 39,380 1,181,400
Edison International 15,020 655,473
Exelon Corp. 24,490 1,493,400
FPL Group, Inc. 31,550 1,402,398
NRG Energy, Inc. (n) 25,710 1,301,954
TXU Corp. 16,650 1,102,397
---------------
$ 8,201,157
- -------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $232,696,967) $ 245,256,792
- -------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 11.3%
- -------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 27,899,818 $ 27,899,818
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $260,596,785) $ 273,156,610
- -------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (10.4)% (25,671,472)
- -------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 247,485,138
- -------------------------------------------------------------------------------------------------------------
(l) All or a portion of this security is on loan.
(n) Non-income producing security.
The following abbreviations are used in this report and are defined:
ADR American Depository Receipt
REIT Real Estate Investment Trust
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/06
This statement represents your fund's balance sheet, which details the assets and liabilities
comprising the total value of the fund.
ASSETS
- ------------------------------------------------------------------------------------------------------
Investments, at value, including $27,144,092 of securities
on loan (identified cost, $260,596,785) $273,156,610
Receivable for investments sold 4,958,122
Receivable for fund shares sold 131,114
Interest and dividends receivable 392,545
Other assets 1,471
- ------------------------------------------------------------------------------------------------------
Total assets $278,639,862
- ------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------
Payable to custodian $245,714
Payable for investments purchased 2,376,305
Payable for fund shares reacquired 447,817
Collateral for securities loaned, at value 27,899,818
Payable to affiliates
Management fee 8,818
Shareholder servicing costs 31,841
Distribution and service fees 6,948
Administrative services fee 285
Retirement plan administration and services fees 215
Payable for independent trustees' compensation 35,862
Accrued expenses and other liabilities 101,101
- ------------------------------------------------------------------------------------------------------
Total liabilities $31,154,724
- ------------------------------------------------------------------------------------------------------
Net assets $247,485,138
- ------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- ------------------------------------------------------------------------------------------------------
Paid-in capital $219,926,729
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 12,559,864
Accumulated net realized gain (loss) on investments and
foreign currency transactions 15,034,346
Accumulated net investment loss (35,801)
- ------------------------------------------------------------------------------------------------------
Net assets $247,485,138
- ------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 13,837,008
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- ------------------------------------------------------------------------------------------------------
Net assets $146,354,701
Shares outstanding 8,053,387
- ------------------------------------------------------------------------------------------------------
Net asset value per share $18.17
- ------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $19.28
- ------------------------------------------------------------------------------------------------------
Class B shares
- ------------------------------------------------------------------------------------------------------
Net assets $49,191,974
Shares outstanding 2,867,404
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.16
- ------------------------------------------------------------------------------------------------------
Class C shares
- ------------------------------------------------------------------------------------------------------
Net assets $16,613,264
Shares outstanding 972,226
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.09
- ------------------------------------------------------------------------------------------------------
Class I shares
- ------------------------------------------------------------------------------------------------------
Net assets $4,762,609
Shares outstanding 254,469
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $18.72
- ------------------------------------------------------------------------------------------------------
Class R shares
- ------------------------------------------------------------------------------------------------------
Net assets $5,446,248
Shares outstanding 301,496
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $18.06
- ------------------------------------------------------------------------------------------------------
Class R1 shares
- ------------------------------------------------------------------------------------------------------
Net assets $440,881
Shares outstanding 25,763
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $17.11
- ------------------------------------------------------------------------------------------------------
Class R2 shares
- ------------------------------------------------------------------------------------------------------
Net assets $779,880
Shares outstanding 45,332
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $17.20
- ------------------------------------------------------------------------------------------------------
Class R3 shares
- ------------------------------------------------------------------------------------------------------
Net assets $1,193,191
Shares outstanding 66,417
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $17.97
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R4 shares
- ------------------------------------------------------------------------------------------------------
Net assets $22,646,378
Shares outstanding 1,247,443
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $18.15
- ------------------------------------------------------------------------------------------------------
Class R5 shares
- ------------------------------------------------------------------------------------------------------
Net assets $56,012
Shares outstanding 3,071
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $18.24
- ------------------------------------------------------------------------------------------------------
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
Year ended 8/31/06
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT LOSS
- ------------------------------------------------------------------------------------------------------
Income
Dividends $3,624,916
Interest 146,294
Foreign taxes withheld (10,603)
- ------------------------------------------------------------------------------------------------------
Total investment income $3,760,607
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $1,618,769
Distribution and service fees 1,376,576
Shareholder servicing costs 440,113
Administrative services fee 42,393
Retirement plan administration and services fees 17,503
Independent trustees' compensation 11,355
Custodian fee 106,915
Shareholder communications 54,664
Auditing fees 48,614
Legal fees 7,160
Miscellaneous 195,873
- ------------------------------------------------------------------------------------------------------
Total expenses $3,919,935
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (20,067)
Reduction of expenses by investment adviser (3,362)
- ------------------------------------------------------------------------------------------------------
Net expenses $3,896,506
- ------------------------------------------------------------------------------------------------------
Net investment loss $(135,899)
- ------------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $22,222,083
Foreign currency transactions (11,290)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $22,210,793
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(8,617,425)
Translation of assets and liabilities in foreign currencies (67)
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(8,617,492)
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $13,593,301
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $13,457,402
- ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
YEARS ENDED 8/31
----------------------------------
2006 2005
CHANGE IN NET ASSETS
FROM OPERATIONS
- ------------------------------------------------------------------------------------------------------
Net investment loss $(135,899) $(243,156)
Net realized gain (loss) on investments and foreign
currency transactions 22,210,793 17,758,149
Net unrealized gain (loss) on investments and foreign
currency translation (8,617,492) 9,020,319
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $13,457,402 $26,535,312
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions
Class A $(6,566,925) $--
Class B (3,172,137) --
Class C (835,667) --
Class I (151,657) --
Class R (292,512) --
Class R1 (6,519) --
Class R2 (2,469) --
Class R3 (54,897) --
Class R4 (2,358) --
Class R5 (2,358) --
- ------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(11,087,499) $--
- ------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $4,102,717 $53,568,852
- ------------------------------------------------------------------------------------------------------
Redemption fees $-- $2,690
- ------------------------------------------------------------------------------------------------------
Total change in net assets $6,472,620 $80,106,854
- ------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------
At beginning of period 241,012,518 160,905,664
At end of period (including accumulated net investment loss
of $35,801 and $35,991, respectively) $247,485,138 $241,012,518
- ------------------------------------------------------------------------------------------------------
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 life of a particular share class, if shorter). 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 share class (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
----------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $17.88 $15.35 $13.97 $12.51 $15.15
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.03 $0.03 $0.03 $0.04 $0.00(w)
Net realized and unrealized gain (loss)
on investments and foreign currency 1.06 2.50 1.35 1.42 (2.38)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.09 $2.53 $1.38 $1.46 $(2.38)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(0.80) $-- $-- $-- $(0.26)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.17 $17.88 $15.35 $13.97 $12.51
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 6.25 16.48 9.88(b) 11.67 (16.00)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.37 1.41 1.38 1.47 1.37
Expenses after expense reductions (f) 1.36 1.41 1.38 N/A N/A
Net investment income 0.15 0.17 0.22 0.29 0.03
Portfolio turnover 138 81 116 121 100
Net assets at end of period (000 Omitted) $146,355 $141,808 $67,415 $53,704 $50,366
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
--------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $17.03 $14.71 $13.48 $12.14 $14.81
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.09) $(0.08) $(0.06) $(0.04) $(0.09)
Net realized and unrealized gain (loss) on
investments and foreign currency 1.02 2.40 1.29 1.38 (2.32)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.93 $2.32 $1.23 $1.34 $(2.41)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(0.80) $-- $-- $-- $(0.26)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.16 $17.03 $14.71 $13.48 $12.14
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 5.60 15.77 9.12(b) 11.04 (16.57)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.02 2.06 2.02 2.12 2.02
Expenses after expense reductions (f) 2.02 2.06 2.02 N/A N/A
Net investment loss (0.50) (0.47) (0.43) (0.36) (0.62)
Portfolio turnover 138 81 116 121 100
Net assets at end of period (000 Omitted) $49,192 $71,088 $73,395 $75,007 $73,146
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C YEARS ENDED 8/31
--------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $16.97 $14.66 $13.43 $12.10 $14.76
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.09) $(0.08) $(0.06) $(0.04) $(0.09)
Net realized and unrealized gain (loss) on
investments and foreign currency 1.01 2.39 1.29 1.37 (2.31)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.92 $2.31 $1.23 $1.33 $(2.40)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(0.80) $-- $-- $-- $(0.26)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.09 $16.97 $14.66 $13.43 $12.10
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 5.56 15.76 9.16(b) 10.99 (16.56)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.02 2.06 2.02 2.12 2.02
Expenses after expense reductions (f) 2.02 2.06 2.02 N/A N/A
Net investment loss (0.50) (0.48) (0.43) (0.35) (0.62)
Portfolio turnover 138 81 116 121 100
Net assets at end of period (000 Omitted) $16,613 $17,898 $15,990 $15,325 $17,521
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 8/31
--------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $18.33 $15.68 $14.22 $12.69 $15.31
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.09 $0.09 $0.09 $0.08 $0.06
Net realized and unrealized gain (loss) on
investments and foreign currency 1.10 2.56 1.37 1.45 (2.42)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.19 $2.65 $1.46 $1.53 $(2.36)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(0.80) $-- $-- $-- $(0.26)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.72 $18.33 $15.68 $14.22 $12.69
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 6.66 16.90 10.27(b) 12.06 (15.70)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.01 1.09 1.03 1.12 1.02
Expenses after expense reductions (f) 1.01 1.09 1.03 N/A N/A
Net investment income 0.50 0.51 0.56 0.65 0.38
Portfolio turnover 138 81 116 121 100
Net assets at end of period (000 Omitted) $4,763 $3,170 $460 $398 $428
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R YEARS ENDED 8/31
-------------------------------------------------------------
2006 2005 2004 2003(i)
Net asset value, beginning of period $17.80 $15.31 $13.96 $11.98
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.00(w) $0.00(w) $0.02 $(0.00)(w)
Net realized and unrealized gain (loss) on investments
and foreign currency 1.06 2.49 1.33 1.98(g)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.06 $2.49 $1.35 $1.98
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions $(0.80) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.06 $17.80 $15.31 $13.96
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 6.11 16.26 9.67(b) 16.53(n)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.51 1.56 1.49 1.74(a)
Expenses after expense reductions (f) 1.51 1.56 1.49 N/A
Net investment income (loss) 0.00(w) 0.03 0.13 (0.04)(a)
Portfolio turnover 138 81 116 121
Net assets at end of period (000 Omitted) $5,446 $5,888 $3,030 $17
- -------------------------------------------------------------------------------------------------------------------------
CLASS R1 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $17.01 $16.25
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.10) $(0.04)
Net realized and unrealized gain (loss) on investments and foreign
currency 1.00 0.80(g)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.90 $0.76
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency transactions $(0.80) $--
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.11 $17.01
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.43 4.68(n)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.20 2.23(a)
Expenses after expense reductions (f) 2.11 2.23(a)
Net investment loss (0.61) (0.63)(a)
Portfolio turnover 138 81
Net assets at end of period (000 Omitted) $441 $55
- -------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R2 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $17.03 $16.25
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.05) $(0.02)
Net realized and unrealized gain (loss) on investments and foreign
currency 1.02 0.80(g)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.97 $0.78
- ---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency transactions $(0.80) $--
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.20 $17.03
- ---------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.85 4.80(n)
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.90 1.93(a)
Expenses after expense reductions (f) 1.75 1.93(a)
Net investment loss (0.29) (0.33)(a)
Portfolio turnover 138 81
Net assets at end of period (000 Omitted) $780 $52
- ---------------------------------------------------------------------------------------------------------------------
CLASS R3 YEARS ENDED 8/31
-----------------------------------------------
2006 2005 2004(i)
Net asset value, beginning of period $17.74 $15.29 $14.57
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $(0.03) $(0.04) $0.03
Net realized and unrealized gain (loss) on investments and
foreign currency 1.06 2.49 0.69(g)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.03 $2.45 $0.72
- ---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions $(0.80) $-- $--
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.97 $17.74 15.29
- ---------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.96 16.02 4.94(b)(n)
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.77 1.81 1.80(a)
Expenses after expense reductions (f) 1.67 1.81 1.80(a)
Net investment income (loss) (0.15) (0.22) 0.27(a)
Portfolio turnover 138 81 116
Net assets at end of period (000 Omitted) $1,193 $948 $616
- ---------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $17.88 $17.02
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.05 $0.01
Net realized and unrealized gain (loss) on investments and foreign
currency 1.02 0.85(g)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $1.07 $0.86
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency transactions $(0.80) $--
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.15 $17.88
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 6.14 5.05(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.37 1.43(a)
Expenses after expense reductions (f) 1.37 1.43(a)
Net investment income 0.27 0.17(a)
Portfolio turnover 138 81
Net assets at end of period (000 Omitted) $22,646 $53
- -------------------------------------------------------------------------------------------------------------
CLASS R5 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $17.90 $17.02
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.07 $0.03
Net realized and unrealized gain (loss) on investments and foreign
currency 1.07 0.85(g)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $1.14 $0.88
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency transactions $(0.80) $--
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.24 $17.90
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 6.54 5.17(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.12 1.13(a)
Expenses after expense reductions (f) 1.12 1.13(a)
Net investment income 0.40 0.47(a)
Portfolio turnover 138 81
Net assets at end of period (000 Omitted) $56 $53
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years
resulted in a per share impact of less than $0.01.
(a) Annualized.
(b) 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.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(g) 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.
(i) 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.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance
would be lower.
(t) Total returns do not include any applicable sales charges.
(w) Per share amount was 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 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, including securities of emerging market
issuers. 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. The markets of emerging markets countries are generally more
volatile than the markets of developed countries with more mature economies.
All of the risks of investing in foreign securities previously described are
heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales
reported that day, equity securities are generally valued at the last quoted
daily bid quotation as reported by an independent pricing service on the
market or exchange on which they are primarily traded. Short-term instruments
with a maturity at issuance of 60 days or less may be valued at amortized
cost, which approximates market value. Open-end investment companies are
generally valued at their net asset value per share. Securities and other
assets generally valued on the basis of information from an independent
pricing service may also be valued at a broker-dealer bid quotation. The
values of foreign securities and other assets and liabilities expressed in
foreign currencies are converted to U.S. dollars using the mean of bid and
asked prices for rates reported by an independent pricing service. The Board
of Trustees has delegated primary responsibility for determining or causing to
be determined the value of the fund's investments (including any fair
valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the fund's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments. These investments are generally
valued at fair value based on information from independent pricing services.
The adviser may rely on independent pricing services or other information
(such as the correlation with price movements of similar securities in the
same or other markets; the type, cost and investment characteristics of the
security; the business and financial condition of the issuer; and trading and
other market data) to assist in determining whether to fair value and at what
value to fair value an investment. The value of an investment for purposes of
calculating the fund's net asset value can differ depending on the source and
method used to determine value. When fair valuation is used, the value of
investments used to determine the fund's net asset value may differ from
quoted or published prices for the same investments. In addition, investments
may be valued at fair value if the adviser determines that an investment's
value has been materially affected by events occurring after the close of the
exchange or market on which the investment is principally traded (such as
foreign exchange or market) and prior to the determination of the fund's net
asset value, or after the halting of trading of a specific security where
trading does not resume prior to the close of the exchange or market on which
the security is principally traded. Events that occur on a frequent basis
after foreign markets close (such as developments in foreign markets and
significant movements in the U.S. markets) and prior to the determination of
the fund's net asset value may be deemed to have a material affect on the
value of securities traded in foreign markets. Accordingly, the fund's foreign
equity securities may often be valued at fair value.
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 no longer charges a
redemption fee. See the fund's prospectus for details. Any redemption fees
charged are accounted for as an addition to paid-in-capital.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Certain dividends from foreign securities will be recorded when the fund is
informed of the dividend if such information is obtained subsequent to 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, 2006, the fund's custodian fees
were reduced by $15,086 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, 2006, the fund's custodian expenses were
reduced by $4,981 under this agreement. These amounts are shown as a reduction
of total expenses on the Statement of Operations. Effective
January 1, 2006, the commission recapture agreement was terminated.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue
Code, and to distribute all of its taxable income, including realized capital
gains. Accordingly, no provision for federal income tax is required in the
financial statements. Foreign taxes, if any, have been accrued by the fund in
the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Certain capital accounts in the financial statements are periodically adjusted
for permanent differences in order to reflect their tax character. These
adjustments have no impact on net assets or net asset value per share.
Temporary differences which arise from recognizing certain items of income,
expense, gain or loss in different periods for financial statement and tax
purposes will reverse at some time in the future. Distributions in excess of
net investment income or net realized gains are temporary over distributions
for financial statement purposes resulting from differences in the recognition
or classification of income or distributions for financial statement and tax
purposes.
Book/tax differences primarily relate to net operating losses, wash sale loss
deferrals, and treating a portion of the proceeds from redemptions as a
distribution for tax purposes.
The tax character of distributions declared to shareholders is as follows:
8/31/06 8/31/05
Long-term capital gain $11,087,499 $--
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/06
Cost of investments $261,470,198
----------------------------------------------------------
Gross appreciation $20,464,962
Gross depreciation(8,778,550)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $11,686,412
Undistributed ordinary income 4,993,352
Undistributed long-term capital gain 10,977,092
Other temporary differences (98,447)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years
as of the effective date. This Interpretation prescribes a minimum threshold
for financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return, and requires certain expanded
disclosures. Management has recently begun to evaluate the application of the
Interpretation to the fund, and has not at this time determined the impact,
if any, resulting from the adoption of this Interpretation on the fund's
financial statements.
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 management and related administrative services and
facilities to the fund.
The management fee is computed daily and paid monthly at the following annual
rates:
First $500 million of average daily net assets 0.65%
Average daily net assets in excess of $500 million 0.55%
The management fee incurred for the year ended August 31, 2006 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 $35,228 for the year ended August 31, 2006, 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 MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.35% $525,137
Class B 0.75% 0.25% 1.00% 1.00% 609,947
Class C 0.75% 0.25% 1.00% 1.00% 182,437
Class R 0.25% 0.25% 0.50% 0.50% 29,820
Class R1 0.50% 0.25% 0.75% 0.75% 1,638
Class R2 0.25% 0.25% 0.50% 0.50% 2,416
Class R3 0.25% 0.25% 0.50% 0.50% 5,753
Class R4 -- 0.25% 0.25% 0.25% 19,428
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $1,376,576
(d) 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.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August
31, 2006 based on each class' average daily net assets.
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 of purchase.
Class B shares are subject to a contingent deferred sales charge in the event
of a shareholder redemption within six years of purchase. All contingent
deferred sales charges are paid to MFD and during the year ended August 31,
2006, were as follows:
AMOUNT
Class A $1,201
Class B 115,937
Class C 1,429
SHAREHOLDER SERVICING AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned
subsidiary of MFS, receives a fee from the fund for its services as
shareholder servicing agent calculated as a percentage of the average net
assets of the fund as determined periodically under the supervision of the
fund's Board of Trustees. For the year ended August 31, 2006, the fee was
$242,986, which equated to 0.0976% 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, 2006, these costs amounted to $93,393. The fund may also pay
shareholder servicing related costs to non-related parties.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the fund.
Under an administrative services agreement, the fund partially reimburses MFS
the costs incurred to provide these services. The fund is charged a fixed
amount plus a fee based on calendar year average net assets. From July 1, 2005
through March 31, 2006, the fund's annual fixed amount was $10,000. Effective
April 1, 2006, the fund's annual fixed amount is $17,500.
The administrative services fee incurred for the year ended August 31, 2006
was equivalent to an annual effective rate of 0.0170% 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 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. MFS may subsequently
pay all, or a portion, of the retirement plan administration and services fee
to affiliated or unaffiliated third parties. For the year ended August 31,
2006, the fund paid MFS an annual retirement plan administration and services
fee up to the following annual percentage rates of each class' average daily
net assets:
ANNUAL
EFFECTIVE TOTAL
FEE RATE RATE(g) AMOUNT
Class R1 0.45% 0.35% $983
Class R2 0.40% 0.25% 1,933
Class R3 0.25% 0.16% 2,876
Class R4 0.15% 0.15% 11,656
Class R5 0.10% 0.10% 55
- --------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $17,503
(g) Effective October 1, 2005, MFS has agreed in writing to waive a portion of
the retirement plan administration and services fee equal to 0.10% for
Class R1 shares, 0.15% for Class R2 shares, and 0.10% for Class R3 shares.
This agreement will continue until at least September 30, 2008. For the
year ended August 31, 2006, this waiver amounted to $2,004 and is
reflected as a reduction of total expenses in the Statement of Operations.
TRUSTEES' AND OFFICERS' 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 or officers of the fund who are also
officers of the investment adviser, 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 certain retired Independent
Trustees which resulted in a pension expense of $2,180. The fund also has an
unfunded retirement benefit deferral plan for certain Independent Trustees
which resulted in a net decrease in expense of $546. Both amounts are included
in Independent trustees' compensation for the year ended
August 31, 2006. The deferred liability for retirement benefits payable to
certain Trustees under both plans amounted to $35,416 at August 31, 2006, and
is included in payable for independent 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. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the year ended August 31, 2006, the fee paid to Tarantino LLC
was $1,618. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $1,358, 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.
(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 $1,857,500 $101,071
- --------------------------------------------------------------------------------
Investments (non-U.S. government securities) $336,371,694 $343,918,038
- --------------------------------------------------------------------------------
(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 YEAR ENDED
8/31/06 8/31/05
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 2,443,666 $43,867,932 5,204,906 $90,048,226
Class B 811,627 13,942,781 1,321,624 21,946,642
Class C 262,041 4,460,022 338,243 5,567,632
Class I 125,891 2,329,642 164,757 2,901,520
Class R 111,566 1,994,369 252,058 4,402,599
Class R1 26,009 443,322 3,214 52,371
Class R2 44,042 755,492 3,077 50,000
Class R3 35,849 633,797 22,723 393,385
Class R4 1,555,647 28,508,981 2,938 50,000
Class R5 3 81 2,938 50,000
- ----------------------------------------------------------------------------------------------------------
5,416,341 $96,936,419 7,316,478 $125,462,375
Shares issued to shareholders in
reinvestment of distributions
Class A 355,194 $6,254,963 -- $--
Class B 171,172 2,860,279 -- --
Class C 42,451 706,380 -- --
Class I 6,859 124,080 -- --
Class R 16,688 292,512 -- --
Class R1 395 6,519 -- --
Class R2 148 2,469 -- --
Class R3 3,146 54,897 -- --
Class R4 134 2,358 -- --
Class R5 134 2,358 -- --
- ----------------------------------------------------------------------------------------------------------
596,321 $10,306,815 -- $--
Shares reacquired
Class A (2,675,775) $(47,849,495) (1,666,274) $(28,481,139)
Class B (2,289,768) (38,886,362) (2,135,925) (34,776,369)
Class C (387,175) (6,483,150) (374,082) (6,036,198)
Class I (51,250) (948,111) (21,124) (370,848)
Class R (157,462) (2,824,272) (119,291) (2,072,962)
Class R1 (3,855) (64,830) -- --
Class R2 (1,935) (31,647) -- --
Class R3 (26,032) (463,349) (9,547) (156,007)
Class R4 (311,276) (5,589,225) -- --
Class R5 (4) (76) -- --
- ----------------------------------------------------------------------------------------------------------
(5,904,532) $(103,140,517) (4,326,243) $(71,893,523)
Net change
Class A 123,085 $2,273,400 3,538,632 $61,567,087
Class B (1,306,969) (22,083,302) (814,301) (12,829,727)
Class C (82,683) (1,316,748) (35,839) (468,566)
Class I 81,500 1,505,611 143,633 2,530,672
Class R (29,208) (537,391) 132,767 2,329,637
Class R1 22,549 385,011 3,214 52,371
Class R2 42,255 726,314 3,077 50,000
Class R3 12,963 225,345 13,176 237,378
Class R4 1,244,505 22,922,114 2,938 50,000
Class R5 133 2,363 2,938 50,000
- ----------------------------------------------------------------------------------------------------------
108,130 $4,102,717 2,990,235 $53,568,852
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other affiliated funds have established
uncommitted borrowing arrangements with certain banks. Borrowings may be made
for temporary financing needs. Interest is charged to each fund, based on its
borrowings, generally 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 committed line of credit, is allocated among the participating
funds at the end of each calendar quarter. For the year ended August 31, 2006,
the fund's commitment fee and interest expense were $2,155 and $2,813,
respectively, and are included in miscellaneous expense on the Statement
of Operations.
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, 2006, 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, 2006, by
correspondence with the Fund's 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 Equity Fund at August 31, 2006, 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 20, 2006
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2006, 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(h) OTHER DIRECTORSHIPS(j)
- ------------------- ---------------- --------------- ----------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); 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 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (November 2000 until June
2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians' Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) 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 9/27/41) 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)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (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 8/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (2000 until 2005);
Hillview Investment Trust II Funds
(mutual fund complex), Trustee
(2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004); Fidelity
Management & Research Company,
Vice President (prior to March
2004); Fidelity Group of Funds,
President and Treasurer (prior to
March 2004)
Tracy Atkinson(k) 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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
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(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior to May
2005)
Ellen Moynihan(k) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance Officer compliance services), Principal
(since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (prior to
March 2003)
James O. Yost(k) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) Company, Senior Vice President
- ------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(k) "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.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant
retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters. The
terms of that settlement required that compensation and expenses related to the independent compliance
consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services he rendered to
the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of $351,119.29.
The Trust held a shareholders' meeting in 2005 to elect Trustees, and will hold a shareholders' meeting at
least once every five years thereafter, to elect Trustees.
Each Trustee (except Mr. Butler and Mr. Uek) 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. Butler, Sherratt and Uek and Ms. 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 January 1, 2006, the Trustees served as board members of 98 funds within the MFS
Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -----------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 02116-3741 200 Clarendon Street, Boston, MA 02116
PORTFOLIO MANAGER
Katrina A. 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, 2006 ("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, 2005 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 ("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 MFS peer funds, (iii) information provided
by MFS on the advisory fees of comparable portfolios of other clients of MFS,
including institutional separate accounts 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, 2005, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 3rd quintile relative to the other funds in the
universe for this three-year period (the 1st quintile being the best
performers and the 5th quintile being the worst performers). The total return
performance of the Fund's Class A shares was in the 4th quintile for the one-
year period and the 3rd quintile for the five-year period ended December 31,
2005 relative to the Lipper performance universe. Because of the passage of
time, these performance results may 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
that MFS has agreed in writing to observe an advisory fee waiver on assets
over $500 million, which may not be changed without the Trustees' approval.
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
described above. 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 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, which may include 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, if applicable, to pay for investment research
(excluding third-party research, for which MFS pays directly), 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, 2006.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement will be available on or before
November 1, 2006 by clicking on the fund's name under "Select a fund" on the
MFS Web site (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
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The fund's Form N-Q is
available on the EDGAR database on the Commission's Internet Web site 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)
The fund will notify shareholders of amounts for use in preparing 2006 income
tax forms in January 2007. The following information is provided pursuant to
provisions of the Internal Revenue Code.
The fund designates $13,496,568 as capital gain dividends paid during the
fiscal year.
MFS(R) PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about the investment products and services that we
offer, and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal
information. We maintain information and records about you, your investments,
and the services you use. Examples of the nonpublic personal information we
maintain include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or
others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. We may share nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with
which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you.
We maintain physical, electronic, and procedural safeguards to help protect
the personal information we collect about you.
If you have any questions about the MFS privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS send prospectuses, reports,
and proxies directly to your e-mail inbox. You'll get timely information and
less clutter in your mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply go to mfs.com, log in to
your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
KEEPING YOU INFORMED
MFS wants to ensure that you are consistently updated about your investments
with us. This shareholder report will not only show how your investment
performed during the time period, but will also provide you with informative
commentary from the portfolio management team. They will offer an overview of
market conditions and will also discuss the specific factors that may have
enhanced or detracted from your investment's performance.
MFS(R) RESEARCH INTERNATIONAL FUND
LETTER FROM THE CEO 1
- ---------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- ---------------------------------------------------------------
MANAGEMENT REVIEW 3
- ---------------------------------------------------------------
PERFORMANCE SUMMARY 5
- ---------------------------------------------------------------
EXPENSE TABLE 8
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 10
- ---------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 16
- ---------------------------------------------------------------
STATEMENT OF OPERATIONS 19
- ---------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 21
- ---------------------------------------------------------------
FINANCIAL HIGHLIGHTS 23
- ---------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 35
- ---------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 47
- ---------------------------------------------------------------
TRUSTEES AND OFFICERS 48
- ---------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 54
- ---------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 58
- ---------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 58
- ---------------------------------------------------------------
FEDERAL TAX INFORMATION 58
- ---------------------------------------------------------------
MFS(R) PRIVACY NOTICE 59
- ---------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- ---------------------------------------------------------------
Fund objective: Seeks to provide capital appreciation.
THE REPORT IS PREPARED FOR THE GENERAL INFORMATION OF SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
- ------------------------------------------------------------------------------
NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
- ------------------------------------------------------------------------------
8/31/06
RIF-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The story is as old as the tortoise and the hare, but we believe it is
still relevant today -- "slow and steady" is the way to go when it comes to
investing. While financial markets will naturally ebb and flow over time,
investors who remain committed to a long-term investment strategy are more
likely to achieve their goals than those who consistently chase short-term
performance.
The first half of 2006 brought a high degree of fluctuation in markets
around the globe as varying economic factors pulled markets in opposite
directions. The global economy, for example, continued to grow at its fastest
pace in three decades -- spurred by increased international trade, good job
growth, and wage increases. At the same time, central banks around the world
raised interest rates in sync in a collaborative attempt to curb inflation.
While this was a positive development in some regions, in other cases,
economic and market gains were tempered.
What does all of this mean to you as an investor? If you're focused on the
long term, these global developments become part of a longer cycle instead of
one-time events that can have a significant impact on your portfolio.
At MFS(R), our investment management process -- honed over 80 years --
combines a unique teamwork approach with an unwavering focus on helping you
realize your long-term financial goals. We believe in a three-pronged
investment strategy:
o ALLOCATE holdings across the major asset classes -- including stocks,
bonds, and cash.
o DIVERSIFY within each class to take advantage of different market
segments and investing styles.
o REBALANCE assets regularly to maintain a desired asset allocation.
Of course, these strategies cannot guarantee a profit or protect against a
loss. Investing and planning for the long term requires diligence and
patience, two traits that in our experience are essential to capitalizing on
the many opportunities the financial markets can offer -- through both up and
down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
October 13, 2006
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Common Stocks 98.9%
Cash & Other Net Assets 1.1%
TOP TEN HOLDINGS
GlaxoSmithKline PLC 3.3%
------------------------------------------------
Royal Dutch Shell PLC, "A" 2.5%
------------------------------------------------
TOTAL S.A. 2.3%
------------------------------------------------
Nestle S.A. 2.2%
------------------------------------------------
BHP Billiton PLC 2.0%
------------------------------------------------
E.ON AG 2.0%
------------------------------------------------
Samsung Electronics Co. Ltd. 2.0%
------------------------------------------------
UBS AG 1.9%
------------------------------------------------
BNP Paribas 1.9%
------------------------------------------------
HSBC Holdings PLC 1.8%
------------------------------------------------
EQUITY SECTORS
Financial Services 29.0%
------------------------------------------------
Basic Materials 11.8%
------------------------------------------------
Utilities & Communications 10.6%
------------------------------------------------
Autos & Housing 9.0%
------------------------------------------------
Health Care 7.9%
------------------------------------------------
Energy 7.3%
------------------------------------------------
Technology 6.9%
------------------------------------------------
Consumer Staples 6.5%
------------------------------------------------
Leisure 5.2%
------------------------------------------------
Retailing 4.7%
------------------------------------------------
COUNTRY WEIGHTINGS
United Kingdom 18.9%
------------------------------------------------
Japan 16.8%
------------------------------------------------
France 12.4%
------------------------------------------------
Switzerland 10.0%
------------------------------------------------
Germany 8.2%
------------------------------------------------
Italy 4.3%
------------------------------------------------
South Korea 4.1%
------------------------------------------------
Mexico 3.5%
------------------------------------------------
Brazil 3.3%
------------------------------------------------
Other 18.5%
------------------------------------------------
Percentages are based on net assets as of 8/31/06.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2006, Class A shares of the MFS
Research International Fund provided a total return of 27.18%, at net asset
value. This compares with a return of 24.78% for the fund's benchmark, the
MSCI EAFE Index.
CONTRIBUTORS TO PERFORMANCE
Security selection in the energy sector was the primary contributor to
performance relative to the fund's benchmark over the period. Our holdings in
oil company LUKOIL* (Russia), which is not a benchmark constituent, boosted
results. LUKOIL benefited from high oil prices and a recent upgrade in the
company's credit rating by Moody's to investment grade levels. Our
underweighted positions in BP* (UK) and Royal Dutch Shell (UK) also helped
relative performance as the two integrated energy giants underperformed
the benchmark.
Stock selection in the utilities and communications sector aided relative
results, led by strong performance from energy distributors E.ON (Germany) and
SUEZ (France). The autos and housing sector also helped performance, although
no individual securities within this sector were among the fund's
top contributors.
In other sectors, global steel giant Arcelor* was the top contributing holding
during the period. We believe that shares of Arcelor gained in response to
rival Mittal Steel's takeover bid for the company. Our positions in several
strong-performing financial services companies also bolstered results
including real estate company Leopalace21* (Japan), financing firm ORIX
(Japan), and banking firms Kookmin Bank* (South Korea) and Unibanco-Uniao de
Bancos Brasileiros (Brazil).
During the reporting period, our currency exposure was a contributor to the
fund's relative performance. All of MFS' investment decisions are driven by
the fundamentals of each individual opportunity and, as such, it is common for
our portfolios to have different currency exposure than the benchmark.
DETRACTORS FROM PERFORMANCE
Security selection in the health care sector detracted from relative results
over the period. In particular, our position in strong-performing
pharmaceutical firm Astrazeneca* (UK), a benchmark constituent, hurt relative
performance as we missed much of the run-up in the stock's price occurring
late in the reporting period. Pharmaceutical company GlaxoSmithKline (UK) was
also among the top detracting stocks relative to the benchmark.
Our underweighted position and, to a lesser extent, security selection in the
special products and services sector hurt performance relative to the
benchmark. Stock selection in the retailing sector also detracted from
results.
Some of our holdings in Japanese financial services firms were among the
fund's top detractors during the reporting period. These included consumer
financing firms Aiful and Takefuji, and real estate consulting company K.K.
DaVinci Advisors*. Aiful and Takefuji struggled during the period in an
increasingly difficult regulatory, business and media environment for consumer
finance companies.
Elsewhere, chemical company Kaneka* (Japan) hurt relative results. We feel
that Kaneka's shares fell on growing concerns about oversupply of its
nutritional food supplement, CoQ10, and the company's lack of pricing power on
these products due to increased competition. Other stocks that hindered
performance included banking firm OTP Bank (Hungary), broadband service
provider FastWeb* (Italy), neither of which are benchmark constituents, and
integrated oil company TOTAL (France).
The fund's cash position was a detractor from relative performance. The fund
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 benchmark, which has no cash position.
Respectfully,
Jose Luis Garcia Thomas Melendez
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.
* Security was not held in the portfolio at period end.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS portfolio. References to specific
securities are not recommendations of such securities, and may not be
representative of any MFS portfolio's current or future investments.
PERFORMANCE SUMMARY THROUGH 8/31/06
The following chart illustrates the historical performance of the fund's Class
A shares 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. The performance of other share classes will be greater
than or less than that of the class depicted below. Benchmark comparisons are
unmanaged; do not reflect sales charges, commissions or expenses; and cannot
be invested in directly. (See Notes to Performance Summary.)
PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR
SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN QUOTED. FOR MOST RECENT MONTH-END
PERFORMANCE, PLEASE VISIT MFS.COM. (FOR THE MOST RECENT MONTH-END PERFORMANCE
FOR CLASS I SHARES CALL 1-800-343-2829.) 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 the stated period end.)
MFS Research
International Fund MSCI EAFE
-- Class A 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
8/06 25,055 19,638
TOTAL RETURNS THROUGH 8/31/06
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr Life (t)
- ----------------------------------------------------------------------------
A 1/02/97 27.18% 12.67% 10.65%
- ----------------------------------------------------------------------------
B 1/02/98 26.36% 11.95% 10.04%
- ----------------------------------------------------------------------------
C 1/02/98 26.38% 11.96% 10.04%
- ----------------------------------------------------------------------------
I 1/02/97 27.61% 13.07% 11.02%
- ----------------------------------------------------------------------------
W 5/01/06 27.25% 12.68% 10.66%
- ----------------------------------------------------------------------------
R 12/31/02 26.98% 12.54% 10.58%
- ----------------------------------------------------------------------------
R1 4/01/05 26.12% 12.42% 10.52%
- ----------------------------------------------------------------------------
R2 4/01/05 26.63% 12.54% 10.58%
- ----------------------------------------------------------------------------
R3 10/31/03 26.79% 12.42% 10.53%
- ----------------------------------------------------------------------------
R4 4/01/05 27.07% 12.65% 10.64%
- ----------------------------------------------------------------------------
R5 4/01/05 27.50% 12.75% 10.69%
- ----------------------------------------------------------------------------
529A 7/31/02 26.86% 12.45% 10.54%
- ----------------------------------------------------------------------------
529B 7/31/02 26.06% 11.85% 10.23%
- ----------------------------------------------------------------------------
529C 7/31/02 25.98% 11.84% 10.23%
- ----------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmark
- ----------------------------------------------------------------------------
MSCI EAFE Index (f) 24.78% 12.25% 7.23%
- ----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- ----------------------------------------------------------------------------
A 19.87% 11.34% 9.97%
With Initial Sales Charge (5.75%)
- ----------------------------------------------------------------------------
B 22.36% 11.70% 10.04%
With CDSC (Declining over six years
from 4% to 0%) (x)
- ----------------------------------------------------------------------------
C 25.38% 11.96% 10.04%
With CDSC (1% for 12 months) (x)
- ----------------------------------------------------------------------------
529A 19.57% 11.12% 9.86%
With Initial Sales Charge (5.75%)
- ----------------------------------------------------------------------------
529B 22.06% 11.59% 10.23%
With CDSC (Declining over six years
from 4% to 0%) (x)
- ----------------------------------------------------------------------------
529C 24.98% 11.84% 10.23%
With CDSC (1% for 12 months) (x)
- ----------------------------------------------------------------------------
Class I, W, R, R1, R2, R3, R4, and R5 shares do not have a sales charge.
Please see Notes to Performance Summary for more details.
CDSC - Contingent Deferred Sales Charge.
(f) Source: FactSet Research Systems Inc.
(t) For the period from the commencement of the fund's investment operations,
January 2, 1997, through the stated period end.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
Morgan Stanley Capital International (MSCI) EAFE (Europe, Australasia, Far
East) Index - a market capitalization index that is designed to measure
developed market equity performance, excluding the U.S. and Canada.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class R shares are available only to existing Class R shareholders. 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. Class W shares are intended for purchase only through
fee-based wrap programs sponsored by financial intermediaries, such as
brokerage firms and investment advisers, that have entered into an agreement
with the fund's distributor to offer Class W shares to their wrap program
clients. The use of Class W shares by a financial intermediary sponsor of a
fee-based program will depend on, among other things, the structure of the
particular fee-based wrap program. Class W shares may be purchased at net asset
value without an initial sales charge or CDSC upon redemption.
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, 2006 through August 31, 2006.
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, 2006 through
August 31, 2006.
ACTUAL EXPENSES
The first line for each share class in the following table 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 following table 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(p)
Share Expense Account Value Account Value 3/01/06-
Class Ratio 3/01/06 8/31/06 8/31/06
- --------------------------------------------------------------------------------
Actual 1.38% $1,000.00 $1,068.70 $7.20
A ------------------------------------------------------------------------
Hypothetical (h) 1.38% $1,000.00 $1,018.25 $7.02
- --------------------------------------------------------------------------------
Actual 2.03% $1,000.00 $1,065.20 $10.57
B -------------------------------------------------------------------------
Hypothetical (h) 2.03% $1,000.00 $1,014.97 $10.31
- --------------------------------------------------------------------------------
Actual 2.03% $1,000.00 $1,065.40 $10.57
C ------------------------------------------------------------------------
Hypothetical (h) 2.03% $1,000.00 $1,014.97 $10.31
- --------------------------------------------------------------------------------
Actual 1.04% $1,000.00 $1,071.00 $5.43
I ------------------------------------------------------------------------
Hypothetical (h) 1.04% $1,000.00 $1,019.96 $5.30
- --------------------------------------------------------------------------------
Actual 1.20% $1,000.00 $995.40 $4.03 (i)
W ------------------------------------------------------------------------
Hypothetical (h) 1.20% $1,000.00 $1,012.81 $4.07 (i)
- --------------------------------------------------------------------------------
Actual 1.53% $1,000.00 $1,068.10 $7.98
R ------------------------------------------------------------------------
Hypothetical (h) 1.53% $1,000.00 $1,017.49 $7.78
- --------------------------------------------------------------------------------
Actual 2.13% $1,000.00 $1,064.50 $11.08
R1 ------------------------------------------------------------------------
Hypothetical (h) 2.13% $1,000.00 $1,014.47 $10.82
- --------------------------------------------------------------------------------
Actual 1.78% $1,000.00 $1,066.60 $9.27
R2 ------------------------------------------------------------------------
Hypothetical (h) 1.78% $1,000.00 $1,016.23 $9.05
- --------------------------------------------------------------------------------
Actual 1.68% $1,000.00 $1,067.00 $8.75
R3 ------------------------------------------------------------------------
Hypothetical (h) 1.68% $1,000.00 $1,016.74 $8.54
- --------------------------------------------------------------------------------
Actual 1.46% $1,000.00 $1,068.30 $7.61
R4 ------------------------------------------------------------------------
Hypothetical (h) 1.46% $1,000.00 $1,017.85 $7.43
- --------------------------------------------------------------------------------
Actual 1.15% $1,000.00 $1,070.40 $6.00
R5 ------------------------------------------------------------------------
Hypothetical (h) 1.15% $1,000.00 $1,019.41 $5.85
- --------------------------------------------------------------------------------
Actual 1.63% $1,000.00 $1,067.60 $8.49
529A ------------------------------------------------------------------------
Hypothetical (h) 1.63% $1,000.00 $1,016.99 $8.29
- --------------------------------------------------------------------------------
Actual 2.28% $1,000.00 $1,064.10 $11.86
529B ------------------------------------------------------------------------
Hypothetical (h) 2.28% $1,000.00 $1,013.71 $11.57
- --------------------------------------------------------------------------------
Actual 2.28% $1,000.00 $1,064.20 $11.86
529C ------------------------------------------------------------------------
Hypothetical (h) 2.28% $1,000.00 $1,013.71 $11.57
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(i) For the period from the class' inception, May 1, 2006 through
August 31, 2006.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
8/31/06
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Common Stocks - 98.9%
- --------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- --------------------------------------------------------------------------------------------------
Aerospace - 0.6%
- --------------------------------------------------------------------------------------------------
Finmeccanica S.p.A 964,260 $ 21,351,228
- --------------------------------------------------------------------------------------------------
Airlines - 0.3%
- --------------------------------------------------------------------------------------------------
Grupo Aeroportuario del Pacifico S.A. de C.V., ADR 343,030 $ 11,645,869
- --------------------------------------------------------------------------------------------------
Alcoholic Beverages - 1.8%
- --------------------------------------------------------------------------------------------------
Diageo PLC 1,909,210 $ 34,004,582
Grupo Modelo S.A. de C.V., "C" 2,789,820 11,751,048
Pernod Ricard S.A. (l) 73,170 15,967,344
---------------
$ 61,722,974
---------------
Apparel Manufacturers - 1.9%
- --------------------------------------------------------------------------------------------------
Burberry Group PLC 2,586,070 $ 23,571,887
Li & Fung Ltd. 8,090,000 19,244,196
LVMH Moet Hennessy Louis Vuitton S.A. (l) 215,070 22,143,725
---------------
$ 64,959,808
- --------------------------------------------------------------------------------------------------
Automotive - 5.2%
- --------------------------------------------------------------------------------------------------
Bayerische Motoren Werke AG 688,980 $ 35,702,837
Compagnie Generale des Etablissements Michelin (l) 285,190 19,368,462
Continental AG 457,684 48,970,797
Hyundai Mobis 219,250 20,093,545
Nissan Motor Co. Ltd. (l) 2,843,700 32,331,849
Toyota Motor Corp. (l) 451,700 24,523,387
---------------
$ 180,990,877
- --------------------------------------------------------------------------------------------------
Biotechnology - 0.9%
- --------------------------------------------------------------------------------------------------
Actelion Ltd. (n) 240,670 $ 32,238,004
- --------------------------------------------------------------------------------------------------
Broadcasting - 3.3%
- --------------------------------------------------------------------------------------------------
Antena 3 de Television S.A. (l) 757,950 $ 17,443,429
Grupo Televisa S.A., ADR 1,561,150 29,724,296
Nippon Television Network Corp. 97,200 13,238,353
WPP Group PLC 4,446,040 54,203,268
---------------
$ 114,609,346
- --------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 0.3%
- --------------------------------------------------------------------------------------------------
Singapore Exchange Ltd. 3,641,000 $ 9,209,228
- --------------------------------------------------------------------------------------------------
Business Services - 0.6%
- --------------------------------------------------------------------------------------------------
Mitsubishi Corp. 1,063,400 $ 21,661,348
- --------------------------------------------------------------------------------------------------
Chemicals - 3.9%
- --------------------------------------------------------------------------------------------------
Bayer AG 1,163,540 $ 57,655,462
Sasol Ltd. 383,600 13,291,753
Syngenta AG 266,784 39,183,832
Umicore 183,620 26,705,506
---------------
$ 136,836,553
- --------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.6%
- --------------------------------------------------------------------------------------------------
Capgemini S.A. (l) 403,300 $ 22,097,894
- --------------------------------------------------------------------------------------------------
Conglomerates - 1.2%
- --------------------------------------------------------------------------------------------------
Siemens AG (l) 492,110 $ 41,732,454
- --------------------------------------------------------------------------------------------------
Construction - 2.4%
- --------------------------------------------------------------------------------------------------
CEMEX S.A. de C.V., ADR (n) 1,114,206 $ 32,189,411
CRH PLC 630,500 21,870,480
Italcementi S.p.A 1,103,560 17,457,096
Italcementi S.p.A. - Ordinary (l) 531,070 13,108,051
---------------
$ 84,625,038
- --------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.2%
- --------------------------------------------------------------------------------------------------
Kao Corp. (l) 1,302,000 $ 34,733,316
Kimberly-Clark de Mexico S.A. de C.V., "A" 3,607,270 13,581,982
Reckitt Benckiser PLC 643,290 26,713,785
---------------
$ 75,029,083
- --------------------------------------------------------------------------------------------------
Electrical Equipment - 1.2%
- --------------------------------------------------------------------------------------------------
Schneider Electric S.A. (l) 400,163 $ 42,688,032
- --------------------------------------------------------------------------------------------------
Electronics - 5.1%
- --------------------------------------------------------------------------------------------------
Konica Minolta Holdings, Inc. (n) 1,643,000 $ 21,494,971
Nintendo Co. Ltd. 109,700 22,514,071
Nippon Electric Glass Co. Ltd. (l) 471,000 11,440,808
Royal Philips Electronics N.V 988,010 33,701,898
Samsung Electronics Co. Ltd. 100,671 68,070,477
Taiwan Semiconductor Manufacturing Co. Ltd. 10,983,508 19,397,292
---------------
$ 176,619,517
- --------------------------------------------------------------------------------------------------
Energy - Independent - 0.4%
- --------------------------------------------------------------------------------------------------
Norsk Hydro A.S.A. (l) 593,400 $ 15,302,525
- --------------------------------------------------------------------------------------------------
Energy - Integrated - 6.3%
- --------------------------------------------------------------------------------------------------
Petroleo Brasileiro S.A., ADR 141,550 $ 12,691,373
Royal Dutch Shell PLC, "A" 2,525,130 87,544,177
Statoil A.S.A. (l) 1,324,320 35,722,782
TOTAL S.A 1,197,300 80,853,451
---------------
$ 216,811,783
- --------------------------------------------------------------------------------------------------
Food & Beverages - 2.5%
- --------------------------------------------------------------------------------------------------
Nestle S.A. (l) 218,666 $ 75,225,867
Nong Shim Co. Ltd. 39,967 9,624,842
---------------
$ 84,850,709
- --------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.2%
- --------------------------------------------------------------------------------------------------
Sundrug Co. Ltd. 318,400 $ 7,788,358
Tesco PLC 4,873,859 35,024,693
---------------
$ 42,813,051
- --------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.8%
- --------------------------------------------------------------------------------------------------
Aracruz Celulose S.A., ADR (l) 188,870 $ 9,808,019
Votorantim Celulose e Papel S.A., ADR (l) 1,032,863 16,660,080
---------------
$ 26,468,099
- --------------------------------------------------------------------------------------------------
Insurance - 4.0%
- --------------------------------------------------------------------------------------------------
Assicurazioni Generali S.p.A. (l) 1,236,360 $ 46,625,143
AXA (l) 1,617,980 60,125,142
Swiss Reinsurance Co. 405,907 30,979,978
---------------
$ 137,730,263
- --------------------------------------------------------------------------------------------------
Internet - 0.3%
- --------------------------------------------------------------------------------------------------
Universo Online S.A., IPS (n) 1,528,800 $ 8,730,909
- --------------------------------------------------------------------------------------------------
Leisure & Toys - 1.6%
- --------------------------------------------------------------------------------------------------
Capcom Co. Ltd. (l) 805,500 $ 11,691,524
Konami Corp. (l) 803,200 20,468,491
NAMCO BANDAI Holdings, Inc. 1,418,400 22,352,524
---------------
$ 54,512,539
- --------------------------------------------------------------------------------------------------
Machinery & Tools - 0.8%
- --------------------------------------------------------------------------------------------------
Fanuc Ltd. 353,000 $ 28,010,142
- --------------------------------------------------------------------------------------------------
Major Banks - 3.2%
- --------------------------------------------------------------------------------------------------
Barclays PLC 4,427,310 $ 55,450,801
DBS Group Holdings Ltd. 2,972,000 33,997,013
Deutsche Postbank AG 283,540 22,133,964
---------------
$ 111,581,778
- --------------------------------------------------------------------------------------------------
Metals & Mining - 3.5%
- --------------------------------------------------------------------------------------------------
BHP Billiton PLC 3,657,400 $ 69,739,474
Companhia Siderurgica Nacional S.A., ADR (l) 416,140 12,201,225
Companhia Vale do Rio Doce, ADR 13,070 280,221
POSCO 124,110 31,179,200
Ternium S.A., ADR (n) 376,230 9,484,758
---------------
$ 122,884,878
- --------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.8%
- --------------------------------------------------------------------------------------------------
Tokyo Gas Co. Ltd. (l) 4,975,390 $ 26,503,185
- --------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.4%
- --------------------------------------------------------------------------------------------------
Gazprom OAO, ADR 299,900 $ 14,125,290
- --------------------------------------------------------------------------------------------------
Network & Telecom - 0.3%
- --------------------------------------------------------------------------------------------------
TomTom N.V. (n) 227,190 $ 9,269,306
- --------------------------------------------------------------------------------------------------
Oil Services - 0.6%
- --------------------------------------------------------------------------------------------------
Saipem S.p.A 509,980 $ 11,434,746
Vallourec S.A 47,490 10,649,401
---------------
$ 22,084,147
- --------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 21.5%
- --------------------------------------------------------------------------------------------------
AEON Credit Service Co. Ltd. 921,200 $ 22,062,320
Aiful Corp. 153,700 6,156,908
Akbank T.A.S 3,860,857 21,087,496
Banco Bilbao Vizcaya Argentaria S.A. (l) 949,410 21,703,692
Banco Nossa Caixa S.A 443,590 8,896,616
Bangkok Bank Public Co. Ltd. 4,816,400 14,098,031
Bank of Cyprus Public Co. Ltd. 918,026 8,634,476
BNP Paribas (l) 631,643 67,138,718
Credit Agricole S.A. (l) 1,054,291 42,839,235
CSU Cardsystem S.A. (n) 1,414,690 7,149,296
DEPFA Bank PLC 445,560 8,290,062
Erste Bank der Oesterreichischen Sparkassen AG 469,158 28,375,668
Hana Financial Group, Inc. 337,420 14,549,110
HSBC Holdings PLC 3,488,916 63,336,717
Mitsubishi Tokyo Financial Group, Inc. 4,034 55,010,654
ORIX Corp. (l) 112,160 29,777,414
OTP Bank Ltd., GDR 259,250 15,166,125
Royal Bank of Scotland Group PLC 1,807,901 61,369,767
Shinsei Bank Ltd. 3,426,000 21,111,378
SinoPac Holdings 28,787,000 12,600,356
Sumitomo Mitsui Financial Group, Inc. 5,079 57,140,373
Svenska Handelsbanken AB, "A" (l) 676,200 17,632,455
Takefuji Corp. (l) 128,050 6,908,348
UBS AG (l) 1,186,600 67,176,046
Unibanco - Uniao de Bancos Brasileiros S.A., ADR 363,930 26,330,336
UniCredito Italiano S.p.A. (l) 5,116,570 40,813,444
---------------
$ 745,355,041
- --------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.0%
- --------------------------------------------------------------------------------------------------
Astellas Pharma, Inc. 1,047,100 $ 42,480,150
GlaxoSmithKline PLC 4,032,740 114,307,647
Novartis AG 757,150 43,233,185
Roche Holding AG 225,060 41,507,042
---------------
$ 241,528,024
- --------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.2%
- --------------------------------------------------------------------------------------------------
Asahi Glass Co. Ltd. (l) 1,828,000 $ 23,993,182
Lonza Group AG 257,420 16,801,452
---------------
$ 40,794,634
- --------------------------------------------------------------------------------------------------
Specialty Stores - 1.6%
- --------------------------------------------------------------------------------------------------
Grupo Elektra S.A. de C.V 874,410 $ 8,477,016
NEXT PLC 889,380 28,241,977
Yamada Denki Co. Ltd. (l) 183,800 19,738,174
---------------
$ 56,457,167
- --------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.3%
- --------------------------------------------------------------------------------------------------
America Movil S.A. de C.V., "L", ADR 420,030 $ 15,671,319
PT Indonesian Satellite Corp. Tbk 9,181,500 4,431,129
Rogers Communications, Inc., "B" 500,430 25,822,215
---------------
$ 45,924,663
- --------------------------------------------------------------------------------------------------
Telephone Services - 3.8%
- --------------------------------------------------------------------------------------------------
France Telecom S.A. (l) 1,189,440 $ 25,255,154
Singapore Telecomm 21,205,900 33,556,411
Telenor A.S.A. (l) 2,473,250 31,303,000
TELUS Corp. 830,640 40,793,211
---------------
$ 130,907,776
- --------------------------------------------------------------------------------------------------
Utilities - Electric Power - 4.3%
- --------------------------------------------------------------------------------------------------
E.ON AG (l) 545,810 $ 69,352,636
Equatorial Energia S.A., IEU (n) 1,644,580 11,998,917
Iberdrola S.A 1,206,960 44,820,451
SUEZ S.A. (l) 533,768 22,830,942
---------------
$ 149,002,946
- --------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $2,958,448,072) $ 3,429,666,108
- --------------------------------------------------------------------------------------------------
Short-Term Obligations - 1.0%
- --------------------------------------------------------------------------------------------------
General Electric Co., 5.27%, due 9/01/06, at Amortized Cost
and Value (y) $ 33,931,000 $ 33,931,000
- --------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 11.8%
- --------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 408,737,846 $ 408,737,846
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $3,401,116,918) $ 3,872,334,954
- --------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (11.7)% (406,344,831)
- --------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 3,465,990,123
- --------------------------------------------------------------------------------------------------
(l) All or a portion of this security is on loan.
(n) Non-income producing security.
(y) The rate shown represents an annualized yield at time of purchase.
The following abbreviations are used in this report and are defined:
ADR American Depository Receipt
GDR Global Depository Receipt
IEU International Equity Unit
IPS International Preference Stock
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/06
This statement represents your fund's balance sheet, which details the assets
and liabilities comprising the total value of the fund.
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $389,579,190 of securities
on loan (identified cost, $3,401,116,918) $3,872,334,954
Cash 219
Foreign currency, at value (identified cost, $11,692,860) 11,631,948
Receivable for investments sold 4,812,068
Receivable for fund shares sold 7,793,979
Interest and dividends receivable 4,608,838
Other assets 10,793
- -------------------------------------------------------------------------------------------------------
Total assets $3,901,192,799
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $14,148,520
Payable for fund shares reacquired 11,382,125
Collateral for securities loaned, at value 408,737,846
Payable to affiliates
Management fee 149,517
Shareholder servicing costs 150,289
Distribution and service fees 47,222
Administrative services fee 3,007
Program manager fees 35
Retirement plan administration and services fees 863
Payable for independent trustees' compensation 29,893
Accrued expenses and other liabilities 553,359
- -------------------------------------------------------------------------------------------------------
Total liabilities $435,202,676
- -------------------------------------------------------------------------------------------------------
Net assets $3,465,990,123
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -------------------------------------------------------------------------------------------------------
Paid-in capital $2,677,655,437
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 471,218,230
Accumulated net realized gain (loss) on investments and
foreign currency transactions 272,540,082
Undistributed net investment income 44,576,374
- -------------------------------------------------------------------------------------------------------
Net assets $3,465,990,123
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 177,201,288
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,344,753,714
Shares outstanding 69,181,469
- -------------------------------------------------------------------------------------------------------
Net asset value per share $19.44
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $20.63
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $184,341,111
Shares outstanding 9,893,789
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $18.63
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $158,564,254
Shares outstanding 8,540,308
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $18.57
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,565,596,481
Shares outstanding 78,597,122
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.92
- -------------------------------------------------------------------------------------------------------
Class W shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,033,183
Shares outstanding 53,111
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.45
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $69,507,284
Shares outstanding 3,603,060
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.29
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $2,027,319
Shares outstanding 109,615
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $18.49
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,021,494
Shares outstanding 54,957
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $18.59
- -------------------------------------------------------------------------------------------------------
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $13,798,576
Shares outstanding 722,071
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.11
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $12,795,762
Shares outstanding 660,021
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.39
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $109,992,672
Shares outstanding 5,650,560
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.47
- -------------------------------------------------------------------------------------------------------
Class 529A shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,552,197
Shares outstanding 80,560
- -------------------------------------------------------------------------------------------------------
Net asset value per share $19.27
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $20.45
- -------------------------------------------------------------------------------------------------------
Class 529B shares
- -------------------------------------------------------------------------------------------------------
Net assets $356,065
Shares outstanding 19,321
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $18.43
- -------------------------------------------------------------------------------------------------------
Class 529C shares
- -------------------------------------------------------------------------------------------------------
Net assets $650,011
Shares outstanding 35,324
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $18.40
- -------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering prices of Class A and Class 529A shares are reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class
529B, and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 8/31/06
This statement describes how much your fund earned in investment income and accrued in expenses. It
also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------
Income
Dividends $69,561,723
Interest 4,056,325
Foreign taxes withheld (6,190,634)
- ------------------------------------------------------------------------------------------------------
Total investment income $67,427,414
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $21,859,997
Distribution and service fees 7,383,465
Program manager fees 4,749
Shareholder servicing costs 4,068,376
Administrative services fee 349,690
Retirement plan administration and services fees 95,822
Independent trustees' compensation 51,744
Custodian fee 2,103,837
Shareholder communications 236,525
Auditing fees 50,467
Legal fees 59,000
Miscellaneous 420,991
- ------------------------------------------------------------------------------------------------------
Total expenses $36,684,663
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (226,196)
Reduction of expenses by investment adviser (22,358)
- ------------------------------------------------------------------------------------------------------
Net expenses $36,436,109
- ------------------------------------------------------------------------------------------------------
Net investment income $30,991,305
- ------------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions (net of $119,480 country tax) $380,616,669
Foreign currency transactions (1,022,655)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $379,594,014
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments (net of $57,340 decrease in deferred country tax) $209,294,383
Translation of assets and liabilities in foreign currencies (3,798)
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $209,290,585
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $588,884,599
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $619,875,904
- ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations,
any distributions, and any shareholder transactions.
YEARS ENDED 8/31
--------------------------------------
2006 2005
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income $30,991,305 $14,478,147
Net realized gain (loss) on investments and foreign
currency transactions 379,594,014 145,187,506
Net unrealized gain (loss) on investments and foreign
currency translation 209,290,585 171,427,529
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $619,875,904 $331,093,182
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A $(7,372,365) $(3,826,893)
Class B (226,370) (10,565)
Class C (254,257) (77,330)
Class I (9,060,373) (4,400,339)
Class R (303,000) (170,724)
Class R1 (2,858) --
Class R2 (1,155) --
Class R3 (29,271) (4,202)
Class R4 (1,034) --
Class R5 (523) --
Class 529A (4,962) (2,107)
Class 529B (80) (115)
Class 529C (10) (151)
Statements of Changes in Net Assets - continued
YEARS ENDED 8/31
--------------------------------------
2006 2005
From net realized gain on investments and foreign
currency transactions
Class A $(80,787,062) $(30,675,820)
Class B (12,159,865) (5,867,774)
Class C (9,704,848) (3,969,467)
Class I (70,748,663) (23,687,787)
Class R (3,873,527) (1,210,411)
Class R1 (33,799) --
Class R2 (13,584) --
Class R3 (346,752) (24,101)
Class R4 (9,270) --
Class R5 (4,369) --
Class 529A (70,615) (18,925)
Class 529B (15,904) (6,169)
Class 529C (39,146) (14,528)
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(195,063,662) $(73,967,408)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $931,454,179 $577,345,880
- -------------------------------------------------------------------------------------------------------
Redemption fees $-- $3,533
- -------------------------------------------------------------------------------------------------------
Total change in net assets $1,356,266,421 $834,475,187
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period 2,109,723,702 1,275,248,515
At end of period (including undistributed net investment
income of $44,576,374 and $13,039,912, respectively) $3,465,990,123 $2,109,723,702
- -------------------------------------------------------------------------------------------------------
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 life of a particular share class, if shorter). 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 share class (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
--------------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $16.65 $14.25 $11.53 $10.78 $12.25
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.19 $0.12 $0.10 $0.04 $(0.00)(w)
Net realized and unrealized gain
(loss) on investments and
foreign currency 4.08 3.04 2.63 0.71 (1.47)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $4.27 $3.16 $2.73 $0.75 $(1.47)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.12) $(0.08) $(0.01) $-- $--
From net realized gain on investments
and foreign currency transactions (1.36) (0.68) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(1.48) $(0.76) $(0.01) $-- $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.44 $16.65 $14.25 $11.53 $10.78
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 27.18 22.67 23.65 6.96 (12.00)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.43 1.52 1.61 1.80 1.86
Expenses after expense reductions (f) 1.43 1.55(e) 1.67(e) 1.75 1.77
Net investment income (loss) 1.06 0.80 0.75 0.36 (0.02)
Portfolio turnover 85 79 102 96 153
Net assets at end of period
(000 Omitted) $1,344,754 $958,878 $593,574 $387,732 $313,418
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
-------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $16.02 $13.76 $11.19 $10.54 $12.04
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.07 $0.01 $0.02 $(0.03) $(0.08)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.93 2.93 2.55 0.68 (1.42)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $4.00 $2.94 $2.57 $0.65 $(1.50)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.03) $(0.00)(w) $-- $-- $--
From net realized gain on investments and
foreign currency transactions (1.36) (0.68) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.39) $(0.68) $-- $-- $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.63 $16.02 $13.76 $11.19 $10.54
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 26.36 21.77 22.97 6.17 (12.46)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.08 2.17 2.25 2.45 2.51
Expenses after expense reductions (f) 2.08 2.20(e) 2.31(e) 2.40 2.42
Net investment income (loss) 0.40 0.08 0.12 (0.32) (0.69)
Portfolio turnover 85 79 102 96 153
Net assets at end of period (000 Omitted) $184,341 $141,515 $116,165 $88,177 $82,659
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C YEARS ENDED 8/31
-----------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $15.98 $13.73 $11.17 $10.52 $12.02
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.07 $0.02 $0.02 $(0.03) $(0.08)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.92 2.92 2.54 0.68 (1.42)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.99 $2.94 $2.56 $0.65 $(1.50)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.04) $(0.01) $-- $-- $--
From net realized gain on investments and
foreign currency transactions (1.36) (0.68) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.40) $(0.69) $-- $-- $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.57 $15.98 $13.73 $11.17 $10.52
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 26.38 21.84 22.92 6.18 (12.48)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.08 2.17 2.25 2.45 2.51
Expenses after expense reductions (f) 2.08 2.20(e) 2.31(e) 2.40 2.42
Net investment income (loss) 0.41 0.13 0.15 (0.32) (0.09)
Portfolio turnover 85 79 102 96 153
Net assets at end of period (000 Omitted) $158,564 $109,347 $75,580 $46,022 $43,046
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 8/31
---------------------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $17.02 $14.54 $11.75 $10.95 $12.39
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.26 $0.19 $0.16 $0.10 $0.04
Net realized and unrealized gain (loss)
on investments and foreign currency 4.17 3.10 2.66 0.70 (1.48)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $4.43 $3.29 $2.82 $0.80 $(1.44)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.17) $(0.13) $(0.03) $-- $--
From net realized gain on investments
and foreign currency transactions (1.36) (0.68) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(1.53) $(0.81) $(0.03) $-- $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.92 $17.02 $14.54 $11.75 $10.95
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 27.61 23.09 24.05 7.31 (11.62)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.08 1.17 1.26 1.45 1.51
Expenses after expense reductions (f) 1.08 1.20(e) 1.32(e) 1.40 1.42
Net investment income 1.41 1.18 1.18 0.95 0.38
Portfolio turnover 85 79 102 96 153
Net assets at end of period (000 Omitted) $1,565,596 $851,484 $469,181 $232,328 $18,207
- --------------------------------------------------------------------------------------------------------------------------
CLASS W YEAR ENDED
------------
8/31/06(i)
Net asset value, beginning of period $19.54
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.04
Net realized and unrealized gain (loss) on investments and foreign currency (0.13)(g)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.09)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.45
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) (0.46)(n)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.20(a)
Expenses after expense reductions (f) 1.20(a)
Net investment income 1.02(a)
Portfolio turnover 85
Net assets at end of period (000 Omitted) $1,033
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R YEARS ENDED 8/31
----------------------------------------------------------
2006 2005 2004 2003(i)
Net asset value, beginning of period $16.54 $14.20 $11.52 $10.32
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.17 $0.11 $0.09 $(0.01)
Net realized and unrealized gain (loss) on investments
and foreign currency 4.05 3.01 2.61 1.21
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $4.22 $3.12 $2.70 $1.20
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.11) $(0.10) $(0.02) $--
From net realized gain on investments and foreign
currency transactions (1.36) (0.68) -- --
- -------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.47) $(0.78) $(0.02) $--
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.29 $16.54 $14.20 $11.52
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 26.98 22.40 23.50 11.63(n)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.58 1.66 1.75 1.95(a)
Expenses after expense reductions (f) 1.58 1.69(e) 1.81(e) 1.90(a)
Net investment income (loss) 0.95 0.73 0.69 (0.09)(a)
Portfolio turnover 85 79 102 96
Net assets at end of period (000 Omitted) $69,507 $44,300 $19,596 $4,810
- -------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 8/31
---------------------------
2006 2005(i)
Net asset value, beginning of period $16.02 $15.07
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.11 $0.03
Net realized and unrealized gain (loss) on investments and foreign
currency 3.84 0.92
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $3.95 $0.95
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.12) $--
From net realized gain on investments and foreign currency transactions (1.36) --
- -------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.48) $--
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.49 $16.02
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 26.12 6.30(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.26 2.36(a)
Expenses after expense reductions (f) 2.16 2.39(a)(e)
Net investment income 0.65 0.46(a)
Portfolio turnover 85 79
Net assets at end of period (000 Omitted) $2,027 $171
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R2 YEARS ENDED 8/31
----------------------------
2006 2005(i)
Net asset value, beginning of period $16.04 $15.07
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.14 $0.06
Net realized and unrealized gain (loss) on investments and foreign
currency 3.89 0.91
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $4.03 $0.97
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.12) $--
From net realized gain on investments and foreign currency transactions (1.36) --
- -------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.48) $--
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.59 $16.04
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 26.63 6.44(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.96 2.04(a)
Expenses after expense reductions (f) 1.82 2.07(a)(e)
Net investment income 0.83 1.12(a)
Portfolio turnover 85 79
Net assets at end of period (000 Omitted) $1,021 $178
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 8/31
--------------------------------------------
2006 2005 2004(i)
Net asset value, beginning of period $16.43 $14.16 $12.71
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.15 $0.11 $0.02
Net realized and unrealized gain (loss) on investments and
foreign currency 4.01 2.96 1.46
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $4.16 $3.07 $1.48
- ---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------
From net investment income $(0.12) $(0.12) $(0.03)
From net realized gain on investments and foreign
currency transactions (1.36) (0.68) --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.48) $(0.80) $(0.03)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.11 $16.43 14.16
- ---------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 26.79 22.13 11.69(n)
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.82 1.92 2.01(a)
Expenses after expense reductions (f) 1.73 1.95(e) 2.07(a)(e)
Net investment income 0.83 0.74 0.18(a)
Portfolio turnover 85 79 102
Net assets at end of period (000 Omitted) $13,799 $2,357 $431
- ---------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 YEARS ENDED 8/31
-------------------------------
2006 2005(i)
Net asset value, beginning of period $16.65 $15.62
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.25 $0.12
Net realized and unrealized gain (loss) on investments and foreign
currency 4.00 0.91
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $4.25 $1.03
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.15) $--
From net realized gain on investments and foreign currency transactions (1.36) --
- -------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.51) $--
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.39 $16.65
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 27.07 6.59(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.47 1.55(a)
Expenses after expense reductions (f) 1.47 1.58(a)(e)
Net investment income 1.42 1.79(a)
Portfolio turnover 85 79
Net assets at end of period (000 Omitted) $12,796 $53
- -------------------------------------------------------------------------------------------------------------
CLASS R5 YEARS ENDED 8/31
-----------------------------
2006 2005(i)
Net asset value, beginning of period $16.67 $15.62
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.33 $0.14
Net realized and unrealized gain (loss) on investments and foreign
currency 3.99 0.91
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $4.32 $1.05
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.16) $--
From net realized gain on investments and foreign currency transactions (1.36) --
- -------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.52) $--
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.47 $16.67
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 27.50 6.72(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.17 1.25(a)
Expenses after expense reductions (f) 1.17 1.28(a)(e)
Net investment income 1.82 2.09(a)
Portfolio turnover 85 79
Net assets at end of period (000 Omitted) $109,993 $53
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529A YEARS ENDED 8/31
-----------------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $16.53 $14.18 $11.50 $10.78 $10.66
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.16 $0.10 $0.08 $0.03 $(0.00)(w)
Net realized and unrealized gain (loss) on
investments and foreign currency 4.04 3.01 2.61 0.69 0.12
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $4.20 $3.11 $2.69 $0.72 $0.12
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.10) $(0.08) $(0.01) $-- $--
From net realized gain on investments and
foreign currency transactions (1.36) (0.68) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.46) $(0.76) $(0.01) $-- $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.27 $16.53 $14.18 $11.50 $10.78
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 26.86 22.35 23.39 6.68 1.13(n)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.68 1.76 1.85 2.05 2.11(a)
Expenses after expense reductions (f) 1.68 1.79(e) 1.91(e) 2.00 2.02(a)
Net investment income (loss) 0.88 0.65 0.62 0.30 (0.20)(a)
Portfolio turnover 85 79 102 96 153
Net assets at end of period (000 Omitted) $1,552 $760 $332 $112 $11
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529B YEARS ENDED 8/31
-----------------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $15.88 $13.68 $11.17 $10.54 $10.42
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.03 $(0.02) $(0.00)(w) $(0.05) $(0.00)(w)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.89 2.91 2.51 0.68 0.12
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.92 $2.89 $2.51 $0.63 $0.12
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.01) $(0.01) $-- $-- $--
From net realized gain on investments and
foreign currency transactions (1.36) (0.68) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.37) $(0.69) $-- $-- $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.43 $15.88 $13.68 $11.17 $10.54
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 26.06 21.54 22.47 5.98 1.15(n)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.33 2.42 2.50 2.70 2.76(a)
Expenses after expense reductions (f) 2.33 2.45(e) 2.56(e) 2.65 2.67(a)
Net investment income (loss) 0.15 (0.13) (0.03) (0.43) (0.45)(a)
Portfolio turnover 85 79 102 96 153
Net assets at end of period (000 Omitted) $356 $174 $110 $41 $5
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C YEARS ENDED 8/31
------------------------------------------------------------------------
2006 2005 2004 2003 2002(i)
Net asset value, beginning of period $15.86 $13.66 $11.14 $10.52 $10.40
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.03 $(0.01) $(0.00)(w) $(0.04) $(0.00)(w)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.87 2.90 2.52 0.66 0.12
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.90 $2.89 $2.52 $0.62 $0.12
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.00)(w) $(0.01) $-- $-- $--
From net realized gain on investments and
foreign currency transactions (1.36) (0.68) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.36) $(0.69) $-- $-- $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.40 $15.86 $13.66 $11.14 $10.52
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 25.98 21.53 22.62 5.89 1.15(n)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.33 2.42 2.49 2.70 2.76(a)
Expenses after expense reductions (f) 2.33 2.45(e) 2.55(e) 2.65 2.67(a)
Net investment income (loss) 0.16 (0.07) (0.02) (0.36) (0.45)(a)
Portfolio turnover 85 79 102 96 153
Net assets at end of period (000 Omitted) $650 $454 $280 $81 $5
- --------------------------------------------------------------------------------------------------------------------------
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years resulted in a per share impact of less
than $0.01.
(a) Annualized.
(d) Per share data are based on average shares outstanding.
(e) Ratio includes a reimbursement fee for expenses borne by MFS in prior years under the then existing expense
reimbursement agreement.
(f) Ratios do not reflect reductions from fees paid indirectly.
(g) 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.
(i) 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), April 1, 2005 (Classes R1, R2, R4, and R5) and May 1, 2006 (Class W) through the stated
period end.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
(t) Total returns do not include any applicable sales charges.
(w) Per share amount was 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 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, including securities of emerging
market issuers. 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. The markets of emerging markets countries are generally
more volatile than the markets of developed countries with more mature
economies. All of the risks of investing in foreign securities previously
described are heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales
reported that day, equity securities are generally valued at the last quoted
daily bid quotation as reported by an independent pricing service on the
market or exchange on which they are primarily traded. Short-term instruments
with a maturity at issuance of 60 days or less may be valued at amortized
cost, which approximates market value. Open-end investment companies are
generally valued at their net asset value per share. Securities and other
assets generally valued on the basis of information from an independent
pricing service may also be valued at a broker-dealer bid quotation. The
values of foreign securities and other assets and liabilities expressed in
foreign currencies are converted to U.S. dollars using the mean of bid and
asked prices for rates reported by an independent pricing service. The Board
of Trustees has delegated primary responsibility for determining or causing to
be determined the value of the fund's investments (including any fair
valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the fund's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments. These investments are generally
valued at fair value based on information from independent pricing services.
The adviser may rely on independent pricing services or other information
(such as the correlation with price movements of similar securities in the
same or other markets; the type, cost and investment characteristics of the
security; the business and financial condition of the issuer; and trading and
other market data) to assist in determining whether to fair value and at what
value to fair value an investment. The value of an investment for purposes of
calculating the fund's net asset value can differ depending on the source and
method used to determine value. When fair valuation is used, the value of
investments used to determine the fund's net asset value may differ from
quoted or published prices for the same investments. In addition, investments
may be valued at fair value if the adviser determines that an investment's
value has been materially affected by events occurring after the close of the
exchange or market on which the investment is principally traded (such as
foreign exchange or market) and prior to the determination of the fund's net
asset value, or after the halting of trading of a specific security where
trading does not resume prior to the close of the exchange or market on which
the security is principally traded. Events that occur on a frequent basis
after foreign markets close (such as developments in foreign markets and
significant movements in the U.S. markets) and prior to the determination of
the fund's net asset value may be deemed to have a material affect on the
value of securities traded in foreign markets. Accordingly, the fund's foreign
equity securities may often be valued at fair value.
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 on proceeds from Class A, Class
B, Class C, and Class I shares redeemed or exchanged within 5 business days
following their acquisition. Effective April 1, 2005, the fund no longer
charges a redemption fee. See the fund's prospectus for details. Any
redemption fees charged are accounted for as an addition to paid-in-capital.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Certain dividends from foreign securities will be recorded when the fund is
informed of the dividend if such information is obtained subsequent to 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, 2006, the fund's custodian fees
were reduced by $198,124 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, 2006, the fund's custodian expenses were
reduced by $28,072 under this agreement. These amounts are shown as a
reduction of total expenses on the Statement of Operations. Effective
January 1, 2006, the commission recapture agreement was terminated.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue
Code, and to distribute all of its taxable income, including realized capital
gains. Accordingly, no provision for federal income tax is required in the
financial statements. Foreign taxes, if any, have been accrued by the fund in
the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Certain capital accounts in the financial statements are periodically adjusted
for permanent differences in order to reflect their tax character. These
adjustments have no impact on net assets or net asset value per share.
Temporary differences which arise from recognizing certain items of income,
expense, gain or loss in different periods for financial statement and tax
purposes will reverse at some time in the future. Distributions in excess of
net investment income or net realized gains are temporary overdistributions
for financial statement purposes resulting from differences in the recognition
or classification of income or distributions for financial statement and tax
purposes.
Book/tax differences primarily relate to foreign currency transactions, wash
sales loss deferrals, passive foreign investment companies, and treating a
portion of the proceeds from redemptions as a distribution for tax purposes.
The tax character of distributions declared to shareholders is as follows:
8/31/06 8/31/05
Ordinary income (including any short-term
capital gains) $104,557,669 $8,492,426
Long-term capital gain 90,505,993 65,474,982
- -------------------------------------------------------------------------------
Total distributions $195,063,662 $73,967,408
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/06
Cost of investments $3,418,643,330
------------------------------------------------------------
Gross appreciation $478,900,076
Gross depreciation (25,208,452)
------------------------------------------------------------
Net unrealized appreciation (depreciation) $453,691,624
Undistributed ordinary income 179,019,881
Undistributed long-term capital gain 155,812,624
Other temporary differences (189,443)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years
as of the effective date. This Interpretation prescribes a minimum threshold
for financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return, and requires certain expanded
disclosures. Management has recently begun to evaluate the application of the
Interpretation to the fund, and has not at this time determined the impact,
if any, resulting from the adoption of this Interpretation on the fund's
financial statements.
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
management and related administrative services and facilities to the fund.
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, 2006 was equivalent
to an annual effective rate of 0.81% of the fund's average daily
net assets.
The investment adviser has agreed in writing to pay 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 operating expenses do not exceed 0.40%
annually of the fund's average daily net assets. This written agreement will
continue through December 31, 2006 unless changed or rescinded by the fund's
Board of Trustees. For the year ended August 31, 2006, the fund's actual
operating expenses did not exceed the limit and therefore, the investment
adviser did not pay any portion of the fund's expenses.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $142,680 and $2,585 for the year ended
August 31, 2006, 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 MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.35% $4,007,355
Class B 0.75% 0.25% 1.00% 1.00% 1,665,636
Class C 0.75% 0.25% 1.00% 1.00% 1,355,997
Class W 0.10% -- 0.10% 0.10% 55
Class R 0.25% 0.25% 0.50% 0.50% 290,312
Class R1 0.50% 0.25% 0.75% 0.75% 6,800
Class R2 0.25% 0.25% 0.50% 0.50% 1,680
Class R3 0.25% 0.25% 0.50% 0.50% 34,752
Class R4 -- 0.25% 0.25% 0.25% 9,100
Class 529A 0.25% 0.25% 0.50% 0.35% 3,888
Class 529B 0.75% 0.25% 1.00% 1.00% 2,399
Class 529C 0.75% 0.25% 1.00% 1.00% 5,491
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $7,383,465
(d) 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.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the year ended August
31, 2006 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 in effect
and will be implemented on such date as the fund's Board of Trustees may determine.
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within 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. All contingent deferred sales charges are paid to MFD and
during the year ended August 31, 2006, were as follows:
AMOUNT
Class A $31,305
Class B 159,607
Class C 23,097
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% of the average daily net assets attributable to each 529
share class. The fee is based on average daily net assets and is currently
established at 0.25% annually of average daily 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, 2006, were as follows:
AMOUNT
Class 529A $2,776
Class 529B 600
Class 529C 1,373
--------------------------------------------------
Total Program Manager Fees $4,749
SHAREHOLDER SERVICING AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned
subsidiary of MFS, receives a fee from the fund for its services as
shareholder servicing agent calculated as a percentage of the average net
assets of the fund as determined periodically under the supervision of the
fund's Board of Trustees. For the year ended August 31, 2006, the fee was
$2,629,928, which equated to 0.0975% 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, 2006, these costs amounted to $260,010. The fund may also pay
shareholder servicing related costs to non-related parties.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the fund.
Under an administrative services agreement, the fund partially reimburses MFS
the costs incurred to provide these services. The fund is charged a fixed
amount plus a fee based on calendar year average net assets. From July 1, 2005
through March 31, 2006, the fund's annual fixed amount was $10,000. Effective
April 1, 2006, the fund's annual fixed amount is $17,500. The administrative
services fee incurred for the year ended August 31, 2006 was equivalent to an
annual effective rate of 0.0130% 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 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. MFS may subsequently pay
all, or a portion, of the retirement plan administration and services fee to
affiliated or unaffiliated third parties. For the year ended August 31, 2006,
the fund paid MFS an annual retirement plan administration and services fee up
to the following annual percentage rates of each class' average daily net
assets:
ANNUAL
EFFECTIVE TOTAL
FEE RATE RATE(g) AMOUNT
Class R1 0.45% 0.35% $4,069
Class R2 0.40% 0.26% 1,344
Class R3 0.25% 0.15% 17,376
Class R4 0.15% 0.15% 5,460
Class R5 0.10% 0.10% 67,573
- -------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $95,822
(g) Effective October 1, 2005, MFS has agreed in writing to waive a portion of
the retirement plan administration and services fee equal to 0.10% for
Class R1 shares, 0.15% for Class R2 shares, and 0.10% for Class R3 shares.
This agreement will continue until at least September 30, 2008. For the
year ended August 31, 2006, this waiver amounted to $8,044 and is
reflected as a reduction of total expenses in the Statement of Operations.
TRUSTEES' AND OFFICERS' 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 or officers of the fund who are also
officers of the investment adviser, 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 certain retired Independent
Trustees which resulted in a pension expense of $626. The fund also has an
unfunded retirement benefit deferral plan for certain Independent Trustees
which resulted in an expense of $4,022. Both amounts are included in
Independent trustees' compensation for the year ended August 31, 2006. The
deferred liability for retirement benefits payable to certain Trustees under
both plans amounted to $29,893 at August 31, 2006, and is included in payable
for independent 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. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the year ended August 31, 2006, the fee paid to Tarantino LLC
was $16,746. MFS has agreed to reimburse the fund for a portion of the
payments made by the funds to Tarantino LLC in the amount of $14,314, 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 investment adviser reimbursed the fund $956,926 for a trade correction.
This amount is included in realized gain on investment 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
$3,017,421,338 and $2,252,816,148, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
YEAR ENDED YEAR ENDED
8/31/06(i) 8/31/05(i)
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 30,630,255 $556,734,183 28,794,080 $449,353,092
Class B 3,401,167 59,298,455 2,362,199 35,339,373
Class C 3,025,371 52,468,875 2,336,111 34,976,257
Class I 30,755,216 581,780,278 19,429,388 307,426,523
Class W 53,111 1,031,086 -- --
Class R 1,713,782 30,827,673 1,840,882 28,392,688
Class R1 118,411 2,100,359 10,752 164,313
Class R2 46,997 846,131 11,113 173,543
Class R3 805,222 14,237,540 133,725 2,068,055
Class R4 737,220 13,528,900 3,201 50,000
Class R5 6,785,761 117,544,808 3,201 50,000
Class 529A 35,512 640,671 25,961 402,042
Class 529B 7,849 136,554 3,708 53,775
Class 529C 7,149 123,841 8,456 126,224
- ----------------------------------------------------------------------------------------------------------
78,123,023 $1,431,299,354 54,962,777 $858,575,885
Shares issued to shareholders in
reinvestment of distributions
Class A 3,732,231 $62,253,599 1,587,913 $24,279,191
Class B 649,122 10,424,911 340,629 5,034,486
Class C 441,721 7,067,535 208,302 3,070,381
Class I 4,619,694 78,765,784 1,781,510 27,773,750
Class R 234,859 3,891,575 86,925 1,321,265
Class R1 2,328 36,657 -- --
Class R2 922 14,739 -- --
Class R3 22,921 376,023 1,871 28,303
Class R4 619 10,304 -- --
Class R5 293 4,892 -- --
Class 529A 4,564 75,577 1,383 21,032
Class 529B 1,005 15,984 428 6,284
Class 529C 2,465 39,156 1,002 14,679
- ----------------------------------------------------------------------------------------------------------
9,712,744 $162,976,736 4,009,963 $61,549,371
Shares reacquired
Class A (22,770,545) $(406,301,939) (14,437,115) $(224,139,499)
Class B (2,987,955) (52,111,572) (2,316,453) (34,824,715)
Class C (1,768,974) (30,633,224) (1,206,741) (17,997,574)
Class I (6,808,899) (127,967,564) (3,443,470) (55,618,095)
Class R (1,023,578) (18,415,220) (630,288) (9,740,922)
Class R1 (21,804) (394,455) (72) (1,129)
Class R2 (4,075) (70,219) -- --
Class R3 (249,484) (4,380,146) (22,619) (345,295)
Class R4 (81,019) (1,516,299) -- --
Class R5 (1,138,695) (20,875,810) -- --
Class 529A (5,526) (98,083) (4,742) (74,061)
Class 529B (463) (8,063) (1,242) (18,403)
Class 529C (2,944) (49,317) (1,323) (19,683)
- -----------------------------------------------------------------------------------------------------------
(36,863,961) $(662,821,911) (22,064,065) $(342,779,376)
Net change
Class A 11,591,941 $212,685,843 15,944,878 $249,492,784
Class B 1,062,334 17,611,794 386,375 5,549,144
Class C 1,698,118 28,903,186 1,337,672 20,049,064
Class I 28,566,011 532,578,498 17,767,428 279,582,178
Class W 53,111 1,031,086 -- --
Class R 925,063 16,304,028 1,297,519 19,973,031
Class R1 98,935 1,742,561 10,680 163,184
Class R2 43,844 790,651 11,113 173,543
Class R3 578,659 10,233,417 112,977 1,751,063
Class R4 656,820 12,022,905 3,201 50,000
Class R5 5,647,359 96,673,890 3,201 50,000
Class 529A 34,550 618,165 22,602 349,013
Class 529B 8,391 144,475 2,894 41,656
Class 529C 6,670 113,680 8,135 121,220
- ----------------------------------------------------------------------------------------------------------
50,971,806 $931,454,179 36,908,675 $577,345,880
(i) For the period from the class' inception, April 1, 2005 (Classes R1, R2, R4, and R5) and May 1, 2006
(Class W), through the stated period end.
The fund is one of several mutual funds in which the MFS funds-of-funds may
invest. The MFS funds-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 Conservative Allocation Fund, MFS International Diversification Fund, MFS
Moderate Allocation Fund, MFS Growth Allocation Fund, and the MFS Aggressive
Growth Allocation Fund, were the owners of record of approximately 1%, 14%,
6%, 10%, and 3%, respectively, of the value of outstanding voting shares. In
addition, the MFS Lifetime 2010 Fund, MFS Lifetime 2020 Fund, MFS Lifetime
2030 Fund, and the MFS Lifetime 2040 Fund were each the owners of record of
less than 1% of the value of outstanding voting shares.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other affiliated funds have established
uncommitted borrowing arrangements with certain banks. Borrowings may be made
for temporary financing needs. Interest is charged to each fund, based on its
borrowings, generally 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 committed line of credit, is allocated among the participating
funds at the end of each calendar quarter. For the year ended August 31, 2006,
the fund's commitment fee and interest expense were $16,546 and $14,812,
respectively, and are included in miscellaneous expense on the Statement
of Operations.
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,
2006, 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, 2006, by
correspondence with the Fund's 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, 2006, 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 20, 2006
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2006, 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(h) OTHER DIRECTORSHIPS(j)
- ------------------- ---------------- --------------- ----------------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); 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 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (November 2000 until June
2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians' Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) 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 9/27/41) 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)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (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 8/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (2000 until 2005);
Hillview Investment Trust II Funds
(mutual fund complex), Trustee
(2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004); Fidelity
Management & Research Company,
Vice President (prior to March
2004); Fidelity Group of Funds,
President and Treasurer (prior to
March 2004)
Tracy Atkinson(k) 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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
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(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior to May
2005)
Ellen Moynihan(k) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
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(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance Officer compliance services), Principal
(since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (prior to
March 2003)
James O. Yost(k) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) Company, Senior Vice President
- ------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(k) "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.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant
retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters.
The terms of that settlement required that compensation and expenses related to the independent
compliance consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services
he rendered to the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of
$351,119.29.
The Trust held a shareholders' meeting in 2005 to elect Trustees, and will hold a shareholders' meeting at
least once every five years thereafter, to elect Trustees.
Each Trustee (except Mr. Butler and Mr. Uek) 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. Butler, Sherratt and Uek and Ms. 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 January 1, 2006, the Trustees served as board members of 98 funds within the MFS
Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 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, 2006 ("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, 2005 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 ("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 MFS peer funds, (iii) information provided
by MFS on the advisory fees of comparable portfolios of other clients of MFS,
including institutional separate accounts 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, 2005, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 3rd quintile relative to the other funds in the universe
for this three-year period (the 1st quintile being the best performers and the
5th quintile being the worst performers). The total return performance of the
Fund's Class A shares was in the 2nd quintile for each of the one and five-year
periods ended December 31, 2005 relative to the Lipper performance universe.
Because of the passage of time, these performance results may 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
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, and that MFS currently observes an expense limitation for the Fund.
The Trustees also considered that, according to the Lipper data, the Fund's
effective advisory fee rate (taking into account the expense limitation and
initial breakpoint described above) was lower than the Lipper expense group
median, and the Fund's total expense ratio was 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 the Fund's advisory fee rate schedule described
above. 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 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, which may include 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, if applicable, to pay for investment research
and other similar services (excluding third-party research, for which MFS pays
directly), 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, 2006.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement will be available on or before
November 1, 2006 by clicking on the fund's name under "Select a fund" on the
MFS Web site (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
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The fund's Form N-Q is available on
the EDGAR database on the Commission's Internet Web site 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)
The fund will notify shareholders of amounts for use in preparing 2006 income
tax forms in January 2007. The following information is provided pursuant to
provisions of the Internal Revenue Code.
The fund designates the maximum amount allowable as qualified dividend income
eligible for the 15% tax rate.
The fund designates $114,817,244 as capital gain dividends paid during the
fiscal year.
Income derived from foreign sources was $42,123,530. The fund intends to pass
through foreign tax credits of $2,339,390 for the fiscal year.
MFS(R) PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about the investment products and services that we
offer, and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal
information. We maintain information and records about you, your investments,
and the services you use. Examples of the nonpublic personal information we
maintain include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or
others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. We may share nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with
which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you.
We maintain physical, electronic, and procedural safeguards to help protect
the personal information we collect about you.
If you have any questions about the MFS privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS send prospectuses, reports,
and proxies directly to your e-mail inbox. You'll get timely information and
less clutter in your mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply go to mfs.com, log in to
your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
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 not amended any provision in its Code of Ethics
(the "Code") that relates to an element of the Code's definitions enumerated in
paragraph (b) of Item 2 of this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. Robert E. Butler and Robert W. Uek and Ms. 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, Messrs.
Butler, and Uek and Ms. Thomsen are "independent" members of the Audit
Committee (as such term has been defined by the Securities and Exchange
Commission in regulations implementing Section 407 of the Sarbanes-Oxley Act of
2002). The Securities and Exchange Commission has stated that the designation
of a person as an audit committee financial expert pursuant to this Item 3 on
the Form N-CSR does not impose on such a person any duties, obligations or
liability that are greater than the duties, obligations or liability imposed on
such person as a member of the Audit Committee and the Board of Trustees in the
absence of such designation or identification.
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 series of the
Registrant (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, 2006 and 2005, audit fees billed to the
Funds by Deloitte and E&Y were as follows:
Audit Fees
FEES BILLED BY DELOITTE: 2006 2005
---- ----
MFS Cash Reserve Fund $25,360 $23,660
Audit Fees
FEES BILLED BY E&Y: 2006 2005
---- ----
MFS Core Equity Fund $35,580 $33,580
MFS Core Growth Fund 35,580 33,580
MFS New Discovery Fund 35,580 33,580
MFS Research International Fund 37,780 35,780
MFS Strategic Growth Fund 35,580 33,580
MFS Technology Fund 35,580 33,580
MFS Value Fund 35,580 33,580
-------- --------
TOTAL $251,260 $237,260
For the fiscal years ended August 31, 2006 and 2005, 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: 2006 2005 2006 2005 2006 2005
---- ---- ---- ---- ---- ----
To MFS Cash Reserve $0 $0 $5,800 $7,500 $558 $0
Fund
To MFS and MFS Related $1,035,850 $1,018,716 $0 $62,000 $454,751 $617,000
Entities of MFS Cash
Reserve Fund*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2006 2005
---- ----
To MFS Cash Reserve Fund, $1,614,849 $1,742,817
MFS and MFS Related
Entities#
Audit-Related Fees(1) Tax Fees(2) All Other Fees(4)
FEES BILLED BY E&Y: 2006 2005 2006 2005 2006 2005
---- ---- ---- ---- ---- ----
To MFS Core Equity Fund $0 $0 $10,192 $9,080 $144 $1,304
To MFS Core Growth 0 0 10,192 9,080 144 1,679
Fund
To MFS New Discovery 0 0 10,192 9,080 144 1,865
Fund
To MFS Research 0 0 10,522 9,410 144 2,227
International Fund
To MFS Strategic Growth 0 0 10,192 9,080 144 2,203
Fund
To MFS Technology Fund 0 0 10,192 9,080 144 1,281
To MFS Value Fund 0 0 10,192 9,080 144 5,476
-- -- ------- ------- ------- --------
TOTAL FEES BILLED BY E&Y $0 $0 $71,674 $63,890 $1,008 $16,035
TO ABOVE FUNDS:
To MFS and MFS Related $0 $0 $15,500 $0 $97,480 $607,919
Entities of MFS Core
Equity Fund*
To MFS and MFS Related 0 0 15,500 0 97,480 607,919
Entities of MFS Core
Growth Fund*
To MFS and MFS Related 0 0 15,500 0 97,480 607,919
Entities of MFS New
Discovery Fund*
To MFS and MFS Related 0 0 15,500 0 97,480 607,919
Entities of MFS Research
International Fund*
To MFS and MFS Related 0 0 15,500 0 97,480 607,919
Entities of MFS Strategic
Growth Fund*
To MFS and MFS Related 0 0 15,500 0 97,480 607,919
Entities of MFS
Technology Fund*
To MFS and MFS Related 0 0 15,500 0 97,480 607,919
Entities of MFS Value
Fund*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2006 2005
---- ----
To MFS Core Equity Fund, $189,658 $633,803
MFS and MFS Related
Entities#
To MFS Core Growth 189,658 634,178
Fund, MFS and MFS
Related Entities#
To MFS New Discovery 189,658 634,364
Fund, MFS and MFS
Related Entities#
To MFS Research 189,988 635,056
International Fund, MFS
and MFS Related Entities#
To MFS Strategic Growth 189,658 634,702
Fund, MFS and MFS
Related Entities#
To MFS Technology 189,658 633,780
Fund, MFS and
MFS Related Entities#
To MFS Value Fund, MFS 189,658 637,975
and 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 E&Y or Deloitte, as the case may be, 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, analysis of certain portfolio holdings versus investment styles, review of
internal controls and review of Rule 38a-1 compliance program.
(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 the subscription to tax
treatise and for services related to analysis of fund administrative expenses, compliance program and
records management projects.
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 in each period between 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 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 effectiveness 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 of the period covered by the report that have
materially affected, or are 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.
NOTICE
A copy of the Amended and Restated Declaration of Trust of the Registrant is on
file with the Secretary of State of the Commonwealth of Massachusetts and
notice is hereby given that this instrument is executed on behalf of the
Registrant by an officer of the Registrant as an officer and not individually
and the obligations of or arising out of this instrument are not binding upon
any of the Trustees or shareholders individually, but are binding only upon the
assets and property of the respective constituent series of the Registrant.
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)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: October 19, 2006
----------------
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)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President (Principal Executive
Officer)
Date: October 19, 2006
----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: October 19, 2006
----------------
* Print name and title of each signing officer under his or her signature.