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, 2007
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* The MFS Strategic Growth Fund was reorganized into the MFS Core Growth Fund,
both a series of MFS Series Trust I, as of June 22, 2007.
A report for the MFS Strategic Growth Fund is not included because the Fund did
not have any shareholders at period end. Please see note above.
ITEM 1. REPORTS TO STOCKHOLDERS.
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
MFS(R) CORE EQUITY 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 18
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STATEMENT OF OPERATIONS 21
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STATEMENTS OF CHANGES IN NET ASSETS 23
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FINANCIAL HIGHLIGHTS 24
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NOTES TO FINANCIAL STATEMENTS 30
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 42
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TRUSTEES AND OFFICERS 43
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 49
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PROXY VOTING POLICIES AND INFORMATION 53
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QUARTERLY PORTFOLIO DISCLOSURE 53
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FEDERAL TAX INFORMATION 53
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MFS(R) PRIVACY NOTICE 54
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CONTACT INFORMATION BACK COVER
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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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8/31/07
RGI-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. But the Dow's upward
rise has not been without hiccups. After hitting new records in July 2007, the
Dow lost 8% in the following weeks as a crisis swept global credit markets. As
we have said before, markets can be volatile, and investors should make sure
they have an investment plan that can carry them through the peaks and
troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their
financial goals. We believe you should not let the headlines guide you in
your investment decisions and should be cautious about overreacting to short-
term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss.
Investing and planning for the long term require 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 15, 2007
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 99.8%
Cash & Other Net Assets 0.2%
TOP TEN HOLDINGS
Exxon Mobil Corp. 3.8%
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Danaher Corp. 2.6%
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AT&T, Inc. 1.9%
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Merck & Co., Inc. 1.9%
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Bank of America Corp. 1.7%
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Wyeth 1.6%
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Altria Group, Inc. 1.5%
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Hartford Financial Services Group, Inc. 1.5%
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United Technologies Corp. 1.4%
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Google, Inc., "A" 1.4%
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EQUITY SECTORS
Financial Services 19.6%
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Technology 15.5%
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Health Care 11.2%
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Energy 9.8%
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Industrial Goods & Services 8.7%
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Utilities & Communications 8.1%
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Consumer Staples 6.7%
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Retailing 6.4%
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Leisure 5.3%
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Basic Materials 3.9%
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Special Products & Services 2.2%
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Transportation 1.7%
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Autos & Housing 0.7%
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Percentages are based on net assets as of 08/31/07.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2007, Class A shares of the MFS Core
Equity Fund provided a total return of 17.26%, at net asset value. This
compares with a return of 14.94% for the fund's benchmark, the Russell 3000
Index.
MARKET ENVIRONMENT
The U.S. economy continues to decouple from the rest of the world, growing at a
slower pace than other major economies. Overall, global economies have seen
moderate to strong growth over the last twelve months as domestic demand
improves and world trade accelerates.
With the stronger growth, however, has come increased concern about rising
global inflation, especially as capacity becomes more constrained, wages rise,
and energy and food prices advance. Late in the reporting period, continued
robust global growth and fears of rising inflationary pressures led global
central banks to tighten monetary conditions beyond market expectations, which
in turn pushed global bond yields to their highest levels during this economic
expansion.
However, beginning in late July and August, heightened uncertainty and distress
concerning the subprime mortgage market caused several global credit markets to
seize up, forcing central banks to inject liquidity and to reassess their
tightening biases as sovereign bond yields plummeted and credit spreads widened
considerably. Increased market volatility has been exacerbated by U.S. home
foreclosures, falling housing prices, and weaker-than-expected jobs growth
reported by the U.S. Department of Labor. Despite increased volatility across
all asset classes, and the widening in credit spreads, global equity markets
have experienced only a mild correction to date.
CONTRIBUTORS TO PERFORMANCE
For the MFS Core Equity Fund, the retailing, consumer staples, and utilities
and communications sectors were the top contributors to performance relative to
the benchmark during the reporting period. Stock selection played the principal
role in each case.
In the retailing sector, athletic shoes and apparel manufacturer Nike was among
the portfolio's top relative contributors. A long-term market share gainer,
Nike delivered strong growth in revenues, profits, and earnings over the
reporting period. The company benefited from its continued sales growth in the
brand's three core footwear lines which enjoyed powerful marketing support
through their participation in key sporting events.
Within the consumer staples sector, avoiding household products maker Proctor &
Gamble for a majority of the period, boosted relative returns. The company's
slowing growth led to its relative underperformance.
In the utilities and communications sector, diversified communications and
media company Rogers Communications(aa) was a top contributor. Shares of Rogers
Communications gained on strong quarterly revenue growth driven by its wireless
business.
Stocks in other sectors that aided relative results included manufacturer of
aerospace metal parts Precision Castparts, mining giant BHP Billiton(aa),
customer support software provider Salesforce.com(g), package manufacturer
Owens-Illinois, and agricultural equipment manufacturer Deere & Co.(g). Not
owning poor-performing pharmaceutical giant Pfizer and financial services firm
Citigroup also helped.
DETRACTORS FROM PERFORMANCE
Stock selection in the health care sector negatively impacted performance
relative to the benchmark. Biotech firm Amgen and medical device makers,
Advanced Medical Optics and Boston Scientific, were among the fund's top
detractors. Shares of Amgen declined due, in part, to increasing pressure from
the FDA on the company's anemia drugs and potential competition.
Several individual securities within the financial services sector were among
the fund's top detractors. These included mortgage lending firm Countrywide
Financial, real estate firm Maguire Properties, financial services company
Fremont General, and education loan provider SLM Corp. (Sallie Mae)(g). Shares
of Countrywide Financial plummeted near the end of the reporting period due to
industry-wide problems of falling mortgage demand, excess lending capacity,
rising costs, and challenges in selling off loan portfolios in all segments
(prime, sub-prime, and home equity) of the market.
Elsewhere, flash memory storage products maker SanDisk and software firm
MSC.Software held back relative returns.
Respectfully,
Katrina Mead
Portfolio Manager
(aa) Security is not a benchmark constituent.
(g) 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 or
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 8/31/07
The following chart illustrates a representative class of the fund's historical
performance 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. 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 Equity
Fund -- Class A Russell 300 Index
8/97 $ 9,425 $10,000
8/98 10,022 10,351
8/99 12,892 14,334
8/00 14,666 17,291
8/01 11,806 13,052
8/02 9,917 10,795
8/03 11,074 12,298
8/04 12,168 13,688
8/05 14,174 15,785
8/06 15,060 17,166
8/07 17,660 19,730
TOTAL RETURNS THROUGH 8/31/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
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A 1/02/96 17.26% 12.23% 6.48%
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B 1/02/97 16.49% 11.53% 5.78%
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C 1/02/97 16.50% 11.52% 5.77%
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I 1/02/97 17.63% 12.63% 6.83%
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R 12/31/02 17.14% 12.08% 6.41%
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R1 4/01/05 16.42% 11.45% 5.74%
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R2 4/01/05 16.81% 11.64% 5.83%
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R3 10/31/03 16.88% 11.80% 5.90%
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R4 4/01/05 17.22% 12.20% 6.47%
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R5 4/01/05 17.54% 12.37% 6.55%
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AVERAGE ANNUAL
Comparative benchmark
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Russell 3000 Index (f) 14.94% 12.82% 7.03%
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AVERAGE ANNUAL WITH SALES CHARGE
Share class
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A 10.52% 10.91% 5.85%
With Initial Sales Charge (5.75%)
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B
With CDSC (Declining over six years
from 4% to 0%) (x) 12.49% 11.27% 5.78%
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C 15.50% 11.52% 5.77%
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.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
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.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Performance for Classes R, R4, and R5 includes the performance of the fund's
Class A shares for periods prior to their offering. Performance for Classes R1,
R2, and R3 includes the performance of the fund's Class B 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, 2007 through August 31, 2007
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 (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, 2007 through August 31,
2007.
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). Therefore, the second line for each share class in the table
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
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Expenses
Paid During
Annualized Beginning Ending Period(p)
Share Expense Account Value Account Value 3/01/07-
Class Ratio 3/01/07 8/31/07 8/31/07
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Actual 1.24% $1,000.00 $1,047.50 $6.40
A ------------------------------------------------------------------------
Hypothetical (h) 1.24% $1,000.00 $1,018.95 $6.31
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Actual 1.88% $1,000.00 $1,044.60 $9.69
B ------------------------------------------------------------------------
Hypothetical (h) 1.88% $1,000.00 $1,015.73 $9.55
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Actual 1.88% $1,000.00 $1,044.80 $9.69
C ------------------------------------------------------------------------
Hypothetical (h) 1.88% $1,000.00 $1,015.73 $9.55
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Actual 0.90% $1,000.00 $1,049.60 $4.65
I ------------------------------------------------------------------------
Hypothetical (h) 0.90% $1,000.00 $1,020.67 $4.58
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Actual 1.42% $1,000.00 $1,047.40 $7.33
R ------------------------------------------------------------------------
Hypothetical (h) 1.42% $1,000.00 $1,018.05 $7.22
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Actual 2.00% $1,000.00 $1,044.10 $10.30
R1 ------------------------------------------------------------------------
Hypothetical (h) 2.00% $1,000.00 $1,015.12 $10.16
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Actual 1.68% $1,000.00 $1,045.50 $8.66
R2 ------------------------------------------------------------------------
Hypothetical (h) 1.68% $1,000.00 $1,016.74 $8.54
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Actual 1.56% $1,000.00 $1,046.10 $8.05
R3 ------------------------------------------------------------------------
Hypothetical (h) 1.56% $1,000.00 $1,017.34 $7.93
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Actual 1.34% $1,000.00 $1,047.60 $6.92
R4 ------------------------------------------------------------------------
Hypothetical (h) 1.34% $1,000.00 $1,018.45 $6.82
- --------------------------------------------------------------------------------
Actual 1.04% $1,000.00 $1,049.40 $5.37
R5 ------------------------------------------------------------------------
Hypothetical (h) 1.04% $1,000.00 $1,019.96 $5.30
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads).
If these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
8/31/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based
asset classes.
Common Stocks - 99.8%
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ISSUER SHARES/PAR VALUE ($)
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Aerospace - 2.9%
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Lockheed Martin Corp. (l) 104,790 $ 10,388,881
Precision Castparts Corp. (l) 62,620 8,160,012
United Technologies Corp. (l) 244,490 18,246,289
--------------
$ 36,795,182
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Airlines - 0.3%
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Southwest Airlines Co. (l) 264,310 $ 3,993,724
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Apparel Manufacturers - 0.7%
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NIKE, Inc., "B" 113,100 $ 6,372,054
Quiksilver, Inc. (a)(l) 187,180 2,506,340
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$ 8,878,394
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Biotechnology - 2.0%
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Amgen, Inc. (a) 223,760 $ 11,212,614
Celgene Corp. (a)(l) 73,710 4,732,919
Genzyme Corp. (a)(l) 150,401 9,386,526
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$ 25,332,059
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Broadcasting - 2.0%
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News Corp., "A" 564,990 $ 11,429,748
Viacom, Inc., "B" (a)(l) 214,589 8,467,682
Walt Disney Co. 161,130 5,413,968
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$ 25,311,398
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Brokerage & Asset Managers - 2.8%
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Affiliated Managers Group, Inc. (a)(l) 47,340 $ 5,361,255
Deutsche Boerse AG 54,650 6,031,310
Evercore Partners, Inc. (l) 180,760 3,786,922
Goldman Sachs Group, Inc. (l) 47,680 8,392,157
Legg Mason, Inc. (l) 82,090 7,127,054
TD AMERITRADE Holding Corp. (a)(l) 267,080 4,847,502
--------------
$ 35,546,200
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Business Services - 1.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate Executive Board Co. (l) 84,310 $ 5,735,609
Fidelity National Information Services, Inc. (l) 99,710 4,726,254
Global Payments, Inc. (l) 84,510 3,336,455
Satyam Computer Services Ltd., ADR (l) 166,230 4,235,540
--------------
$ 18,033,858
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Cable TV - 0.8%
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Cablevision Systems Corp., "A" (a)(l) 125,450 $ 4,208,848
Comcast Corp., "Special A" (a) 238,770 6,174,592
--------------
$ 10,383,440
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Chemicals - 1.2%
- ---------------------------------------------------------------------------------------------------------------------------------
3M Co. 86,600 $ 7,879,734
PPG Industries, Inc. (l) 98,030 7,190,501
--------------
$ 15,070,235
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Computer Software - 3.8%
- ---------------------------------------------------------------------------------------------------------------------------------
ACI Worldwide, Inc. (a)(l) 162,150 $ 4,212,657
Adobe Systems, Inc. (a)(l) 222,353 9,505,591
CommVault Systems, Inc. (a)(l) 262,540 5,001,387
MSC.Software Corp. (a)(l) 1,319,457 16,691,131
Oracle Corp. (a) 487,939 9,895,403
VeriSign, Inc. (a) 107,551 3,463,142
--------------
$ 48,769,311
- ---------------------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 3.9%
- ---------------------------------------------------------------------------------------------------------------------------------
Cray, Inc. (a)(l) 981,050 $ 6,926,213
EMC Corp. (a)(l) 680,440 13,377,450
International Business Machines Corp. (l) 138,430 16,153,397
Network Appliance, Inc. (a)(l) 488,032 13,596,572
--------------
$ 50,053,632
- ---------------------------------------------------------------------------------------------------------------------------------
Construction - 0.7%
- ---------------------------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc. (l) 145,980 $ 2,205,758
Masco Corp. (l) 257,170 6,691,563
--------------
$ 8,897,321
- ---------------------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Colgate-Palmolive Co. 125,490 $ 8,322,497
New Oriental Education & Technology Group, Inc., ADR (a) 76,750 4,063,913
Procter & Gamble Co. (l) 254,730 16,636,416
Strayer Education, Inc. (l) 39,790 6,349,688
--------------
$ 35,372,514
- ---------------------------------------------------------------------------------------------------------------------------------
Containers - 0.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Owens-Illinois, Inc. (a)(l) 155,400 $ 6,250,188
- ---------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 4.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Danaher Corp. (l) 426,710 $ 33,138,299
Rockwell Automation, Inc. (l) 212,450 14,969,227
WESCO International, Inc. (a)(l) 66,440 3,161,880
--------------
$ 51,269,406
- ---------------------------------------------------------------------------------------------------------------------------------
Electronics - 4.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Applied Materials, Inc. (l) 416,660 $ 8,899,858
Hittite Microwave Corp. (a)(l) 132,140 5,598,772
Intel Corp. (l) 654,960 16,865,220
Marvell Technology Group Ltd. (a) 338,170 5,603,477
SanDisk Corp. (a)(l) 180,960 10,144,618
Solectron Corp. (a)(l) 1,062,990 4,124,401
--------------
$ 51,236,346
- ---------------------------------------------------------------------------------------------------------------------------------
Energy - Independent - 1.1%
- ---------------------------------------------------------------------------------------------------------------------------------
Apache Corp. 65,300 $ 5,052,914
CONSOL Energy, Inc. 62,610 2,496,887
Devon Energy Corp. (l) 84,400 6,356,164
--------------
$ 13,905,965
- ---------------------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 6.2%
- ---------------------------------------------------------------------------------------------------------------------------------
Exxon Mobil Corp. (l) 574,052 $ 49,213,478
Hess Corp. 257,430 15,798,479
Marathon Oil Corp. 259,370 13,977,449
--------------
$ 78,989,406
- ---------------------------------------------------------------------------------------------------------------------------------
Engineering - Construction - 0.4%
- ---------------------------------------------------------------------------------------------------------------------------------
North American Energy Partners, Inc. (a) 304,690 $ 5,258,949
- ---------------------------------------------------------------------------------------------------------------------------------
Food & Beverages - 3.2%
- ---------------------------------------------------------------------------------------------------------------------------------
Diamond Foods, Inc. (l) 158,420 $ 2,645,614
General Mills, Inc. (l) 182,370 10,190,836
Hain Celestial Group, Inc. (a)(l) 181,700 5,316,542
Kellogg Co. (l) 93,280 5,123,870
PepsiCo, Inc. 259,609 17,661,200
--------------
$ 40,938,062
- ---------------------------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.0%
- ---------------------------------------------------------------------------------------------------------------------------------
CVS Caremark Corp. 231,690 $ 8,762,516
SUPERVALU, Inc. (l) 102,380 4,315,317
--------------
$ 13,077,833
- ---------------------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.1%
- ---------------------------------------------------------------------------------------------------------------------------------
International Game Technology (l) 88,950 $ 3,395,222
Marriott International, Inc., "A" (l) 88,400 3,926,728
Penn National Gaming, Inc. (a) 54,720 3,217,536
Royal Caribbean Cruises Ltd. (l) 93,900 3,571,017
--------------
$ 14,110,503
- ---------------------------------------------------------------------------------------------------------------------------------
General Merchandise - 1.0%
- ---------------------------------------------------------------------------------------------------------------------------------
99 Cents Only Stores (a)(l) 268,650 $ 3,317,828
Macy's, Inc. (l) 190,780 6,051,542
Stage Stores, Inc. 194,335 3,367,826
--------------
$ 12,737,196
- ---------------------------------------------------------------------------------------------------------------------------------
Health Maintenance Organizations - 1.2%
- ---------------------------------------------------------------------------------------------------------------------------------
UnitedHealth Group, Inc. 153,050 $ 7,654,031
WellPoint, Inc. (a) 89,920 7,246,653
--------------
$ 14,900,684
- ---------------------------------------------------------------------------------------------------------------------------------
Insurance - 4.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Aflac, Inc. (l) 113,880 $ 6,070,943
Allied World Assurance Co. Holdings Ltd. (l) 169,200 8,124,984
Chubb Corp. (l) 256,630 13,121,492
Genworth Financial, Inc., "A" (l) 151,060 4,377,719
Hartford Financial Services Group, Inc. (l) 210,160 18,685,326
MetLife, Inc. (l) 119,570 7,658,459
MGIC Investment Corp. (l) 108,750 3,279,900
--------------
$ 61,318,823
- ---------------------------------------------------------------------------------------------------------------------------------
Internet - 1.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Google, Inc., "A" (a)(l) 34,500 $ 17,776,125
- ---------------------------------------------------------------------------------------------------------------------------------
Leisure & Toys - 0.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Ubisoft Entertainment S.A. (a) 102,501 $ 6,364,197
- ---------------------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 1.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Bucyrus International, Inc. (l) 49,880 $ 3,117,001
Eaton Corp. (l) 104,270 9,824,319
Timken Co. (l) 146,130 5,196,383
--------------
$ 18,137,703
- ---------------------------------------------------------------------------------------------------------------------------------
Major Banks - 5.1%
- ---------------------------------------------------------------------------------------------------------------------------------
Bank of America Corp. 431,280 $ 21,857,270
Bank of New York Mellon Corp. (l) 302,858 12,244,549
JPMorgan Chase & Co. (l) 393,920 17,537,318
State Street Corp. (l) 218,120 13,383,843
--------------
$ 65,022,980
- ---------------------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.6%
- ---------------------------------------------------------------------------------------------------------------------------------
DaVita, Inc. (a)(l) 24,800 $ 1,426,496
MWI Veterinary Supply, Inc. (a)(l) 175,952 6,680,897
--------------
$ 8,107,393
- ---------------------------------------------------------------------------------------------------------------------------------
Medical Equipment - 2.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc. (a)(l) 228,200 $ 6,558,468
Aspect Medical Systems, Inc. (a)(l) 437,540 5,504,253
Boston Scientific Corp. (a)(l) 499,230 6,405,121
Cyberonics, Inc. (a)(l) 150,510 2,271,196
NxStage Medical, Inc. (a)(l) 124,680 1,548,526
St. Jude Medical, Inc. (a)(l) 117,970 5,139,953
Thoratec Corp. (a)(l) 174,930 3,615,803
--------------
$ 31,043,320
- ---------------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 1.3%
- ---------------------------------------------------------------------------------------------------------------------------------
BHP Billiton PLC 552,990 $ 16,269,364
- ---------------------------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Questar Corp. (l) 133,160 $ 6,654,005
- ---------------------------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Williams Cos., Inc. (l) 398,280 $ 12,346,680
- ---------------------------------------------------------------------------------------------------------------------------------
Network & Telecom - 2.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc. (a) 348,180 $ 11,113,906
Motorola, Inc. (l) 221,100 3,747,645
NICE Systems Ltd., ADR (a)(l) 177,354 6,274,785
Nortel Networks Corp. (a)(l) 229,416 4,007,898
Sonus Networks, Inc. (a)(l) 883,690 5,107,728
--------------
$ 30,251,962
- ---------------------------------------------------------------------------------------------------------------------------------
Oil Services - 2.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Dresser-Rand Group, Inc. (a)(l) 82,340 $ 3,035,876
Exterran Holdings, Inc. (a) 38,600 2,991,500
Halliburton Co. 418,250 14,467,268
National Oilwell Varco, Inc. (a)(l) 33,690 4,312,320
Noble Corp. 152,520 7,482,631
--------------
$ 32,289,595
- ---------------------------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 5.0%
- ---------------------------------------------------------------------------------------------------------------------------------
American Express Co. (l) 298,560 $ 17,501,587
Commerce Bancorp, Inc. (l) 160,530 5,896,267
Countrywide Financial Corp. (l) 525,340 10,427,999
Euro Dekania Ltd., IEU (a)(z) 492,120 6,336,352
Fannie Mae (l) 228,160 14,969,578
Fremont General Corp. (l) 752,150 3,384,675
Oaktree Capital Management LLC (a)(z) 154,400 5,326,800
--------------
$ 63,843,258
- ---------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 5.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Abbott Laboratories 137,880 $ 7,157,351
Bristol-Myers Squibb Co. 295,110 8,602,457
Medicis Pharmaceutical Corp., "A" (l) 151,490 4,626,505
Merck & Co., Inc. (l) 473,440 23,752,485
Wyeth (l) 435,099 20,145,084
--------------
$ 64,283,882
- ---------------------------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. (l) 60,080 $ 4,875,492
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate - 1.9%
- ---------------------------------------------------------------------------------------------------------------------------------
BRE Properties, Inc., REIT (l) 139,560 $ 7,751,162
Mack-Cali Realty Corp., REIT (l) 231,180 9,654,077
Maguire Properties, Inc., REIT (l) 269,560 7,011,256
--------------
$ 24,416,495
- ---------------------------------------------------------------------------------------------------------------------------------
Restaurants - 0.9%
- ---------------------------------------------------------------------------------------------------------------------------------
Panera Bread Co. (a)(l) 80,560 $ 3,523,694
Red Robin Gourmet Burgers, Inc. (a)(l) 153,820 5,917,455
Texas Roadhouse, Inc., "A" (a)(l) 187,400 2,400,594
--------------
$ 11,841,743
- ---------------------------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.9%
- ---------------------------------------------------------------------------------------------------------------------------------
Air Products & Chemicals, Inc. (l) 64,560 $ 5,811,046
Praxair, Inc. (l) 81,210 6,144,349
--------------
$ 11,955,395
- ---------------------------------------------------------------------------------------------------------------------------------
Specialty Stores - 3.7%
- ---------------------------------------------------------------------------------------------------------------------------------
CarMax, Inc. (a) 163,500 $ 3,704,910
Dick's Sporting Goods, Inc. (a)(l) 60,840 3,948,516
Ethan Allen Interiors, Inc. 157,810 5,302,416
GameStop Corp., "A" (a)(l) 135,140 6,775,920
Lowe's Cos., Inc. (l) 350,120 10,874,727
Lululemon Athletica, Inc. (a) 31,530 1,074,227
Nordstrom, Inc. (l) 107,580 5,174,598
Staples, Inc. (l) 200,420 4,759,975
Urban Outfitters, Inc. (a)(l) 248,960 5,701,184
--------------
$ 47,316,473
- ---------------------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Rogers Communications, Inc., "B" 115,040 $ 5,231,867
- ---------------------------------------------------------------------------------------------------------------------------------
Telephone Services - 3.1%
- ---------------------------------------------------------------------------------------------------------------------------------
AT&T, Inc. (l) 625,250 $ 24,928,718
Embarq Corp. (l) 61,920 3,865,046
Qwest Communications International, Inc. (a)(l) 678,270 6,070,517
TELUS Corp. (non-voting shares) 98,680 5,117,330
--------------
$ 39,981,611
- ---------------------------------------------------------------------------------------------------------------------------------
Tobacco - 1.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Altria Group, Inc. 277,130 $ 19,235,593
- ---------------------------------------------------------------------------------------------------------------------------------
Trucking - 1.0%
- ---------------------------------------------------------------------------------------------------------------------------------
FedEx Corp. (l) 94,420 $ 10,355,986
Landstar System, Inc. (l) 61,410 2,641,244
--------------
$ 12,997,230
- ---------------------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.1%
- ---------------------------------------------------------------------------------------------------------------------------------
American Electric Power Co., Inc. (l) 175,990 $ 7,828,035
DPL, Inc. (l) 271,750 7,160,613
Entergy Corp. (l) 76,480 7,924,858
NRG Energy, Inc. (a) 199,170 7,586,385
Public Service Enterprise Group, Inc. (l) 105,210 8,941,787
--------------
$ 39,441,678
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $1,260,812,667) $1,276,114,670
- ---------------------------------------------------------------------------------------------------------------------------------
Short-Term Obligations - 0.3%
- ---------------------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 5.15%, due 9/04/07, at Amortized Cost and Value (y) $ 3,780,000 $ 3,778,378
- ---------------------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 21.2%
- ---------------------------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 271,318,543 $ 271,318,543
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $1,535,909,588) (k) $1,551,211,591
- ---------------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (21.3)% (272,469,583)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,278,742,008
- ---------------------------------------------------------------------------------------------------------------------------------
(a) Non-income producing security.
(k) As of August 31, 2007, the fund had two securities that were fair valued, aggregating $11,663,152 and 0.75% 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.
(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 securities:
ACQUISITION ACQUISITION CURRENT TOTAL % OF
RESTRICTED SECURITIES DATE COST MARKET VALUE NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
Euro Dekania Ltd., IEU 3/08/07 - 6/25/07 $7,015,361 $ 6,336,352
Oaktree Capital Management LLC 5/21/07 - 6/25/07 6,767,056 5,326,800
- --------------------------------------------------------------------------------------------------------------------------------
$11,663,152 0.91%
The following abbreviations are used in this report and are defined:
ADR American Depository Receipt
IEU International Equity Unit
REIT Real Estate Investment Trust
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/07
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 $270,639,614 of securities
on loan (identified cost, $1,535,909,588) $1,551,211,591
Cash 8,596
Receivable for investments sold 5,897,589
Receivable for fund shares sold 793,118
Interest and dividends receivable 1,707,737
Other assets 1,403
- -------------------------------------------------------------------------------------------------------
Total assets $1,559,620,034
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $5,778,821
Payable for fund shares reacquired 2,305,050
Collateral for securities loaned, at value (c) 271,318,543
Payable to affiliates
Investment adviser 10,013
Management fee 40,951
Shareholder servicing costs 377,625
Distribution and service fees 39,138
Administrative services fee 1,116
Retirement plan administration and services fees 403
Payable for independent trustees' compensation 264,336
Accrued expenses and other liabilities 742,030
- -------------------------------------------------------------------------------------------------------
Total liabilities $280,878,026
- -------------------------------------------------------------------------------------------------------
Net assets $1,278,742,008
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -------------------------------------------------------------------------------------------------------
Paid-in capital $3,445,281,969
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 15,298,387
Accumulated net realized gain (loss) on investments (2,181,620,880)
Accumulated net investment loss (217,468)
- -------------------------------------------------------------------------------------------------------
Net assets $1,278,742,008
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 66,032,681
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $766,201,526
Shares outstanding 38,632,075
- -------------------------------------------------------------------------------------------------------
Net asset value per share $19.83
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $21.04
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $325,524,918
Shares outstanding 17,580,924
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $18.52
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $107,947,505
Shares outstanding 5,854,336
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $18.44
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $27,543,975
Shares outstanding 1,340,693
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.54
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $5,932,550
Shares outstanding 301,446
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.68
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $2,542,679
Shares outstanding 137,803
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $18.45
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,528,404
Shares outstanding 82,088
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $18.62
- -------------------------------------------------------------------------------------------------------
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $9,491,806
Shares outstanding 485,953
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.53
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $31,962,798
Shares outstanding 1,614,064
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.80
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $65,847
Shares outstanding 3,299
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.96
- -------------------------------------------------------------------------------------------------------
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.
(c) Non-cash collateral not included.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 8/31/07
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 $6,445,520
Interest 410,432
Foreign taxes withheld (12,898)
- -------------------------------------------------------------------------------------------------------
Total investment income $6,843,054
- -------------------------------------------------------------------------------------------------------
Expenses
Management fee $2,855,082
Distribution and service fees 2,491,966
Shareholder servicing costs 757,300
Administrative services fee 87,283
Retirement plan administration and services fees 53,820
Independent trustees' compensation 12,778
Custodian fee 155,825
Shareholder communications 75,137
Auditing fees 50,072
Legal fees 40,609
Miscellaneous 189,652
- -------------------------------------------------------------------------------------------------------
Total expenses $6,769,524
- -------------------------------------------------------------------------------------------------------
Fees paid indirectly (6,486)
Reduction of expenses by investment adviser (4,166)
- -------------------------------------------------------------------------------------------------------
Net expenses $6,758,872
- -------------------------------------------------------------------------------------------------------
Net investment income $84,182
- -------------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $114,266,908
Foreign currency transactions 18,201
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $114,285,109
- -------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(101,717,561)
Translation of assets and liabilities in foreign currencies (392)
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $(101,717,953)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $12,567,156
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $12,651,338
- -------------------------------------------------------------------------------------------------------
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
-----------------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income (loss) $84,182 $(135,899)
Net realized gain (loss) on investments 114,285,109 22,210,793
Net unrealized gain (loss) on investments (101,717,953) (8,617,492)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $12,651,338 $13,457,402
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions
Class A $(10,891,644) $(6,566,925)
Class B (3,614,424) (3,172,137)
Class C (1,273,576) (835,667)
Class I (376,619) (151,657)
Class R (399,070) (292,512)
Class R1 (34,465) (6,519)
Class R2 (64,230) (2,469)
Class R3 (96,597) (54,897)
Class R4 (1,876,812) (2,358)
Class R5 (4,256) (2,358)
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(18,631,693) $(11,087,499)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $1,037,237,225 $4,102,717
- -------------------------------------------------------------------------------------------------------
Total change in net assets $1,031,256,870 $6,472,620
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period 247,485,138 241,012,518
At end of period (including accumulated net investment loss
of $217,468 and $35,801, respectively) $1,278,742,008 $247,485,138
- -------------------------------------------------------------------------------------------------------
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.
CLASS A YEARS ENDED 8/31
-----------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $18.17 $17.88 $15.35 $13.97 $12.51
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.04 $0.03 $0.03 $0.03 $0.04
Net realized and unrealized gain (loss)
on investments and foreign currency 3.01 1.06 2.50 1.35 1.42
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.05 $1.09 $2.53 $1.38 $1.46
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions $(1.39) $(0.80) $-- $-- $--
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.83 $18.17 $17.88 $15.35 $13.97
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 17.26 6.25 16.48 9.88(b) 11.67
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.26 1.37 1.41 1.38 1.47
Expenses after expense reductions (f) 1.26 1.36 1.41 1.38 N/A
Net investment income 0.22 0.15 0.17 0.22 0.29
Portfolio turnover 283 138 81 116 121
Net assets at end of period (000 Omitted) $766,202 $146,355 $141,808 $67,415 $53,704
- ---------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
--------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $17.16 $17.03 $14.71 $13.48 $12.14
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.08) $(0.09) $(0.08) $(0.06) $(0.04)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.83 1.02 2.40 1.29 1.38
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.75 $0.93 $2.32 $1.23 $1.34
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(1.39) $(0.80) $-- $-- $--
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.52 $17.16 $17.03 $14.71 $13.48
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 16.49 5.60 15.77 9.12(b) 11.04
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.90 2.02 2.06 2.02 2.12
Expenses after expense reductions (f) 1.90 2.02 2.06 2.02 N/A
Net investment loss (0.46) (0.50) (0.47) (0.43) (0.36)
Portfolio turnover 283 138 81 116 121
Net assets at end of period (000 Omitted) $325,525 $49,192 $71,088 $73,395 $75,007
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
CLASS C YEARS ENDED 8/31
------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $17.09 $16.97 $14.66 $13.43 $12.10
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.08) $(0.09) $(0.08) $(0.06) $(0.04)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.82 1.01 2.39 1.29 1.37
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.74 $0.92 $2.31 $1.23 $1.33
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(1.39) $(0.80) $-- $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.44 $17.09 $16.97 $14.66 $13.43
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 16.50 5.56 15.76 9.16(b) 10.99
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.90 2.02 2.06 2.02 2.12
Expenses after expense reductions (f) 1.90 2.02 2.06 2.02 N/A
Net investment loss (0.45) (0.50) (0.48) (0.43) (0.35)
Portfolio turnover 283 138 81 116 121
Net assets at end of period (000 Omitted) $107,948 $16,613 $17,898 $15,990 $15,325
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 8/31
-------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $18.72 $18.33 $15.68 $14.22 $12.69
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.11 $0.09 $0.09 $0.09 $0.08
Net realized and unrealized gain (loss)
on investments and foreign currency 3.10 1.10 2.56 1.37 1.45
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.21 $1.19 $2.65 $1.46 $1.53
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(1.39) $(0.80) $-- $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.54 $18.72 $18.33 $15.68 $14.22
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 17.63 6.66 16.90 10.27(b) 12.06
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.92 1.01 1.09 1.03 1.12
Expenses after expense reductions (f) 0.92 1.01 1.09 1.03 N/A
Net investment income 0.58 0.50 0.51 0.56 0.65
Portfolio turnover 283 138 81 116 121
Net assets at end of period (000 Omitted) $27,544 $4,763 $3,170 $460 $398
- -----------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
CLASS R YEARS ENDED 8/31
------------------------------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $18.06 $17.80 $15.31 $13.96 $11.98
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.03 $0.00(w) $0.00(w) $0.02 $(0.00)(w)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.98 1.06 2.49 1.33 1.98(g)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.01 $1.06 $2.49 $1.35 $1.98
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(1.39) $(0.80) $-- $-- $--
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.68 $18.06 $17.80 $15.31 $13.96
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 17.14 6.11 16.26 9.67(b) 16.53(n)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.45 1.51 1.56 1.49 1.74(a)
Expenses after expense reductions (f) 1.45 1.51 1.56 1.49 N/A
Net investment income (loss) 0.14 0.00(w) 0.03 0.13 (0.04)(a)
Portfolio turnover 283 138 81 116 121
Net assets at end of period (000 Omitted) $5,933 $5,446 $5,888 $3,030 $17
- ---------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 8/31
-------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $17.11 $17.01 $16.25
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.09) $(0.10) $(0.04)
Net realized and unrealized gain (loss) on investments
and foreign currency 2.82 1.00 0.80(g)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.73 $0.90 $0.76
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions $(1.39) $(0.80) $--
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.45 $17.11 $17.01
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 16.42 5.43 4.68(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.05 2.20 2.23(a)
Expenses after expense reductions (f) 2.02 2.11 2.23(a)
Net investment loss (0.51) (0.61) (0.63)(a)
Portfolio turnover 283 138 81
Net assets at end of period (000 Omitted) $2,543 $441 $55
- -------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
CLASS R2 YEARS ENDED 8/31
---------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $17.20 $17.03 $16.25
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.02) $(0.05) $(0.02)
Net realized and unrealized gain (loss) on investments
and foreign currency 2.83 1.02 0.80(g)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.81 $0.97 $0.78
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions $(1.39) $(0.80) $--
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.62 $17.20 $17.03
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 16.81 5.85 4.80(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.78 1.90 1.93(a)
Expenses after expense reductions (f) 1.70 1.75 1.93(a)
Net investment loss (0.11) (0.29) (0.33)(a)
Portfolio turnover 283 138 81
Net assets at end of period (000 Omitted) $1,528 $780 $52
- -------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 8/31
-------------------------------------------------------------
2007 2006 2005 2004(i)
Net asset value, beginning of period $17.97 $17.74 $15.29 $14.57
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $(0.01) $(0.03) $(0.04) $0.03
Net realized and unrealized gain (loss) on
investments and foreign currency 2.96 1.06 2.49 0.69(g)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.95 $1.03 $2.45 $0.72
- ------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions $(1.39) $(0.80) $-- $--
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.53 $17.97 $17.74 $15.29
- ------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 16.88 5.96 16.02 4.94(b)(n)
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.61 1.77 1.81 1.80(a)
Expenses after expense reductions (f) 1.58 1.67 1.81 1.80(a)
Net investment income (loss) (0.05) (0.15) (0.22) 0.27(a)
Portfolio turnover 283 138 81 116
Net assets at end of period (000 Omitted) $9,492 $1,193 $948 $616
- ------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
CLASS R4 YEARS ENDED 8/31
-------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $18.15 $17.88 $17.02
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.05 $0.05 $0.01
Net realized and unrealized gain (loss) on investments
and foreign currency 2.99 1.02 0.85(g)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.04 $1.07 $0.86
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions $(1.39) $(0.80) $--
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.80 $18.15 $17.88
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 17.22 6.14 5.05(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.36 1.37 1.43(a)
Expenses after expense reductions (f) 1.36 1.37 1.43(a)
Net investment income 0.24 0.27 0.17(a)
Portfolio turnover 283 138 81
Net assets at end of period (000 Omitted) $31,963 $22,646 $53
- -------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 8/31
-------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $18.24 $17.90 $17.02
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.11 $0.07 $0.03
Net realized and unrealized gain (loss) on investments
and foreign currency 3.00 1.07 0.85(g)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.11 $1.14 $0.88
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions $(1.39) $(0.80) $--
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.96 $18.24 $17.90
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 17.54 6.54 5.17(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.06 1.12 1.13(a)
Expenses after expense reductions (f) 1.06 1.12 1.13(a)
Net investment income 0.55 0.40 0.47(a)
Portfolio turnover 283 138 81
Net assets at end of period (000 Omitted) $66 $56 $53
- -------------------------------------------------------------------------------------------------------------------
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 per share amount of 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. For securities held short for
which there were no sales reported for the day, the position is generally
valued at the last quoted daily ask quotation as reported by an independent
pricing service on the market or exchange on which such securities 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 and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. 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. 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 September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the fund, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the fund's financial statements.
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 and other funds managed by
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. Net income from securities lending is
included in interest income on the Statement of Operations. The dividend and
interest income earned on the securities loaned is accounted for in the same
manner as other dividend and interest income. At August 31, 2007, the value of
securities loaned was $270,639,614. These loans were collateralized by cash of
$271,318,543 and U.S. Treasury obligations of $5,954,888.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
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. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been disposed
of by the fund or in unrealized gain/loss if the security is still held by the
fund. Any other proceeds from litigation not related to portfolio holdings are
reflected as other income in the Statement of Operations.
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, 2007, 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 U.S. 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 and capital
loss carryforward and wash sale deferrals assumed as a result of the
acquisition of MFS Capital Opportunities Fund.
The tax character of distributions declared to shareholders is as follows:
8/31/07 8/31/06
Ordinary income (including any
short-term capital gains) $5,799,254 $--
Long-term capital gain 12,832,439 11,087,499
--------------------------------------------------------------
Total distributions $18,631,693 $11,087,499
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/07
Cost of investments $1,540,628,073
--------------------------------------------------------------
Gross appreciation $67,972,646
Gross depreciation (57,389,128)
--------------------------------------------------------------
Net unrealized appreciation (depreciation) $10,583,518
Undistributed ordinary income 17,431,786
Undistributed long-term capital gain 74,982,219
Capital loss carryforwards (2,269,307,497)
Other temporary differences (229,987)
As of August 31, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
8/31/08 $(598,681,443)
8/31/09 (1,596,472,098)
8/31/10 (74,153,956)
---------------------------------------------
$(2,269,307,497)
The availability of a portion of the capital loss carryforwards, which were
acquired on June 22, 2007 in connection with the MFS Capital Opportunities 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. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. 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 evaluated the application of the Interpretation to the fund, and has
determined that there is no impact 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, 2007 was equivalent
to an annual effective rate of 0.62% of the fund's average daily net assets.
Effective June 23, 2007, the investment adviser has agreed in writing to pay a
portion of the fund's operating expenses, exclusive of certain other fees and
expenses, such that total annual fund operating expenses do not exceed the
following rates annually of the fund's average daily net assets with respect to
each class:
CLASS A CLASS B CLASS C CLASS I CLASS R CLASS R1 CLASS R2 CLASS R3 CLASS R4 CLASS R5
1.21% 1.86% 1.86% 0.86% 1.36% 1.96% 1.61% 1.51% 1.26% 0.96%
This written agreement will continue through February 28, 2009 unless changed
or rescinded by the fund's Board of Trustees. For the year ended August 31,
2007, 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 $34,199 for the year ended August 31, 2007, 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% $958,165
Class B 0.75% 0.25% 1.00% 1.00% 1,053,207
Class C 0.75% 0.25% 1.00% 1.00% 356,898
Class R 0.25% 0.25% 0.50% 0.50% 28,416
Class R1 0.50% 0.25% 0.75% 0.75% 5,734
Class R2 0.25% 0.25% 0.50% 0.50% 4,684
Class R3 0.25% 0.25% 0.50% 0.50% 14,048
Class R4 -- 0.25% 0.25% 0.25% 70,814
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $2,491,966
(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, 2007 based on each class' average daily net assets. Assets attributable to Class A shares sold prior to
October 1, 1989 with respect to shares that were acquired as part of the reorganization of MFS Capital
Opportunities Fund into MFS Core Equity Fund are subject to a service fee of 0.15% annually.
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,
2007, were as follows:
AMOUNT
Class A $2,598
Class B 74,707
Class C 1,641
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 daily net assets of
the fund as determined periodically under the supervision of the fund's Board
of Trustees. For the year ended August 31, 2007, the fee was $250,096, which
equated to 0.0539% annually of the fund's average daily net assets. MFSC also
receives payment from the fund for out-of-pocket expenses, sub-accounting and
other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the year ended August 31, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $482,404. The fund may also pay shareholder servicing related costs
directly 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 average daily net assets. The fund's annual fixed
amount is $17,500.
The administrative services fee incurred for the year ended August 31, 2007 was
equivalent to an annual effective rate of 0.0188% 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, 2007,
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:
BEGINNING OF ANNUAL
PERIOD THROUGH EFFECTIVE EFFECTIVE TOTAL
3/31/07 4/01/07 RATE (g) AMOUNT
Class R1 0.45% 0.35% 0.35% $2,941
Class R2 0.40% 0.25% 0.25% 3,099
Class R3 0.25% 0.15% 0.15% 5,227
Class R4 0.15% 0.15% 0.15% 42,490
Class R5 0.10% 0.10% 0.10% 63
- -------------------------------------------------------------------------------
Total Retirement Plan Administration and
Services Fees $53,820
(g) Prior to April 1, 2007, MFS had agreed in writing to waive a portion of
the retirement plan administration and services fee equal to 0.10% for
Class R1, 0.15% for Class R2, and 0.10% for Class R3 shares. This
agreement was discontinued on March 31, 2007. On April 1, 2007, the annual
retirement plan administration and services fee for Class R1, Class R2,
and Class R3 shares was lowered to 0.35%, 0.25%, and 0.15%, respectively.
For the year ended August 31, 2007, the waiver amounted to $2,028 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 $2,808. The fund also has an
unfunded retirement benefit deferral plan for certain independent trustees
which resulted in a net decrease in expense of $2,610. Both amounts are
included in independent trustees' compensation for the year ended August 31,
2007. The liability for deferred retirement benefits payable to certain
independent trustees under both plans amounted to $264,306 at August 31, 2007,
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, 2007, the fee paid to Tarantino LLC
was $2,526. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $2,138, 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
$1,236,594,874 and $1,191,631,666, 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
8/31/07 8/31/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 7,381,576 $149,818,565 2,443,666 $43,867,932
Class B 1,701,468 32,486,236 811,627 13,942,781
Class C 292,928 5,442,264 262,041 4,460,022
Class I 961,921 20,405,548 125,891 2,329,642
Class R 266,922 5,440,639 111,566 1,994,369
Class R1 149,688 2,801,842 26,009 443,322
Class R2 46,945 860,796 44,042 755,492
Class R3 524,954 10,284,549 35,849 633,797
Class R4 830,328 16,026,749 1,555,647 28,508,981
Class R5 -- -- 3 81
- ----------------------------------------------------------------------------------------------------------
12,156,730 $243,567,188 5,416,341 $96,936,419
Shares issued in connection with
acquisition of MFS Capital
Opportunities Fund
Class A 29,207,075 $592,904,669
Class B 15,751,262 298,888,929
Class C 5,090,987 96,202,011
Class I 186,848 3,926,430
Class R 1,495 30,134
Class R1 -- --
Class R2 1,572 29,984
Class R3 -- --
Class R4 -- --
Class R5 -- --
- -------------------------------------------------------------------------
50,239,239 $991,982,157
YEAR ENDED YEAR ENDED
8/31/07 8/31/06
SHARES AMOUNT SHARES AMOUNT
Shares issued to shareholders in
reinvestment of distributions
Class A 552,563 $10,288,726 355,194 $6,254,963
Class B 183,403 3,202,212 171,172 2,860,279
Class C 61,738 1,073,622 42,451 706,380
Class I 16,270 312,870 6,859 124,080
Class R 21,583 399,070 16,688 292,512
Class R1 1,980 34,465 395 6,519
Class R2 3,664 64,230 148 2,469
Class R3 5,148 94,569 3,146 54,897
Class R4 100,759 1,873,116 134 2,358
Class R5 228 4,256 134 2,358
- ----------------------------------------------------------------------------------------------------------
947,336 $17,347,136 596,321 $10,306,815
Shares reacquired
Class A (6,562,526) $(129,813,745) (2,675,775) $(47,849,495)
Class B (2,922,613) (54,284,021) (2,289,768) (38,886,362)
Class C (563,543) (10,346,548) (387,175) (6,483,150)
Class I (78,815) (1,615,830) (51,250) (948,111)
Class R (290,050) (5,664,197) (157,462) (2,824,272)
Class R1 (39,628) (717,849) (3,855) (64,830)
Class R2 (15,425) (280,707) (1,935) (31,647)
Class R3 (110,566) (2,111,539) (26,032) (463,349)
Class R4 (564,466) (10,824,820) (311,276) (5,589,225)
Class R5 -- -- (4) (76)
- -----------------------------------------------------------------------------------------------------------
(11,147,632) $(215,659,256) (5,904,532) $(103,140,517)
Net change
Class A 30,578,688 $623,198,215 123,085 $2,273,400
Class B 14,713,520 280,293,356 (1,306,969) (22,083,302)
Class C 4,882,110 92,371,349 (82,683) (1,316,748)
Class I 1,086,224 23,029,018 81,500 1,505,611
Class R (50) 205,646 (29,208) (537,391)
Class R1 112,040 2,118,458 22,549 385,011
Class R2 36,756 674,303 42,255 726,314
Class R3 419,536 8,267,579 12,963 225,345
Class R4 366,621 7,075,045 1,244,505 22,922,114
Class R5 228 4,256 133 2,363
- ----------------------------------------------------------------------------------------------------------
52,195,673 $1,037,237,225 108,130 $4,102,717
(6) LINE OF CREDIT
The fund and other funds managed by MFS 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 funds managed by MFS 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 0.30%. 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, 2007, the fund's commitment fee and interest expense were $1,321 and
$15,802, respectively, and are included in miscellaneous expense on the
Statement of Operations.
(7) ACQUISITIONS
At close of business on June 22, 2007, the fund acquired all of the assets and
liabilities of MFS Capital Opportunities Fund. The acquisition was accomplished
by a tax-free exchange of 50,239,239 shares of the fund (valued at
$991,982,157) for all of the assets and liabilities of MFS Capital
Opportunities Fund. MFS Capital Opportunities Fund then converted all of its
outstanding shares for the shares of the fund and distributed those shares to
its shareholders. MFS Capital Opportunities Fund's net assets on that date were
$991,982,157, including $104,456,476 of unrealized appreciation, $795,742 of
accumulated net investment loss, and $2,292,322,787 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 $1,379,102,978.
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, 2007, 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, 2007, 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, 2007, 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 16, 2007
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2007, 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); MIT Sloan School
(education), Senior Lecturer
(since 2006); 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 (until 2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Retired; Cleveland-Cliffs Inc.
(born 5/30/42) (mining products and service
provider), Vice Chairman/Director
(until May 2007); Portman Limited
(mining), Director (since 2005);
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;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
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 New Profit, Inc. (venture
(born 8/05/57) philanthropy), Partner (since
2006); Private investor; Prism
Venture Partners (venture
capital), Co-founder and General
Partner (until June 2004); The
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) Chief
Compliance Officer (since December
2006); 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)
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 share- holders 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, Gutow, 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, 2007, the Trustees served as board members of 97 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
Katrina Mead
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment advisory
agreement with MFS. The Trustees consider matters bearing on the Fund and its
advisory arrangements at their meetings throughout the year, including a review
of performance data at each regular meeting. In addition, the independent
Trustees met several times over the course of three months beginning in May and
ending in July, 2007 ("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 that included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2006 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 in 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, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's Class A shares 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 each of the one and five-year periods ended December 31, 2006 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 daily 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, 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 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 contractual breakpoint that reduces the Fund's advisory
fee rate on average daily net assets over $500 million. 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 that 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, 2007.
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, 2007
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 2007 income
tax forms in January 2008. The following information is provided pursuant to
provisions of the Internal Revenue Code.
The fund designates $12,832,439 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 02205-5824
1-800-637-8255
24 hours a day OVERNIGHT MAIL
MFS Service Center, Inc.
ACCOUNT SERVICE AND 500 Boylston Street
LITERATURE 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
- -------------------------------------------------------------------------------
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postage costs).
SIGN UP: If your account is registered with us, simply go to mfs.com, log in to
your account via MFS(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) 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) CORE GROWTH FUND
LETTER FROM THE CEO 1
- ------------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------------------------
MANAGEMENT REVIEW 3
- ------------------------------------------------------------------
PERFORMANCE SUMMARY 6
- ------------------------------------------------------------------
EXPENSE TABLE 9
- ------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 11
- ------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 17
- ------------------------------------------------------------------
STATEMENT OF OPERATIONS 20
- ------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 22
- ------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 23
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 32
- ------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 44
- ------------------------------------------------------------------
TRUSTEES AND OFFICERS 45
- ------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 51
- ------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 55
- ------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 55
- ------------------------------------------------------------------
FEDERAL TAX INFORMATION 55
- ------------------------------------------------------------------
MFS(R) PRIVACY NOTICE 56
- ------------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
8/31/07
GCF-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. But the Dow's upward
rise has not been without hiccups. After hitting new records in July 2007, the
Dow lost 8% in the following weeks as a crisis swept global credit markets. As
we have said before, markets can be volatile, and investors should make sure
they have an investment plan that can carry them through the peaks and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short-term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss. Investing
and planning for the long term require 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 15, 2007
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 97.2%
Cash & Other Net Assets 2.8%
TOP TEN HOLDINGS
Google, Inc., "A" 2.8%
------------------------------------------------
Intel Corp. 2.7%
------------------------------------------------
Cisco Systems, Inc. 2.7%
------------------------------------------------
Oracle Corp. 2.6%
------------------------------------------------
Medtronic, Inc. 2.3%
------------------------------------------------
CVS Caremark Corp. 2.1%
------------------------------------------------
EMC Corp. 2.0%
------------------------------------------------
Genzyme Corp. 1.8%
------------------------------------------------
Procter & Gamble Co. 1.8%
------------------------------------------------
Nestle S.A. 1.8%
------------------------------------------------
EQUITY SECTORS
Technology 25.4%
------------------------------------------------
Health Care 18.7%
------------------------------------------------
Consumer Staples 8.2%
------------------------------------------------
Retailing 8.0%
------------------------------------------------
Financial Services 7.6%
------------------------------------------------
Industrial Goods & Services 7.0%
------------------------------------------------
Energy 5.0%
------------------------------------------------
Special Products & Services 4.8%
------------------------------------------------
Leisure 4.6%
------------------------------------------------
Utilities & Communications 3.2%
------------------------------------------------
Basic Materials 3.1%
------------------------------------------------
Transportation 1.6%
------------------------------------------------
Percentages are based on net assets as of 08/31/07.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2007, Class A shares of the MFS Core
Growth Fund provided a total return of 17.07%, at net asset value. This
compares with a return of 17.70% for the fund's benchmark, the Russell 1000
Growth Index.
MARKET ENVIRONMENT
The U.S. economy continues to decouple from the rest of the world, growing at a
slower pace than other major economies. Overall, global economies have seen
moderate to strong growth over the last twelve months as domestic demand
improves and world trade accelerates.
With the stronger growth, however, has come increased concern about rising
global inflation, especially as capacity becomes more constrained, wages rise,
and energy and food prices advance. Late in the reporting period, continued
robust global growth and fears of rising inflationary pressures led global
central banks to tighten monetary conditions beyond market expectations, which
in turn pushed global bond yields to their highest levels during this economic
expansion.
However, beginning in late July and August, heightened uncertainty and distress
concerning the subprime mortgage market caused several global credit markets to
seize up, forcing central banks to inject liquidity and to reassess their
tightening biases as sovereign bond yields plummeted and credit spreads widened
considerably. Increased market volatility has been exacerbated by U.S. home
foreclosures, falling housing prices, and weaker-than-expected jobs growth
reported by the U.S. Department of Labor. Despite increased volatility across
all asset classes, and the widening in credit spreads, global equity markets
have experienced only a mild correction to date.
DETRACTORS FROM PERFORMANCE
For the MFS Core Growth Fund, a combination of security selection and
overweighting in the financial services sector was the primary detractor to
performance relative to its benchmark. Holdings in investment management and
banking firm UBS (Switzerland)(aa) hindered performance as problems relating to
mortgage-backed securities hurt the stock price. Investment servicing firm
State Street Corp. also held back results. Concerns about off-balance sheet
commitments to asset-backed commercial paper conduits and the bank's on-
balance sheet portfolio, which holds significant positions in asset-backed and
mortgage-related securities, weighed on the stock's share price.
In the leisure sector, the fund's positioning in cable services provider
Comcast hurt relative performance.
Overweighting poor-performing billing software company Amdocs Ltd. dampened
results in the special products and services sector.
Other individual positions that hurt results included medical devices maker
Advanced Medical Optics, Swiss pharmaceutical and diagnostic company Roche
Holding(aa), and global biotech company Genzyme. Underweighting computer
company IBM adversely impacted relative performance as shares outperformed the
benchmark over the reporting period. The fund's holdings in flash memory
storage products maker SanDisk also hurt.
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.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the technology, utilities and communications, industrial
goods and services, and retailing sectors were the top contributors to relative
performance over the reporting period. In the technology sector, our position
in Canadian wireless solutions provider Research In Motion(aa) led the way.
With mobile broadband prices coming down, Research In Motion benefited from
increased demand for smartphones within this fast growing consumer market. Our
avoidance of wireless and broadband communications firm Motorola also benefited
results as this benchmark constituent underperformed the index over the period
on lower-than-expected handset sales.
Mexican wireless communications company America Movil(aa) has continued to be a
strong performer in the utilities and communications sector. Led by strong
customer growth, American Movil has increased revenue through local market
cellular penetration in several Latin American countries.
In the industrial goods and services sector, the fund derived solid gains from
overweighted positions in metal component manufacturer Precision Castparts and
agricultural equipment manufacturer Deere & Company(g). Deere turned in good
quarterly results and raised guidance for the fiscal year 2007.
Although strong stock selection in the retailing sector also bolstered the
fund's return, no holdings within this sector were among the top contributors.
Elsewhere in the fund, overweighting biopharmaceutical company Celgene,
diagnostic and medical device company Cytyc(g), and pharmaceutical services
company Caremark RX(g) aided relative results. The fund also benefited from
investments in agriculture and food business Bunge Limited(aa)(g) and oil field
services company Schlumberger.
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
funds to have different currency exposure than the benchmark.
Respectfully,
Stephen Pesek
Portfolio Manager
(aa) Security is not a benchmark constituent.
(g) 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 or
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 8/31/07
The following chart illustrates a representative class of the fund's historical
performance 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. 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
8/97 $ 9,425 $10,000
8/98 10,250 10,826
8/99 15,819 16,058
8/00 23,946 21,431
8/01 15,190 11,718
8/02 11,889 9,120
8/03 12,960 10,403
8/04 13,229 10,961
8/05 15,127 12,291
8/06 15,919 12,743
8/07 18,636 14,999
TOTAL RETURNS THROUGH 8/31/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
- -------------------------------------------------------------------------------
A 1/02/96 17.07% 9.40% 7.05%
-------------------------------------------------------------------------
B 12/31/99 16.31% 8.69% 6.54%
-------------------------------------------------------------------------
C 12/31/99 16.31% 8.69% 6.54%
-------------------------------------------------------------------------
I 1/02/97 17.53% 9.79% 7.36%
-------------------------------------------------------------------------
W 5/01/06 17.39% 9.49% 7.10%
-------------------------------------------------------------------------
R 12/31/02 16.92% 9.28% 6.99%
-------------------------------------------------------------------------
R1 4/01/05 16.22% 9.00% 6.86%
-------------------------------------------------------------------------
R2 4/01/05 16.56% 9.17% 6.94%
-------------------------------------------------------------------------
R3 10/31/03 16.73% 9.12% 6.91%
-------------------------------------------------------------------------
R4 4/01/05 17.02% 9.38% 7.04%
-------------------------------------------------------------------------
R5 4/01/05 17.35% 9.53% 7.12%
- -------------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmark
- -------------------------------------------------------------------------------
Russell 1000 Growth Index (f) 17.70% 10.46% 4.14%
- -------------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -------------------------------------------------------------------------------
A 10.34% 8.12% 6.42%
With Initial Sales Charge (5.75%)
-------------------------------------------------------------------------
B 12.31% 8.40% 6.54%
With CDSC (Declining over six years
from 4% to 0%) (x)
-------------------------------------------------------------------------
C 15.31% 8.69% 6.54%
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 value.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Performance for Classes B, C, W, R, R1, R2, R3, R4 and R5 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, 2007 through August 31, 2007
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 (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, 2007 through August 31,
2007.
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). 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
Beginning Ending Paid During
Annualized Account Account Period (p)
Share Expense Value Value 3/01/07-
Class Ratio 3/01/07 8/31/07 8/31/07
- --------------------------------------------------------------------------------
Actual 1.22% $1,000.00 $1,081.90 $6.40
A -----------------------------------------------------------------------
Hypothetical(h) 1.22% $1,000.00 $1,019.06 $6.21
- --------------------------------------------------------------------------------
Actual 1.87% $1,000.00 $1,078.50 $9.80
B -----------------------------------------------------------------------
Hypothetical(h) 1.87% $1,000.00 $1,015.78 $9.50
- --------------------------------------------------------------------------------
Actual 1.87% $1,000.00 $1,078.50 $9.80
C -----------------------------------------------------------------------
Hypothetical(h) 1.87% $1,000.00 $1,015.78 $9.50
- --------------------------------------------------------------------------------
Actual 0.88% $1,000.00 $1,084.30 $4.62
I -----------------------------------------------------------------------
Hypothetical(h) 0.88% $1,000.00 $1,020.77 $4.48
- --------------------------------------------------------------------------------
Actual 0.97% $1,000.00 $1,083.80 $5.09
W -----------------------------------------------------------------------
Hypothetical(h) 0.97% $1,000.00 $1,020.32 $4.94
- --------------------------------------------------------------------------------
Actual 1.37% $1,000.00 $1,081.20 $7.19
R -----------------------------------------------------------------------
Hypothetical(h) 1.37% $1,000.00 $1,018.30 $6.97
- --------------------------------------------------------------------------------
Actual 1.98% $1,000.00 $1,078.10 $10.37
R1 -----------------------------------------------------------------------
Hypothetical(h) 1.98% $1,000.00 $1,015.22 $10.06
- --------------------------------------------------------------------------------
Actual 1.62% $1,000.00 $1,079.80 $8.49
R2 -----------------------------------------------------------------------
Hypothetical(h) 1.62% $1,000.00 $1,017.04 $8.24
- --------------------------------------------------------------------------------
Actual 1.52% $1,000.00 $1,080.70 $7.97
R3 -----------------------------------------------------------------------
Hypothetical(h) 1.52% $1,000.00 $1,017.54 $7.73
- --------------------------------------------------------------------------------
Actual 1.28% $1,000.00 $1,082.00 $6.72
R4 -----------------------------------------------------------------------
Hypothetical(h) 1.28% $1,000.00 $1,018.75 $6.51
- --------------------------------------------------------------------------------
Actual 0.97% $1,000.00 $1,083.60 $5.09
R5 -----------------------------------------------------------------------
Hypothetical(h) 0.97% $1,000.00 $1,020.32 $4.94
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads). If
these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
8/31/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Common Stocks - 97.2%
- ----------------------------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ----------------------------------------------------------------------------------------------------------------------------------
Aerospace - 2.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Boeing Co. 166,020 $ 16,054,134
Precision Castparts Corp. 100,730 13,126,126
United Technologies Corp. 393,130 29,339,292
--------------
$ 58,519,552
- ----------------------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 1.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Diageo PLC 1,233,900 $ 26,349,594
- ----------------------------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.5%
- ----------------------------------------------------------------------------------------------------------------------------------
NIKE, Inc., "B" 215,820 $ 12,159,299
- ----------------------------------------------------------------------------------------------------------------------------------
Biotechnology - 4.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Amgen, Inc. (a) 223,460 $ 11,197,581
Amylin Pharmaceuticals, Inc. (a)(l) 138,400 6,785,752
Celgene Corp. (a)(l) 215,140 13,814,139
Genzyme Corp. (a)(l) 715,410 44,648,738
Gilead Sciences, Inc. (a) 480,820 17,487,423
Millipore Corp. (a)(l) 133,890 9,329,455
--------------
$ 103,263,088
- ----------------------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.2%
- ----------------------------------------------------------------------------------------------------------------------------------
CME Group, Inc. 32,420 $ 17,986,616
Franklin Resources, Inc. (l) 91,700 12,083,309
Merrill Lynch & Co., Inc. (l) 237,700 17,518,490
T. Rowe Price Group, Inc. (l) 116,000 5,953,120
--------------
$ 53,541,535
- ----------------------------------------------------------------------------------------------------------------------------------
Business Services - 3.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Accenture Ltd., "A" (l) 399,100 $ 16,446,911
Amdocs Ltd. (a)(l) 1,172,140 41,376,542
Fidelity National Information Services, Inc. 339,100 16,073,340
Western Union Co. 241,590 4,549,140
--------------
$ 78,445,933
- ----------------------------------------------------------------------------------------------------------------------------------
Cable TV - 1.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Comcast Corp., "A" (a) 1,005,740 $ 26,239,757
- ----------------------------------------------------------------------------------------------------------------------------------
Chemicals - 1.6%
- ----------------------------------------------------------------------------------------------------------------------------------
3M Co. (l) 221,940 $ 20,194,321
Monsanto Co. 268,540 18,727,980
--------------
$ 38,922,301
- ----------------------------------------------------------------------------------------------------------------------------------
Computer Software - 6.9%
- ----------------------------------------------------------------------------------------------------------------------------------
Adobe Systems, Inc. (a)(l) 831,546 $ 35,548,591
Microsoft Corp. 1,310,820 37,659,859
NAVTEQ Corp. (a)(l) 78,100 4,920,300
Oracle Corp. (a) 3,055,990 61,975,477
VeriSign, Inc. (a) 788,400 25,386,480
--------------
$ 165,490,707
- ----------------------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 6.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Apple Computer, Inc. (a)(l) 222,990 $ 30,879,655
EMC Corp. (a)(l) 2,442,270 48,015,028
Hewlett-Packard Co. 499,200 24,635,520
International Business Machines Corp. 319,180 37,245,114
Network Appliance, Inc. (a)(l) 453,170 12,625,316
--------------
$ 153,400,633
- ----------------------------------------------------------------------------------------------------------------------------------
Conglomerates - 0.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Textron, Inc. (l) 146,400 $ 8,540,976
- ----------------------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 4.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Apollo Group, Inc., "A" (a)(l) 471,100 $ 27,639,437
Avon Products, Inc. (l) 358,030 12,298,330
Colgate-Palmolive Co. 264,600 17,548,272
Procter & Gamble Co. 681,790 44,527,705
--------------
$ 102,013,744
- ----------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 4.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Danaher Corp. (l) 539,580 $ 41,903,783
General Electric Co. 1,067,930 41,510,439
Rockwell Automation, Inc. 174,170 12,272,018
--------------
$ 95,686,240
- ----------------------------------------------------------------------------------------------------------------------------------
Electronics - 4.2%
- ----------------------------------------------------------------------------------------------------------------------------------
ASML Holding N.V. (a)(l) 411,900 $ 12,221,073
Intel Corp. (l) 2,553,190 65,744,643
National Semiconductor Corp. (l) 465,620 12,255,118
Samsung Electronics Co. Ltd., GDR 18,184 5,773,420
SanDisk Corp. (a)(l) 109,600 6,144,176
--------------
$ 102,138,430
- ----------------------------------------------------------------------------------------------------------------------------------
Energy - Independent - 0.9%
- ----------------------------------------------------------------------------------------------------------------------------------
Ultra Petroleum Corp. (a)(l) 213,290 $ 11,389,686
XTO Energy, Inc. 208,650 11,342,214
--------------
$ 22,731,900
- ----------------------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 1.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Hess Corp. (l) 379,360 $ 23,281,323
Marathon Oil Corp. 111,000 5,981,790
--------------
$ 29,263,113
- ----------------------------------------------------------------------------------------------------------------------------------
Engineering - Construction - 0.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Fluor Corp. (l) 50,100 $ 6,370,215
- ----------------------------------------------------------------------------------------------------------------------------------
Food & Beverages - 4.1%
- ----------------------------------------------------------------------------------------------------------------------------------
General Mills, Inc. 315,900 $ 17,652,492
Nestle S.A. 101,110 43,980,883
PepsiCo, Inc. 550,620 37,458,679
--------------
$ 99,092,054
- ----------------------------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 2.1%
- ----------------------------------------------------------------------------------------------------------------------------------
CVS Caremark Corp. 1,358,936 $ 51,394,960
- ----------------------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.9%
- ----------------------------------------------------------------------------------------------------------------------------------
International Game Technology (l) 360,380 $ 13,755,705
Royal Caribbean Cruises Ltd. (l) 830,850 31,597,226
--------------
$ 45,352,931
- ----------------------------------------------------------------------------------------------------------------------------------
General Merchandise - 1.8%
- ----------------------------------------------------------------------------------------------------------------------------------
Costco Wholesale Corp. (l) 266,740 $ 16,471,195
Target Corp. (l) 426,280 28,104,640
--------------
$ 44,575,835
- ----------------------------------------------------------------------------------------------------------------------------------
Health Maintenance Organizations - 0.7%
- ----------------------------------------------------------------------------------------------------------------------------------
WellPoint, Inc. (a) 221,880 $ 17,881,309
- ----------------------------------------------------------------------------------------------------------------------------------
Insurance - 1.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Aflac, Inc. (l) 393,140 $ 20,958,293
Prudential Financial, Inc. (l) 129,500 11,626,510
--------------
$ 32,584,803
- ----------------------------------------------------------------------------------------------------------------------------------
Internet - 2.8%
- ----------------------------------------------------------------------------------------------------------------------------------
Google, Inc., "A" (a) 130,985 $ 67,490,021
- ----------------------------------------------------------------------------------------------------------------------------------
Leisure & Toys - 1.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Electronic Arts, Inc. (a) 448,600 $ 23,748,884
Ubisoft Entertainment S.A. (a) 112,052 6,957,210
--------------
$ 30,706,094
- ----------------------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.3%
- ----------------------------------------------------------------------------------------------------------------------------------
AGCO Corp. (a) 142,600 $ 6,160,320
- ----------------------------------------------------------------------------------------------------------------------------------
Major Banks - 2.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Bank of New York Mellon Corp. (l) 400,315 $ 16,184,735
State Street Corp. (l) 563,150 34,554,884
--------------
$ 50,739,619
- ----------------------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Allscripts Healthcare Solutions, Inc. (a)(l) 158,000 $ 3,572,380
Henry Schein, Inc. (a) 92,000 5,353,480
--------------
$ 8,925,860
- ----------------------------------------------------------------------------------------------------------------------------------
Medical Equipment - 5.9%
- ----------------------------------------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc. (a)(l) 300,000 $ 8,622,000
Becton, Dickinson & Co. 152,800 11,756,432
DENTSPLY International, Inc. 382,320 15,055,762
Medtronic, Inc. (l) 1,066,640 56,361,258
St. Jude Medical, Inc. (a)(l) 301,790 13,148,990
Thermo Fisher Scientific, Inc. (a)(l) 705,350 38,251,131
--------------
$ 143,195,573
- ----------------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Cameco Corp. 250,500 $ 10,115,190
- ----------------------------------------------------------------------------------------------------------------------------------
Network & Telecom - 5.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc. (a) 2,054,780 $ 65,588,578
Juniper Networks, Inc. (a)(l) 366,180 12,054,646
Nokia Corp., ADR (l) 328,410 10,798,121
Nokia Oyj 154,070 5,073,775
QUALCOMM, Inc. (l) 210,820 8,409,610
Research In Motion Ltd. (a) 236,460 20,196,049
--------------
$ 122,120,779
- ----------------------------------------------------------------------------------------------------------------------------------
Oil Services - 2.9%
- ----------------------------------------------------------------------------------------------------------------------------------
Halliburton Co. 521,070 $ 18,023,811
Noble Corp. 201,800 9,900,308
Schlumberger Ltd. (l) 316,930 30,583,745
Weatherford International Ltd. (a)(l) 209,500 12,230,610
--------------
$ 70,738,474
- ----------------------------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 2.0%
- ----------------------------------------------------------------------------------------------------------------------------------
American Express Co. 499,810 $ 29,298,862
Commerce Bancorp, Inc. (l) 222,600 8,176,098
UBS AG 216,150 11,291,676
--------------
$ 48,766,636
- ----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Abbott Laboratories 595,740 $ 30,924,863
Allergan, Inc. 441,540 26,496,815
Bayer AG 172,200 13,589,334
Elan Corp. PLC, ADR (a) 648,120 12,560,566
Merck & Co., Inc. (l) 649,360 32,578,391
Roche Holding AG 236,760 41,155,202
Teva Pharmaceutical Industries Ltd., ADR 301,530 12,965,790
Wyeth (l) 168,960 7,822,848
--------------
$ 178,093,809
- ----------------------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.3%
- ----------------------------------------------------------------------------------------------------------------------------------
McGraw-Hill Cos., Inc. (l) 159,750 $ 8,060,985
- ----------------------------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. (l) 187,200 $ 15,191,280
- ----------------------------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Praxair, Inc. (l) 352,530 $ 26,672,420
- ----------------------------------------------------------------------------------------------------------------------------------
Specialty Stores - 3.6%
- ----------------------------------------------------------------------------------------------------------------------------------
GameStop Corp., "A" (a) 250,450 $ 12,557,563
Lowe's Cos., Inc. (l) 1,018,530 31,635,542
Nordstrom, Inc. (l) 625,780 30,100,018
Staples, Inc. (l) 505,460 12,004,675
--------------
$ 86,297,798
- ----------------------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.6%
- ----------------------------------------------------------------------------------------------------------------------------------
America Movil S.A.B. de C.V., "L", ADR 632,260 $ 38,226,440
- ----------------------------------------------------------------------------------------------------------------------------------
Telephone Services - 0.5%
- ----------------------------------------------------------------------------------------------------------------------------------
American Tower Corp., "A" (a)(l) 297,970 $ 11,805,571
- ----------------------------------------------------------------------------------------------------------------------------------
Trucking - 1.0%
- ----------------------------------------------------------------------------------------------------------------------------------
FedEx Corp. (l) 219,660 $ 24,092,309
- ----------------------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 1.1%
- ----------------------------------------------------------------------------------------------------------------------------------
AES Corp. (a) 855,690 $ 15,496,546
NRG Energy, Inc. (a) 308,800 11,762,192
--------------
$ 27,258,738
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $2,310,632,435) $2,348,616,825
- ----------------------------------------------------------------------------------------------------------------------------------
Short-Term Obligations - 3.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Citigroup Funding, Inc., 5.25%, due 9/04/07, at Amortized Cost and Value (y) $ 79,425,000 $ 79,390,252
- ----------------------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 14.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 338,007,461 $ 338,007,461
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $2,728,030,148) $2,766,014,538
- ----------------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (14.5)% (350,745,206)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $2,415,269,332
- ----------------------------------------------------------------------------------------------------------------------------------
(a) Non-income producing security.
(l) All or a portion of this security is on loan.
(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
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/07
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 $331,359,193 of securities
on loan (identified cost, $2,728,030,148) $2,766,014,538
Cash 5,572
Receivable for investments sold 4,916,461
Receivable for fund shares sold 514,809
Interest and dividends receivable 1,521,029
Other assets 9,825
- -----------------------------------------------------------------------------------------------------
Total assets $2,772,982,234
- -----------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------
Payable for investments purchased $12,716,881
Payable for fund shares reacquired 5,077,063
Collateral for securities loaned, at value (c) 338,007,461
Payable to affiliates
Management fee 85,204
Shareholder servicing costs 826,669
Distribution and service fees 40,585
Administrative services fee 2,006
Retirement plan administration and services fees 337
Payable for independent trustees' compensation 101,583
Accrued expenses and other liabilities 855,113
- -----------------------------------------------------------------------------------------------------
Total liabilities $357,712,902
- -----------------------------------------------------------------------------------------------------
Net assets $2,415,269,332
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------
Paid-in capital $3,458,732,158
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 37,984,497
Accumulated net realized gain (loss) on investments (1,081,343,940)
Accumulated net investment loss (103,383)
- -----------------------------------------------------------------------------------------------------
Net assets $2,415,269,332
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 118,260,318
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- -----------------------------------------------------------------------------------------------------
Net assets $935,864,984
Shares outstanding 45,980,264
- -----------------------------------------------------------------------------------------------------
Net asset value per share $20.35
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $21.59
- -----------------------------------------------------------------------------------------------------
Class B shares
- -----------------------------------------------------------------------------------------------------
Net assets $303,614,185
Shares outstanding 15,667,095
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $19.38
- -----------------------------------------------------------------------------------------------------
Class C shares
- -----------------------------------------------------------------------------------------------------
Net assets $108,949,978
Shares outstanding 5,622,088
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $19.38
- -----------------------------------------------------------------------------------------------------
Class I shares
- -----------------------------------------------------------------------------------------------------
Net assets $1,010,074,592
Shares outstanding 48,199,905
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.96
- -----------------------------------------------------------------------------------------------------
Class W shares
- -----------------------------------------------------------------------------------------------------
Net assets $373,110
Shares outstanding 18,266
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.43
- -----------------------------------------------------------------------------------------------------
Class R shares
- -----------------------------------------------------------------------------------------------------
Net assets $4,357,630
Shares outstanding 215,420
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.23
- -----------------------------------------------------------------------------------------------------
Class R1 shares
- -----------------------------------------------------------------------------------------------------
Net assets $1,517,254
Shares outstanding 78,482
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.33
- -----------------------------------------------------------------------------------------------------
Class R2 shares
- -----------------------------------------------------------------------------------------------------
Net assets $2,046,584
Shares outstanding 105,061
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.48
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R3 shares
- -----------------------------------------------------------------------------------------------------
Net assets $5,727,848
Shares outstanding 285,212
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.08
- -----------------------------------------------------------------------------------------------------
Class R4 shares
- -----------------------------------------------------------------------------------------------------
Net assets $1,640,857
Shares outstanding 80,715
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.33
- -----------------------------------------------------------------------------------------------------
Class R5 shares
- -----------------------------------------------------------------------------------------------------
Net assets $41,102,310
Shares outstanding 2,007,810
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.47
- -----------------------------------------------------------------------------------------------------
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.
(c) Non-cash collateral not included.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 8/31/07
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 $10,307,416
Interest 2,160,538
Other 16,241
Foreign taxes withheld (228,510)
- ----------------------------------------------------------------------------------------------------
Total investment income $12,255,685
- ----------------------------------------------------------------------------------------------------
Expenses
Management fee $8,099,227
Distribution and service fees 4,693,691
Shareholder servicing costs 1,819,159
Administrative services fee 197,266
Retirement plan administration and services fees 49,012
Independent trustees' compensation 30,610
Custodian fee 301,017
Shareholder communications 62,897
Auditing fees 48,612
Legal fees 47,337
Miscellaneous 226,526
- ----------------------------------------------------------------------------------------------------
Total expenses $15,575,354
- ----------------------------------------------------------------------------------------------------
Fees paid indirectly (13,204)
Reduction of expenses by investment adviser (848,724)
- ----------------------------------------------------------------------------------------------------
Net expenses $14,713,426
- ----------------------------------------------------------------------------------------------------
Net investment loss $(2,457,741)
- ----------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ----------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $264,334,027
Foreign currency transactions 21,389
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $264,355,416
- ----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(139,198,902)
Translation of assets and liabilities in foreign currencies (20,778)
- ----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(139,219,680)
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $125,135,736
- ----------------------------------------------------------------------------------------------------
Change in net assets from operations $122,677,995
- ----------------------------------------------------------------------------------------------------
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
----------------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment loss $(2,457,741) $(4,365,228)
Net realized gain (loss) on investments and foreign
currency transactions 264,355,416 93,384,086
Net unrealized gain (loss) on investments and foreign
currency translation (139,219,680) (42,339,584)
- ----------------------------------------------------------------------------------------------
Change in net assets from operations $122,677,995 $46,679,274
- ----------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions
Class A $(9,377,980) $--
Class B (3,077,555) --
Class C (1,080,474) --
Class I (633,987) --
Class W (1,875) --
Class R (106,755) --
Class R1 (10,327) --
Class R2 (20,208) --
Class R3 (40,449) --
Class R4 (5,764) --
Class R5 (670,116) --
- ----------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(15,025,490) $--
- ----------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $1,535,385,457 $(201,470,391)
- ----------------------------------------------------------------------------------------------
Total change in net assets $1,643,037,962 $(154,791,117)
- ----------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------
At beginning of period 772,231,370 927,022,487
At end of period (including accumulated net investment
loss of $103,383 and $45,564, respectively) $2,415,269,332 $772,231,370
- ----------------------------------------------------------------------------------------------
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.
CLASS A YEARS ENDED 8/31
--------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $17.70 $16.82 $14.71 $14.41 $13.22
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.02) $(0.05) $(0.01) $(0.07) $(0.07)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.01 0.93 2.12 0.37 1.26
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $2.99 $0.88 $2.11 $0.30 $1.19
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(0.34) $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.35 $17.70 $16.82 $14.71 $14.41
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 17.07 5.23 14.34 2.08(b) 9.00
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.33 1.44 1.38 1.41 1.42
Expenses after expense reductions (f) 1.25 1.34 1.28 1.36 N/A
Net investment loss (0.11) (0.31) (0.08) (0.47) (0.52)
Portfolio turnover 329 245 184 261 312
Net assets at end of period (000 Omitted) $935,865 $504,761 $632,209 $404,511 $496,271
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
--------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $16.98 $16.24 $14.30 $14.09 $13.01
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.14) $(0.16) $(0.11) $(0.16) $(0.15)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.88 0.90 2.05 0.37 1.23
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $2.74 $0.74 $1.94 $0.21 $1.08
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(0.34) $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.38 $16.98 $16.24 $14.30 $14.09
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 16.31 4.56 13.57 1.49(b) 8.22
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.98 2.09 2.03 2.05 2.07
Expenses after expense reductions (f) 1.90 1.99 1.93 2.00 N/A
Net investment loss (0.77) (0.96) (0.73) (1.11) (1.18)
Portfolio turnover 329 245 184 261 312
Net assets at end of period (000 Omitted) $303,614 $162,868 $201,513 $138,226 $155,602
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C YEARS ENDED 8/31
--------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $16.98 $16.23 $14.30 $14.10 $13.02
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.14) $(0.16) $(0.11) $(0.16) $(0.15)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.88 0.91 2.04 0.36 1.23
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $2.74 $0.75 $1.93 $0.20 $1.08
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(0.34) $-- $-- $-- $--
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.38 $16.98 $16.23 $14.30 $14.10
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 16.31 4.62 13.50 1.42(b) 8.29
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.98 2.09 2.03 2.05 2.07
Expenses after expense reductions (f) 1.90 1.99 1.93 2.00 N/A
Net investment loss (0.76) (0.96) (0.69) (1.12) (1.18)
Portfolio turnover 329 245 184 261 312
Net assets at end of period (000 Omitted) $108,950 $58,523 $82,182 $91,225 $110,786
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 8/31
----------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $18.15 $17.18 $14.98 $14.63 $13.37
- ---------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.01 $0.00(w) $0.05 $(0.02) $(0.02)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.14 0.97 2.15 0.37 1.28
- ---------------------------------------------------------------------------------------------------------
Total from investment operations $3.15 $0.97 $2.20 $0.35 $1.26
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(0.34) $-- $-- $-- $--
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.96 $18.15 $17.18 $14.98 $14.63
- ---------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 17.53 5.65 14.69 2.39(b) 9.42
- ---------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.93 1.06 1.02 1.06 1.07
Expenses after expense reductions (f) 0.89 0.96 0.92 1.01 N/A
Net investment income (loss) 0.06 0.03 0.32 (0.11) (0.16)
Portfolio turnover 329 245 184 261 312
Net assets at end of period (000 Omitted) $1,010,075 $34,998 $3,816 $4,136 $4,317
- ---------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS W YEARS ENDED 8/31
-------------------------
2007 2006(i)
Net asset value, beginning of period $17.72 $18.35
- -----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.05 $(0.00)(w)
Net realized and unrealized gain (loss) on investments and
foreign currency 3.00 (0.63)(g)
- -----------------------------------------------------------------------------------------------------
Total from investment operations $3.05 $(0.63)
- -----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency
transactions $(0.34) $--
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $20.43 $17.72
- -----------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 17.39 (3.43)(n)
- -----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.07 1.18(a)
Expenses after expense reductions (f) 0.99 1.08(a)
Net investment income (loss) 0.27 (0.03)(a)
Portfolio turnover 329 245
Net assets at end of period (000 Omitted) $373 $97
- -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R YEARS ENDED 8/31
----------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $17.62 $16.77 $14.69 $14.41 $12.35
- ---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.05) $(0.08) $(0.04) $(0.09) $(0.08)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.00 0.93 2.12 0.37 2.14(g)
- ---------------------------------------------------------------------------------------------------
Total from investment operations $2.95 $0.85 $2.08 $0.28 $2.06
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(0.34) $-- $-- $-- $--
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $20.23 $17.62 $16.77 $14.69 $14.41
- ---------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 16.92 5.07 14.16 1.94(b) 16.68(n)
- ---------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.49 1.59 1.54 1.56 1.65(a)
Expenses after expense reductions (f) 1.40 1.49 1.44 1.51 N/A
Net investment loss (0.25) (0.46) (0.25) (0.60) (0.82)(a)
Portfolio turnover 329 245 184 261 312
Net assets at end of period (000 Omitted) $4,358 $5,735 $5,904 $3,266 $1,869
- ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 8/31
----------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $16.95 $16.23 $15.35
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.15) $(0.17) $(0.08)
Net realized and unrealized gain (loss) on investments and
foreign currency 2.87 0.89 0.96(g)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $2.72 $0.72 $0.88
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency
transactions $(0.34) $-- $--
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.33 $16.95 $16.23
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 16.22 4.44 5.73(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.12 2.28 2.35(a)
Expenses after expense reductions (f) 2.00 2.09 2.25(a)
Net investment loss (0.89) (1.07) (1.21)(a)
Portfolio turnover 329 245 184
Net assets at end of period (000 Omitted) $1,517 $506 $80
- -------------------------------------------------------------------------------------------------------------
CLASS R2 YEARS ENDED 8/31
----------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $17.03 $16.25 $15.35
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.10) $(0.11) $(0.04)
Net realized and unrealized gain (loss) on
investments and foreign currency 2.89 0.89 0.94(g)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $2.79 $0.78 $0.90
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(0.34) $-- $--
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.48 $17.03 $16.25
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 16.56 4.80 5.86(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.83 1.97 2.04(a)
Expenses after expense reductions (f) 1.65 1.73 1.94(a)
Net investment loss (0.54) (0.67) (0.67)(a)
Portfolio turnover 329 245 184
Net assets at end of period (000 Omitted) $2,047 $2,598 $437
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 8/31
---------------------------------------
2007 2006 2005 2004(i)
Net asset value, beginning of period $17.52 $16.70 $14.67 $14.63
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.07) $(0.11) $(0.06) $(0.06)
Net realized and unrealized gain (loss) on investments and
foreign currency 2.97 0.93 2.09 0.10(g)
- ----------------------------------------------------------------------------------------------------------
Total from investment operations $2.90 $0.82 $2.03 $0.04
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency
transactions $(0.34) $-- $-- $--
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.08 $17.52 $16.70 $14.67
- ----------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 16.73 4.91 13.84 0.27(b)(n)
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.67 1.85 1.82 1.95(a)
Expenses after expense reductions (f) 1.54 1.65 1.72 1.90(a)
Net investment loss (0.37) (0.60) (0.48) (0.48)(a)
Portfolio turnover 329 245 184 261
Net assets at end of period (000 Omitted) $5,728 $1,804 $774 $105
- ----------------------------------------------------------------------------------------------------------
CLASS R4 YEARS ENDED 8/31
----------------------------
2007 2006 2005(i)
Net asset value, beginning of period $17.69 $16.81 $15.85
- -----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.03) $(0.06) $(0.03)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.01 0.94 0.99(g)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations $2.98 $0.88 $0.96
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $(0.34) $-- $--
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.33 $17.69 $16.81
- -----------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 17.02 5.23 6.06(n)
- -----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.37 1.48 1.56(a)
Expenses after expense reductions (f) 1.29 1.38 1.46(a)
Net investment loss (0.18) (0.36) (0.41)(a)
Portfolio turnover 329 245 184
Net assets at end of period (000 Omitted) $1,641 $286 $53
- -----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 8/31
-----------------------------
2007 2006 2005(i)
Net asset value, beginning of period $17.76 $16.83 $15.85
- ----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.04 $(0.01) $(0.01)
Net realized and unrealized gain (loss) on investments and
foreign currency 3.01 0.94 0.99(g)
- ----------------------------------------------------------------------------------------------------
Total from investment operations $3.05 $0.93 $0.98
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency
transactions $(0.34) $-- $--
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $20.47 $17.76 $16.83
- ----------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 17.35 5.53 6.18(n)
- ----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.08 1.19 1.26(a)
Expenses after expense reductions (f) 0.99 1.09 1.16(a)
Net investment income (loss) 0.21 (0.06) (0.11)(a)
Portfolio turnover 329 245 184
Net assets at end of period (000 Omitted) $41,102 $56 $53
- ----------------------------------------------------------------------------------------------------
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 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 per share amount of 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. For securities held short for
which there were no sales reported for the day, the position is generally
valued at the last quoted daily ask quotation as reported by an independent
pricing service on the market or exchange on which such securities 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 and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. 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.
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 September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the fund, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the fund's financial statements.
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 and other funds managed by
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. Net income from securities lending is
included in interest income on the Statement of Operations. The dividend and
interest income earned on the securities loaned is accounted for in the same
manner as other dividend and interest income. At August 31, 2007, the value of
securities loaned was $331,359,193. These loans were collateralized by cash of
$338,007,461 and U.S. Treasury obligations of $911,790.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
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. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been disposed
of by the fund or in unrealized gain/loss if the security is still held by the
fund. Any other proceeds from litigation not related to portfolio holdings are
reflected as other income in the Statement of Operations.
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, 2007, 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 U.S. 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 capital loss carryforward and wash sales loss deferrals assumed
as a result of the acquisition of MFS Strategic Growth Fund.
The tax character of distributions declared to shareholders is as follows:
8/31/07
Ordinary income (including any
short-term capital gains) $5,724,975
Long-term capital gain 9,300,515
---------------------------------------------------------------
Total distributions $15,025,490
The fund declared no distributions for the year ended August 31, 2006.
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/07
Cost of investments $2,742,492,839
---------------------------------------------------------------
Gross appreciation $94,733,608
Gross depreciation (71,211,909)
---------------------------------------------------------------
Net unrealized appreciation (depreciation) $23,521,699
Undistributed long-term capital gain 42,737,825
Capital loss carryforwards (1,108,630,370)
Other temporary differences (1,091,980)
As of August 31, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
8/31/08 $(156,066,288)
8/31/09 (608,534,951)
8/31/10 (313,996,156)
8/31/11 (30,032,975)
--------------------------------------------------
$(1,108,630,370)
The availability of a portion of the capital loss carryforwards for MFS Core
Growth Fund and the capital loss carryforwards, which were acquired on June 22,
2007 in connection with the MFS Strategic 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. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. 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 evaluated the application of the Interpretation to the fund, and has
determined that there is no impact 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. At the commencement of the period, the management fee
was computed daily and paid monthly at an annual rate of 0.75% of the fund's
average daily net assets. Effective June 23, 2007, the management fee is
computed daily and paid monthly at the following annual rates:
First $1 billion of average daily net assets 0.75%
Next $1.5 billion of average daily net assets 0.65%
Average daily net assets in excess of $2.5 billion 0.60%
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% on the first $1 billion of the fund's average daily net assets for the
period March 1, 2004 through February 28, 2009. For the year ended August 31,
2007, this waiver amounted to $840,472 and is reflected as a reduction of total
expenses in the Statement of Operations.
The management fee incurred for the year ended August 31, 2007 was equivalent
to an annual effective rate of 0.65% of the fund's average daily net assets.
Effective June 23, 2007, the investment adviser has agreed in writing to pay a
portion of the fund's operating expenses, exclusive of certain other fees and
expenses, such that total annual fund operating expenses do not exceed the
following rates annually of the fund's average daily net assets with respect to
each class:
CLASS A CLASS B CLASS C CLASS I CLASS R CLASS R1 CLASS R2 CLASS R3 CLASS R4 CLASS R5 CLASS W
1.26% 1.91% 1.91% 0.91% 1.41% 2.01% 1.66% 1.56% 1.31% 1.01% 1.01%
This written agreement will continue through February 28, 2009 unless changed
or rescinded by the fund's Board of Trustees. For the year ended August 31,
2007, the fund's actual operating expenses did not exceed the limits 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 $65,132 for the year ended August 31, 2007, 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% $2,067,824
Class B 0.75% 0.25% 1.00% 1.00% 1,897,234
Class C 0.75% 0.25% 1.00% 1.00% 673,384
Class W 0.10% -- 0.10% 0.10% 252
Class R 0.25% 0.25% 0.50% 0.50% 26,536
Class R1 0.50% 0.25% 0.75% 0.75% 4,622
Class R2 0.25% 0.25% 0.50% 0.50% 7,984
Class R3 0.25% 0.25% 0.50% 0.50% 14,176
Class R4 -- 0.25% 0.25% 0.25% 1,679
- ----------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $4,693,691
(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, 2007 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,
2007, were as follows:
AMOUNT
Class A $6,774
Class B 247,228
Class C 8,195
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 daily net assets of
the fund as determined periodically under the supervision of the fund's Board
of Trustees. For the year ended August 31, 2007, the fee was $637,269, which
equated to 0.0571% annually of the fund's average daily net assets. MFSC also
receives payment from the fund for out-of-pocket expenses, sub-accounting and
other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the year ended August 31, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $1,090,665. The fund may also pay shareholder servicing related
costs directly to non-related parties.
Effective May 1, 2007, under a Special Servicing Agreement among MFS, each MFS
fund which invests in other MFS funds ("MFS fund-of-funds") and each underlying
fund in which a MFS fund-of-funds invests ("underlying funds"), each underlying
fund may pay a portion of each MFS fund-of-fund's transfer agent-related
expenses, including sub-accounting fees payable to financial intermediaries, to
the extent such payments do not exceed the benefits realized or expected to be
realized by the underlying fund from the investment in the underlying fund by
the MFS fund-of-fund. For the year ended August 31, 2007 these costs for the
fund amounted to $199,148 and are reflected in the shareholder servicing costs
on the Statement of Operations.
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 average daily net assets. The fund's annual fixed
amount is $17,500.
The administrative services fee incurred for the year ended August 31, 2007 was
equivalent to an annual effective rate of 0.0177% 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, 2007,
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:
BEGINNING OF ANNUAL
PERIOD THROUGH EFFECTIVE EFFECTIVE TOTAL
3/31/07 4/01/07 RATE (g) AMOUNT
Class R1 0.45% 0.35% 0.35% $2,447
Class R2 0.40% 0.25% 0.25% 5,378
Class R3 0.25% 0.15% 0.15% 5,551
Class R4 0.15% 0.15% 0.15% 1,007
Class R5 0.10% 0.10% 0.10% 34,629
- -------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $49,012
(g) Prior to April 1, 2007, MFS had agreed in writing to waive a portion of the
retirement plan administration and services fee equal to 0.10% for Class
R1, 0.15% for Class R2, and 0.10% for Class R3 shares. This agreement was
discontinued on March 31, 2007. On April 1, 2007, the annual retirement
plan administration and services fee for Class R1, Class R2, and Class R3
shares was lowered to 0.35%, 0.25%, and 0.15%, respectively. For the year
ended August 31, 2007, the waiver amounted to $2,990 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 $669. The fund also has an
unfunded retirement benefit deferral plan for certain independent trustees
which resulted in an expense of $5,836. Both amounts are included in
independent trustees' compensation for the year ended August 31, 2007. The
liability for deferred retirement benefits payable to certain independent
trustees under both plans amounted to $101,518 at August 31, 2007, 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, 2007, the fee paid to Tarantino LLC
was $6,451. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $5,262, 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
$3,364,878,897 and $3,348,352,715, 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
8/31/07 8/31/06(i)
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 13,388,482 $265,485,268 6,430,188 $113,225,460
Class B 1,246,753 23,851,828 887,359 15,079,814
Class C 460,974 8,552,816 433,212 7,356,579
Class I 1,004,669 21,159,042 1,970,276 33,949,254
Class W 12,717 244,000 5,450 100,000
Class R 172,019 3,447,183 76,939 1,357,467
Class R1 90,417 1,725,253 29,696 489,931
Class R2 145,455 2,713,258 147,706 2,457,779
Class R3 324,455 6,310,010 88,327 1,546,974
Class R4 84,633 1,689,361 13,738 235,417
Class R5 3,219,949 62,277,270 4 75
- -------------------------------------------------------------------------------------------------------
20,150,523 $397,455,289 10,082,895 $175,798,750
Shares issued in connection with
acquisition of MFS Strategic Growth
Fund
Class A 18,077,575 $367,990,280
Class B 8,840,345 171,558,817
Class C 2,911,887 56,507,733
Class I 46,332,267 970,428,170
Class W -- --
Class R 7,671 155,258
Class R1 -- --
Class R2 1,774 34,596
Class R3 -- --
Class R4 6,710 136,434
Class R5 -- --
- -------------------------------------------------------------------------------------------------------
76,178,229 $1,566,811,288
Shares issued to shareholders in
reinvestment of distributions
Class A 415,969 $7,845,189 -- $--
Class B 158,310 2,855,925 -- --
Class C 43,991 793,595 -- --
Class I 32,730 633,987 -- --
Class W 99 1,875 -- --
Class R 4,942 92,701 -- --
Class R1 573 10,327 -- --
Class R2 1,117 20,208 -- --
Class R3 2,169 40,449 -- --
Class R4 306 5,764 -- --
Class R5 17,732 335,669 -- --
- -------------------------------------------------------------------------------------------------------
677,938 $12,635,689 -- $--
Shares reacquired
Class A (14,418,252) $(278,902,684) (15,505,829) $(271,914,439)
Class B (4,171,632) (78,131,818) (3,706,240) (62,822,571)
Class C (1,241,897) (22,906,664) (2,048,446) (35,022,100)
Class I (1,097,809) (22,425,838) (264,308) (4,682,666)
Class W -- -- -- --
Class R (294,694) (5,743,417) (103,586) (1,796,528)
Class R1 (42,344) (782,282) (4,778) (79,351)
Class R2 (195,851) (3,544,321) (22,019) (382,432)
Class R3 (144,372) (2,747,709) (31,732) (556,427)
Class R4 (27,099) (529,757) (727) (12,551)
Class R5 (1,233,025) (25,802,319) (4) (76)
- -------------------------------------------------------------------------------------------------------
(22,866,975) $(441,516,809) (21,687,669) $(377,269,141)
Net change
Class A 17,463,774 $362,418,053 (9,075,641) $(158,688,979)
Class B 6,073,776 120,134,752 (2,818,881) (47,742,757)
Class C 2,174,955 42,947,480 (1,615,234) (27,665,521)
Class I 46,271,857 969,795,361 1,705,968 29,266,588
Class W 12,816 245,875 5,450 100,000
Class R (110,062) (2,048,275) (26,647) (439,061)
Class R1 48,646 953,298 24,918 410,580
Class R2 (47,505) (776,259) 125,687 2,075,347
Class R3 182,252 3,602,750 56,595 990,547
Class R4 64,550 1,301,802 13,011 222,866
Class R5 2,004,656 36,810,620 -- (1)
- -------------------------------------------------------------------------------------------------------
74,139,715 $1,535,385,457 (11,604,774) $(201,470,391)
(i) For the period from the class' inception, 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 Growth Allocation Fund, MFS Aggressive Growth Allocation Fund, MFS Moderate
Allocation Fund, and MFS Conservative Allocation Fund were the owners of record
of approximately 17%, 11%, 9% and 2%, respectively, of the value of outstanding
voting shares. In addition, the MFS Lifetime 2010 Fund, MFS Lifetime 2020 Fund,
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 funds managed by MFS 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 funds managed by MFS 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 0.30%. 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, 2007, the fund's commitment fee and interest expense were $4,065 and
$1,357, respectively, and are included in miscellaneous expense on the
Statement of Operations.
(7) ACQUISITIONS
At close of business on June 22, 2007, the fund acquired all of the assets and
liabilities of MFS Strategic Growth Fund. The acquisition was accomplished by a
tax-free exchange of 76,178,229 shares of the fund (valued at $1,566,811,288)
for all of the assets and liabilities of MFS Strategic Growth Fund. MFS
Strategic Growth Fund then converted all of its outstanding shares for the
shares of the fund and distributed those shares to its shareholders. MFS
Strategic Growth fund's net assets on that date were $1,566,811,288, including
$169,387,162 of unrealized appreciation, $2,727,436 of accumulated net
investment loss, and $1,274,617,411 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 $2,392,029,136.
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, 2007, 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, 2007, 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, 2007, 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 16, 2007
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2007, 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); MIT Sloan School
(education), Senior Lecturer
(since 2006); 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 (until 2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Retired; Cleveland-Cliffs Inc.
(born 5/30/42) (mining products and service
provider), Vice Chairman/Director
(until May 2007); Portman Limited
(mining), Director (since 2005);
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;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
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 New Profit, Inc. (venture
(born 8/05/57) philanthropy), Partner (since
2006); Private investor; Prism
Venture Partners (venture
capital), Co-founder and General
Partner (until June 2004); The
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) Chief
Compliance Officer (since December
2006); 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)
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 share- holders 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, Gutow, 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, 2007, the Trustees served as board members of 97 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.
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INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 02116-3741 200 Clarendon Street, Boston, MA 02116
PORTFOLIO MANAGER
Stephen Pesek
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment advisory
agreement with MFS. The Trustees consider matters bearing on the Fund and its
advisory arrangements at their meetings throughout the year, including a review
of performance data at each regular meeting. In addition, the independent
Trustees met several times over the course of three months beginning in May and
ending in July, 2007 ("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 that included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2006 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 in 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, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's Class A shares was in the 1st 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 3rd quintile for the five-year period ended
December 31, 2006 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 daily 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 (which takes into account the advisory fee
reduction), 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 was
amended in June 2007 in connection with the merger of another MFS Fund into the
Fund to reduce the Fund's annual advisory fee rate by 0.10% on average daily
net assets over $1 billion and by an additional 0.05% on average daily net
assets over $2.5 billion. Taking into account the advisory fee reduction noted
above, which will continue to result in a reduction of the advisory fee on the
first $1 billion of net assets through February 28, 2009, and the addition of
advisory fee breakpoints in June 2007, 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 that 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, 2007.
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, 2007
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 2007 income
tax forms in January 2008. The following information is provided pursuant to
provisions of the Internal Revenue Code.
The fund designates $9,300,515 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 02205-5824
1-800-637-8255
24 hours a day OVERNIGHT MAIL
MFS Service Center, Inc.
ACCOUNT SERVICE AND 500 Boylston Street
LITERATURE 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
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Go paperless with eDELIVERY: Arrange to have MFS(R) 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(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) 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) NEW DISCOVERY 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 6
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EXPENSE TABLE 9
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PORTFOLIO OF INVESTMENTS 11
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STATEMENT OF ASSETS AND LIABILITIES 17
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STATEMENT OF OPERATIONS 20
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STATEMENTS OF CHANGES IN NET ASSETS 22
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FINANCIAL HIGHLIGHTS 23
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NOTES TO FINANCIAL STATEMENTS 31
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 42
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TRUSTEES AND OFFICERS 43
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 49
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PROXY VOTING POLICIES AND INFORMATION 53
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QUARTERLY PORTFOLIO DISCLOSURE 53
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FEDERAL TAX INFORMATION 53
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MFS(R) PRIVACY NOTICE 54
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CONTACT INFORMATION BACK COVER
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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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8/31/07
NDF-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
LETTER FROM THE CEO
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. But the Dow's upward
rise has not been without hiccups. After hitting new records in July 2007, the
Dow lost 8% in the following weeks as a crisis swept global credit markets. As
we have said before, markets can be volatile, and investors should make sure
they have an investment plan that can carry them through the peaks and
troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their
financial goals. We believe you should not let the headlines guide you in
your investment decisions and should be cautious about overreacting to short-
term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss.
Investing and planning for the long term require 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 15, 2007
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 98.8%
Cash & Other Net Assets 0.2%
TOP TEN HOLDINGS
Corporate Executive Board Co. 3.3%
------------------------------------------------
NICE Systems Ltd., ADR 2.6%
------------------------------------------------
Panera Bread Co. 2.5%
------------------------------------------------
MWI Veterinary Supply, Inc. 2.3%
------------------------------------------------
Central Garden & Pet Co., "A" 2.1%
------------------------------------------------
ATMI, Inc. 2.0%
------------------------------------------------
Hittite Microwave Corp. 1.9%
------------------------------------------------
Citi Trends, Inc. 1.9%
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Red Robin Gourmet Burgers, Inc. 1.9%
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North American Energy Partners, Inc. 1.9%
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EQUITY SECTORS
Health Care 24.4%
------------------------------------------------
Technology 19.1%
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Retailing 11.1%
------------------------------------------------
Leisure 10.2%
------------------------------------------------
Special Products & Services 8.3%
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Industrial Goods & Services 5.9%
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Energy 4.8%
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Financial Services 4.1%
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Consumer Staples 3.7%
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Utilities & Communications 2.6%
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Autos & Housing 2.1%
------------------------------------------------
Basic Materials 2.0%
------------------------------------------------
Transportation 1.5%
------------------------------------------------
Percentages are based on net assets as of 08/31/07.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2007, Class A shares of the MFS New
Discovery Fund provided a total return of 20.75%, at net asset value. This
compares with a return of 16.36% for the fund's benchmark, the Russell 2000
Growth Index.
MARKET ENVIRONMENT
The U.S. economy continues to decouple from the rest of the world, growing at
a slower pace than other major economies. Overall, global economies have seen
moderate to strong growth over the last twelve months as domestic demand
improves and world trade accelerates.
With the stronger growth, however, has come increased concern about rising
global inflation, especially as capacity becomes more constrained, wages rise,
and energy and food prices advance. Late in the reporting period, continued
robust global growth and fears of rising inflationary pressures led global
central banks to tighten monetary conditions beyond market expectations, which
in turn pushed global bond yields to their highest levels during this economic
expansion.
However, beginning in late July and August, heightened uncertainty and
distress concerning the subprime mortgage market caused several global credit
markets to seize up, forcing central banks to inject liquidity and to reassess
their tightening biases as sovereign bond yields plummeted and credit spreads
widened considerably. Increased market volatility has been exacerbated by U.S.
home foreclosures, falling housing prices, and weaker-than-expected jobs
growth reported by the U.S. Department of Labor. Despite increased volatility
across all asset classes, and the widening in credit spreads, global equity
markets have experienced only a mild correction to date.
CONTRIBUTORS TO PERFORMANCE
For the New Discovery Fund, stock selection in the energy sector was a
positive factor for relative performance over the reporting period. Within the
sector, our positioning in energy solutions conversion provider Dresser-Rand(aa)
was the most significant contributor.
Stock selection in the technology sector also benefited performance. The
fund's holdings of speech and imaging software firm Nuance Communications
added to results. The stock's price surged as the company's new technology has
improved the accuracy of speech to text software. Investors bid up the stock
price in response to better-than-expected earnings and strong growth prospects
in under-penetrated end markets. Elsewhere in the sector, our holdings in data
center software provider Opsware(g) and data recording products provider NICE
Systems(aa) aided performance as both stocks surpassed the index over the
period. The stock price of Opsware surged after the company agreed to be
acquired by Hewlett-Packard at a substantial premium.
Stock selection in the special products and services sector was another
positive. Chinese education services company New Oriental Education and
Technology Group(aa) was the key driver within the sector. The company share
price advanced in response to strong earnings reports and investor enthusiasm
for the company's tremendous growth opportunities through expanding both its
number of teaching locations and its curriculum in China.
Stocks in other sectors that benefited performance included infrastructure
services firm Infrasource Services(g), Ventana Medical Systems(g), and gaming
machines manufacturer WMS Industries. Non-benchmark constituents, apparel
retailer Urban Outfitters(aa) and sporting goods retailer Dick's Sporting
Goods(aa), also helped.
DETRACTORS FROM PERFORMANCE
The principal negative factors affecting relative performance were an
underweighted position in the industrial goods and services sector along with
weak stock selection in autos and housing. No individual securities within
either sector were among the top detractors.
Stock selection also hindered results in the basic materials sector. Not
holding index constituent, AK Steel, detracted as the firm turned in superior
results over the period.
Elsewhere, our positioning in Advanced Medical Optics(aa), a medical device
maker for the eyes, and medical equipment company Aspect Medical Systems hurt
results as both stocks underperformed the index over the reporting period.
Advanced Medical Optics declined in response to slower-than-expected volume
growth for its new refractive interocular lens product for cataract surgery
patients and a recall of its Complete MoisturePlus contact lens solutions. The
share price of Aspect Medical, which manufactures the BIS anesthesia
monitoring system, declined due to slower-than-expected market share gains.
Our holdings in mortgage financer Accredited Home Lenders(g)(aa) and business
research and analysis services provider Corporate Executive Board proved
disappointing as both stocks lagged the index. Shares of Accredited Home
Lenders plummeted due to industry-wide problems of falling demand, rising
costs, and challenges in selling off loan portfolios above or
even at par value. Electronic payments software producer ACI Worldwide and
urban fashion apparel retailer Citi Trends also held back results.
Respectfully,
Thomas Wetherald
Portfolio Manager
(aa) Security is not a benchmark constituent.
(g) 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 or
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 8/31/07
The following chart illustrates a representative class of the fund's
historical performance 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. 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 New Discovery Russell 2000
Fund - Class A Growth Index
8/97 $ 9,425 $10,000
8/98 8,966 7,369
8/99 12,412 10,561
8/00 21,922 14,687
8/01 17,018 9,556
8/02 12,619 7,069
8/03 15,334 9,536
8/04 14,240 9,858
8/05 17,734 12,176
8/06 17,850 12,907
8/07 21,554 15,018
TOTAL RETURNS THROUGH 8/31/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
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A 1/02/97 20.75% 11.30% 8.62%
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B 11/03/97 20.00% 10.59% 7.94%
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C 11/03/97 19.98% 10.58% 7.95%
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I 1/02/97 21.22% 11.69% 9.02%
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R 12/31/02 20.63% 11.16% 8.55%
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R1 4/01/05 19.86% 10.88% 8.42%
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R2 4/01/05 20.33% 11.06% 8.51%
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R3 10/31/03 20.44% 11.02% 8.49%
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R4 4/01/05 20.72% 11.27% 8.61%
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R5 4/01/05 21.11% 11.43% 8.69%
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529A 7/31/02 20.49% 11.03% 8.49%
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529B 7/31/02 19.78% 10.32% 8.14%
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529C 7/31/02 19.76% 10.29% 8.13%
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AVERAGE ANNUAL
Comparative benchmark
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Russell 2000 Growth Index (f) 16.36% 16.27% 4.15%
- ----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- ----------------------------------------------------------------------------
A 13.81% 9.99% 7.98%
With Initial Sales Charge (5.75%)
- ----------------------------------------------------------------------------
B 16.00% 10.33% 7.94%
With CDSC (Declining over six years
from 4% to 0%) (x)
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C 18.98% 10.58% 7.95%
With CDSC (1% for 12 months) (x)
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529A 13.56% 9.72% 7.85%
With Initial Sales Charge (5.75%)
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529B 15.78% 10.05% 8.14%
With CDSC (Declining over six years
from 4% to 0%) (x)
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529C 18.76% 10.29% 8.13%
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 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
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, 2007 through August 31, 2007
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 (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, 2007 through
August 31, 2007.
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). 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 3/01/07-
Class Ratio 3/01/07 8/31/07 8/31/07
- --------------------------------------------------------------------------------
Actual 1.47% $1,000.00 $1,006.40 $7.43
A -----------------------------------------------------------------------
Hypothetical (h) 1.47% $1,000.00 $1,017.80 $7.48
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Actual 2.11% $1,000.00 $1,003.60 $10.66
B -----------------------------------------------------------------------
Hypothetical (h) 2.11% $1,000.00 $1,014.57 $10.71
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Actual 2.12% $1,000.00 $1,003.10 $10.70
C -----------------------------------------------------------------------
Hypothetical (h) 2.12% $1,000.00 $1,014.52 $10.76
- --------------------------------------------------------------------------------
Actual 1.12% $1,000.00 $1,008.10 $5.67
I -----------------------------------------------------------------------
Hypothetical (h) 1.12% $1,000.00 $1,019.56 $5.70
- --------------------------------------------------------------------------------
Actual 1.61% $1,000.00 $1,005.90 $8.14
R -----------------------------------------------------------------------
Hypothetical (h) 1.61% $1,000.00 $1,017.09 $8.19
- --------------------------------------------------------------------------------
Actual 2.22% $1,000.00 $1,002.60 $11.21
R1 -----------------------------------------------------------------------
Hypothetical (h) 2.22% $1,000.00 $1,014.01 $11.27
- --------------------------------------------------------------------------------
Actual 1.88% $1,000.00 $1,004.60 $9.50
R2 -----------------------------------------------------------------------
Hypothetical (h) 1.88% $1,000.00 $1,015.73 $9.55
- --------------------------------------------------------------------------------
Actual 1.77% $1,000.00 $1,005.00 $8.95
R3 -----------------------------------------------------------------------
Hypothetical (h) 1.77% $1,000.00 $1,016.28 $9.00
- --------------------------------------------------------------------------------
Actual 1.53% $1,000.00 $1,005.90 $7.74
R4 -----------------------------------------------------------------------
Hypothetical (h) 1.53% $1,000.00 $1,017.49 $7.78
- --------------------------------------------------------------------------------
Actual 1.22% $1,000.00 $1,007.80 $6.17
R5 -----------------------------------------------------------------------
Hypothetical (h) 1.22% $1,000.00 $1,019.06 $6.21
- --------------------------------------------------------------------------------
Actual 1.72% $1,000.00 $1,005.00 $8.69
529A -----------------------------------------------------------------------
Hypothetical (h) 1.72% $1,000.00 $1,016.53 $8.74
- --------------------------------------------------------------------------------
Actual 2.37% $1,000.00 $1,002.10 $11.96
529B -----------------------------------------------------------------------
Hypothetical (h) 2.37% $1,000.00 $1,013.26 $12.03
- --------------------------------------------------------------------------------
Actual 2.37% $1,000.00 $1,002.10 $11.96
529C -----------------------------------------------------------------------
Hypothetical (h) 2.37% $1,000.00 $1,013.26 $12.03
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads).
If these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
8/31/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Common Stocks - 99.8%
- ------------------------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
Airlines - 0.5%
- ------------------------------------------------------------------------------------------------------------------------------
Allegiant Travel Co. (a) 114,620 $ 3,323,980
- ------------------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.3%
- ------------------------------------------------------------------------------------------------------------------------------
Castle Brands, Inc. (a) 187,060 $ 916,594
Castle Brands, Inc. (a)(z) 277,200 1,283,436
---------------
$ 2,200,030
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Apparel Manufacturers - 0.9%
- ------------------------------------------------------------------------------------------------------------------------------
Quiksilver, Inc. (a)(l) 507,490 $ 6,795,291
- ------------------------------------------------------------------------------------------------------------------------------
Biotechnology - 1.8%
- ------------------------------------------------------------------------------------------------------------------------------
Millipore Corp. (a)(l) 189,870 $ 13,230,142
- ------------------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 0.6%
- ------------------------------------------------------------------------------------------------------------------------------
HFF, Inc., "A" (a)(l) 368,340 $ 4,302,211
- ------------------------------------------------------------------------------------------------------------------------------
Business Services - 6.2%
- ------------------------------------------------------------------------------------------------------------------------------
Bright Horizons Family Solutions, Inc. (a)(l) 136,813 $ 5,427,372
Corporate Executive Board Co. (l) 347,750 23,657,432
CoStar Group, Inc. (a)(l) 118,540 6,523,256
iGate Corp. (a)(l) 492,118 4,079,658
Syntel, Inc. (l) 147,300 5,092,161
---------------
$ 44,779,879
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Chemicals - 0.7%
- ------------------------------------------------------------------------------------------------------------------------------
Nalco Holding Co. 209,390 $ 5,234,750
- ------------------------------------------------------------------------------------------------------------------------------
Computer Software - 3.8%
- ------------------------------------------------------------------------------------------------------------------------------
ACI Worldwide, Inc. (a)(l) 471,015 $ 12,236,970
CommVault Systems, Inc. (a)(l) 362,700 6,909,435
Guidance Software, Inc. (a) 269,715 3,193,426
NAVTEQ Corp. (a) 83,230 5,243,490
---------------
$ 27,583,321
- ------------------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.3%
- ------------------------------------------------------------------------------------------------------------------------------
PROS Holdings, Inc. (a) 172,970 $ 2,309,150
- ------------------------------------------------------------------------------------------------------------------------------
Construction - 2.1%
- ------------------------------------------------------------------------------------------------------------------------------
Dayton Superior Corp. (a)(l) 351,690 $ 2,613,057
M.D.C. Holdings, Inc. (l) 282,130 12,551,964
---------------
$ 15,165,021
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 4.8%
- ------------------------------------------------------------------------------------------------------------------------------
Central Garden & Pet Co., "A" (a)(l) 1,207,840 $ 15,218,784
New Oriental Education & Technology Group, Inc., ADR (a) 175,740 9,305,433
Physicians Formula Holdings, Inc. (a) 425,750 4,291,560
Strayer Education, Inc. (l) 39,360 6,281,069
---------------
$ 35,096,846
- ------------------------------------------------------------------------------------------------------------------------------
Electronics - 7.7%
- ------------------------------------------------------------------------------------------------------------------------------
ARM Holdings PLC 4,442,680 $ 13,191,626
ATMI, Inc. (a)(l) 475,900 14,353,144
Hittite Microwave Corp. (a)(l) 322,760 13,675,341
Intersil Corp., "A" 181,550 6,049,246
MathStar, Inc. (a)(l) 469,700 549,549
PLX Technology, Inc. (a)(l) 296,560 3,208,779
Volterra Semiconductor Corp. (a)(l) 456,920 4,962,151
---------------
$ 55,989,836
- ------------------------------------------------------------------------------------------------------------------------------
Energy - Independent - 2.5%
- ------------------------------------------------------------------------------------------------------------------------------
EXCO Resources, Inc. (a)(l) 405,980 $ 6,820,464
Goodrich Petroleum Corp. (a)(l) 241,940 7,163,843
Kodiak Oil & Gas Corp. (a)(l) 1,096,310 3,946,716
---------------
$ 17,931,023
- ------------------------------------------------------------------------------------------------------------------------------
Engineering - Construction - 3.3%
- ------------------------------------------------------------------------------------------------------------------------------
North American Energy Partners, Inc. (a) 777,910 $ 13,426,727
Quanta Services, Inc. (a)(l) 366,659 10,365,450
---------------
$ 23,792,177
- ------------------------------------------------------------------------------------------------------------------------------
Food & Beverages - 0.7%
- ------------------------------------------------------------------------------------------------------------------------------
Diamond Foods, Inc. (l) 318,189 $ 5,313,756
- ------------------------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.4%
- ------------------------------------------------------------------------------------------------------------------------------
Susser Holdings Corp. (a) 186,240 $ 3,123,245
- ------------------------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.0%
- ------------------------------------------------------------------------------------------------------------------------------
Universal Forest Products, Inc. (l) 193,650 $ 7,221,209
- ------------------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.4%
- ------------------------------------------------------------------------------------------------------------------------------
WMS Industries, Inc. (a)(l) 337,110 $ 9,924,518
- ------------------------------------------------------------------------------------------------------------------------------
General Merchandise - 2.6%
- ------------------------------------------------------------------------------------------------------------------------------
99 Cents Only Stores (a)(l) 584,060 $ 7,213,141
Stage Stores, Inc. 666,005 11,541,867
---------------
$ 18,755,008
- ------------------------------------------------------------------------------------------------------------------------------
Internet - 1.2%
- ------------------------------------------------------------------------------------------------------------------------------
Limelight Networks, Inc. (a) 227,540 $ 1,872,654
TechTarget, Inc. (a) 537,090 6,992,912
---------------
$ 8,865,566
- ------------------------------------------------------------------------------------------------------------------------------
Leisure & Toys - 2.2%
- ------------------------------------------------------------------------------------------------------------------------------
Take-Two Interactive Software, Inc. (a)(l) 543,900 $ 8,691,522
THQ, Inc. (a)(l) 252,394 7,266,423
---------------
$ 15,957,945
- ------------------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 2.6%
- ------------------------------------------------------------------------------------------------------------------------------
Polypore International, Inc. (a) 906,990 $ 12,924,608
Ritchie Bros. Auctioneers, Inc. 92,000 5,944,120
---------------
$ 18,868,728
- ------------------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 5.4%
- ------------------------------------------------------------------------------------------------------------------------------
Healthcare Services Group, Inc. (l) 419,700 $ 8,989,974
IDEXX Laboratories, Inc. (a)(l) 118,735 13,268,636
MWI Veterinary Supply, Inc. (a)(l) 434,650 16,503,660
---------------
$ 38,762,270
- ------------------------------------------------------------------------------------------------------------------------------
Medical Equipment - 14.2%
- ------------------------------------------------------------------------------------------------------------------------------
ABIOMED, Inc. (a)(l) 431,870 $ 5,316,320
Advanced Medical Optics, Inc. (a)(l) 447,170 12,851,666
AngioDynamics, Inc. (a) 379,953 7,393,885
Aspect Medical Systems, Inc. (a)(l) 674,963 8,491,034
AtriCure, Inc. (a)(l) 245,230 2,577,367
Conceptus, Inc. (a)(l) 623,330 10,908,275
Cooper Cos., Inc. (l) 138,180 6,737,657
Cyberonics, Inc. (a)(l) 335,645 5,064,883
Dexcom, Inc. (a)(l) 325,740 2,996,808
Haemonetics Corp. (a) 100,340 4,980,878
Insulet Corp. (a)(l) 216,810 3,820,192
Mindray Medical International Ltd., ADR 117,110 4,156,234
NxStage Medical, Inc. (a)(l) 453,010 5,626,384
ResMed, Inc. (a)(l) 253,680 10,314,629
Thoratec Corp. (a)(l) 580,640 12,001,829
---------------
$ 103,238,041
- ------------------------------------------------------------------------------------------------------------------------------
Network & Telecom - 3.7%
- ------------------------------------------------------------------------------------------------------------------------------
NICE Systems Ltd., ADR (a) 541,438 $ 19,156,076
Polycom, Inc. (a) 176,720 5,356,383
Sonus Networks, Inc. (a)(l) 399,520 2,309,226
---------------
$ 26,821,685
- ------------------------------------------------------------------------------------------------------------------------------
Oil Services - 2.3%
- ------------------------------------------------------------------------------------------------------------------------------
Dresser-Rand Group, Inc. (a) 122,480 $ 4,515,838
Exterran Holdings, Inc. (a)(l) 123,290 9,554,975
Natural Gas Services Group, Inc. (a) 155,450 2,628,660
---------------
$ 16,699,473
- ------------------------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 3.5%
- ------------------------------------------------------------------------------------------------------------------------------
Commerce Bancorp, Inc. (l) 288,120 $ 10,582,648
New York Community Bancorp, Inc. (l) 392,500 6,943,325
Signature Bank (a)(l) 225,910 7,807,450
---------------
$ 25,333,423
- ------------------------------------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 2.4%
- ------------------------------------------------------------------------------------------------------------------------------
Mellanox Technologies Ltd. (a)(l) 321,830 $ 5,181,463
Nuance Communications, Inc. (a)(l) 655,819 12,329,397
---------------
$ 17,510,860
- ------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 3.0%
- ------------------------------------------------------------------------------------------------------------------------------
Cadence Pharmaceuticals, Inc. (a)(l) 183,370 $ 2,633,193
Medicis Pharmaceutical Corp., "A" (l) 356,570 10,889,648
Synta Pharmaceuticals Corp. (a)(l) 146,850 878,163
Wuxi Pharmatech Cayman, Inc., ADR (a) 283,240 7,435,050
---------------
$ 21,836,054
- ------------------------------------------------------------------------------------------------------------------------------
Restaurants - 6.6%
- ------------------------------------------------------------------------------------------------------------------------------
Einstein Noah Restaurant Group, Inc. (a) 231,250 $ 3,845,687
Panera Bread Co. (a)(l) 407,830 17,838,484
Peet's Coffee & Tea, Inc. (a)(l) 156,040 3,941,570
Red Robin Gourmet Burgers, Inc. (a)(l) 352,630 13,565,676
Texas Roadhouse, Inc., "A" (a)(l) 699,340 8,958,545
---------------
$ 48,149,962
- ------------------------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.3%
- ------------------------------------------------------------------------------------------------------------------------------
Metabolix, Inc. (a)(l) 91,310 $ 2,031,647
- ------------------------------------------------------------------------------------------------------------------------------
Specialty Stores - 7.2%
- ------------------------------------------------------------------------------------------------------------------------------
A.C. Moore Arts & Crafts, Inc. (a)(l) 314,140 $ 5,871,277
CarMax, Inc. (a) 279,640 6,336,642
Citi Trends, Inc. (a)(l) 624,040 13,566,630
Dick's Sporting Goods, Inc. (a)(l) 124,540 8,082,646
Lululemon Athletica, Inc. (a) 134,740 4,590,592
Monro Muffler Brake, Inc. 128,230 4,825,295
Urban Outfitters, Inc. (a)(l) 387,830 8,881,307
---------------
$ 52,154,389
- ------------------------------------------------------------------------------------------------------------------------------
Telephone Services - 2.6%
- ------------------------------------------------------------------------------------------------------------------------------
Global Crossing Ltd. (a)(l) 411,430 $ 7,833,627
Level 3 Communications, Inc. (a)(l) 2,055,930 10,752,514
---------------
$ 18,586,141
- ------------------------------------------------------------------------------------------------------------------------------
Trucking - 1.0%
- ------------------------------------------------------------------------------------------------------------------------------
Landstar System, Inc. 160,290 $ 6,894,073
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $712,758,416) $ 723,781,650
- ------------------------------------------------------------------------------------------------------------------------------
Warrants - 0.0%
- ------------------------------------------------------------------------------------------------------------------------------
STRIKE FIRST
ISSUER PRICE EXERCISE
- ------------------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.0%
- ------------------------------------------------------------------------------------------------------------------------------
Castle Brands, Inc.
(Identified Cost, $155,725) (a)(z) $6.57 5/08/07 110,880 $ 41,037
- ------------------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 19.8%
- ------------------------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Cost and Net Asset Value 143,463,055 $ 143,463,055
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $856,377,196) (k) $ 867,285,742
- ------------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (19.6)% (141,978,938)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 725,306,804
- ------------------------------------------------------------------------------------------------------------------------------
(a) Non-income producing security.
(k) As of August 31, 2007, the fund had two securities that were fair valued, aggregating $1,324,473 and 0.15% 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.
(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 securities:
CURRENT
ACQUISITION ACQUISITION MARKET TOTAL % OF
RESTRICTED SECURITIES DATE COST VALUE NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
Castle Brands, Inc. (warrants) 4/18/07 $ 155,725 $ 41,037
Castle Brands, Inc. 4/19/07 1,499,159 1,283,436
- --------------------------------------------------------------------------------------------------------------------
Total Restricted Securities $1,324,473 0.2%
====================
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 8/31/07
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 $139,689,589 of securities
on loan (identified cost, $856,377,196) $867,285,742
Receivable for investments sold 7,473,403
Receivable for fund shares sold 408,289
Interest and dividends receivable 155,250
Other assets 3,612
- -------------------------------------------------------------------------------------------------------
Total assets $875,326,296
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable to custodian $965,580
Payable for investments purchased 3,525,353
Payable for fund shares reacquired 1,202,980
Collateral for securities loaned, at value 143,463,055
Payable to affiliates
Management fee 31,536
Shareholder servicing costs 604,883
Distribution and service fees 15,560
Administrative services fee 664
Program manager fees 31
Retirement plan administration and services fees 545
Payable for independent trustees' compensation 11,115
Accrued expenses and other liabilities 198,190
- -------------------------------------------------------------------------------------------------------
Total liabilities $150,019,492
- -------------------------------------------------------------------------------------------------------
Net assets $725,306,804
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -------------------------------------------------------------------------------------------------------
Paid-in capital $729,681,918
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 10,908,627
Accumulated net realized gain (loss) on investments and
foreign currency transactions (15,273,035)
Accumulated net investment loss (10,706)
- -------------------------------------------------------------------------------------------------------
Net assets $725,306,804
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 35,599,974
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $395,992,564
Shares outstanding 19,331,759
- -------------------------------------------------------------------------------------------------------
Net asset value per share $20.48
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $21.73
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $91,921,731
Shares outstanding 4,729,405
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $19.44
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $42,296,086
Shares outstanding 2,173,133
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $19.46
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $100,244,934
Shares outstanding 4,731,126
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $21.19
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $7,798,715
Shares outstanding 383,284
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.35
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $2,609,140
Shares outstanding 134,667
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.37
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,590,059
Shares outstanding 81,430
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.53
- -------------------------------------------------------------------------------------------------------
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $8,711,072
Shares outstanding 430,966
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.21
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $4,653,591
Shares outstanding 227,530
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.45
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $67,211,616
Shares outstanding 3,262,632
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.60
- -------------------------------------------------------------------------------------------------------
Class 529A shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,715,335
Shares outstanding 84,777
- -------------------------------------------------------------------------------------------------------
Net asset value per share $20.23
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $21.46
- -------------------------------------------------------------------------------------------------------
Class 529B shares
- -------------------------------------------------------------------------------------------------------
Net assets $238,713
Shares outstanding 12,435
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $19.20
- -------------------------------------------------------------------------------------------------------
Class 529C shares
- -------------------------------------------------------------------------------------------------------
Net assets $323,248
Shares outstanding 16,830
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $19.21
- -------------------------------------------------------------------------------------------------------
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 8/31/07
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 $2,584,237
Income on securities loaned 679,606
Interest 146,135
Foreign taxes withheld (17,027)
- ------------------------------------------------------------------------------------------------------
Total investment income $3,392,951
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $7,184,455
Distribution and service fees 3,297,256
Program manager fees 6,064
Shareholder servicing costs 1,759,027
Administrative services fee 147,042
Retirement plan administration and services fees 94,611
Independent trustees' compensation 21,281
Custodian fee 279,384
Shareholder communications 86,132
Auditing fees 45,072
Legal fees 10,658
Miscellaneous 190,119
- ------------------------------------------------------------------------------------------------------
Total expenses $13,121,101
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (14,658)
Reduction of expenses by investment adviser (806,647)
- ------------------------------------------------------------------------------------------------------
Net expenses $12,299,796
- ------------------------------------------------------------------------------------------------------
Net investment loss $(8,906,845)
- ------------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $159,984,407
Foreign currency transactions (4,730)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $159,979,677
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $3,449,235
Translation of assets and liabilities in foreign currencies 83
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $3,449,318
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $163,428,995
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $154,522,150
- ------------------------------------------------------------------------------------------------------
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
---------------------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
- --------------------------------------------------------------------------------------------------------
Net investment loss $(8,906,845) $(11,224,998)
Net realized gain (loss) on investments and foreign
currency transactions 159,979,677 95,718,425
Net unrealized gain (loss) on investments and foreign
currency translation 3,449,318 (76,087,256)
- --------------------------------------------------------------------------------------------------------
Change in net assets from operations $154,522,150 $8,406,171
- --------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(219,456,690) $(212,974,517)
- --------------------------------------------------------------------------------------------------------
Redemption fees $1,647 $17,161
- --------------------------------------------------------------------------------------------------------
Total change in net assets $(64,932,893) $(204,551,185)
- --------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------
At beginning of period 790,239,697 994,790,882
At end of period (including accumulated net investment
loss of $10,706 and $11,733, respectively) $725,306,804 $790,239,697
- --------------------------------------------------------------------------------------------------------
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.
CLASS A YEARS ENDED 8/31
----------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $16.96 $16.85 $13.53 $14.57 $11.99
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.16) $(0.20) $(0.16) $(0.18) $(0.13)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.68 0.31 3.48 (0.86) 2.71
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.52 $0.11 $3.32 $(1.04) $2.58
- ----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital (d) $0.00(w) $0.00(w) $0.00(w) $0.00(w) $--
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.48 $16.96 $16.85 $13.53 $14.57
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 20.75 0.65 24.54 (7.14)(b) 21.52
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.57 1.57 1.57 1.51 1.58
Expenses after expense reductions (f) 1.47 1.47 1.47 1.51 N/A
Net investment loss (1.04) (1.12) (1.05) (1.20) (1.11)
Portfolio turnover 94 99 112 122 104
Net assets at end of period
(000 Omitted) $395,993 $409,471 $603,396 $824,708 $1,004,473
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $16.20 $16.20 $13.09 $14.19 $11.75
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.25) $(0.30) $(0.25) $(0.27) $(0.21)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.49 0.30 3.36 (0.83) 2.65
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.24 $0.00 $3.11 $(1.10) $2.44
- ------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $0.00(w) $--
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.44 $16.20 $16.20 $13.09 $14.19
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 20.00 0.00 23.76 (7.75)(b) 20.77
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.22 2.22 2.22 2.15 2.23
Expenses after expense reductions (f) 2.12 2.12 2.12 2.15 N/A
Net investment loss (1.69) (1.77) (1.70) (1.84) (1.76)
Portfolio turnover 94 99 112 122 104
Net assets at end of period (000 Omitted) $91,922 $132,519 $203,722 $231,653 $271,580
- ------------------------------------------------------------------------------------------------------------------------------
CLASS C YEARS ENDED 8/31
------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $16.22 $16.22 $13.10 $14.21 $11.77
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.25) $(0.30) $(0.25) $(0.27) $(0.21)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.49 0.30 3.37 (0.84) 2.65
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.24 $0.00 $3.12 $(1.11) $2.44
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $0.00(w) $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.46 $16.22 $16.22 $13.10 $14.21
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 19.98 0.00 23.82 (7.81)(b) 20.73
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.22 2.22 2.22 2.15 2.23
Expenses after expense reductions (f) 2.12 2.12 2.12 2.15 N/A
Net investment loss (1.69) (1.77) (1.70) (1.84) (1.76)
Portfolio turnover 94 99 112 122 104
Net assets at end of period (000 Omitted) $42,296 $47,293 $58,454 $67,102 $84,391
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 8/31
---------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $17.48 $17.31 $13.85 $14.86 $12.19
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.11) $(0.14) $(0.11) $(0.13) $(0.09)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.82 0.31 3.57 (0.88) 2.76
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.71 $0.17 $3.46 $(1.01) $2.67
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital (d) $0.00(w) $0.00(w) $0.00(w) $0.00(w) $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $21.19 $17.48 $17.31 $13.85 $14.86
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 21.22 0.98 24.98 (6.80)(b) 21.90
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.22 1.22 1.23 1.16 1.23
Expenses after expense reductions (f) 1.12 1.12 1.13 1.16 N/A
Net investment loss (0.69) (0.77) (0.70) (0.84) (0.75)
Portfolio turnover 94 99 112 122 104
Net assets at end of period (000 Omitted) $100,245 $119,053 $107,842 $103,031 $90,872
- -----------------------------------------------------------------------------------------------------------------------------
CLASS R YEARS ENDED 8/31
----------------------------------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $16.87 $16.79 $13.50 $14.57 $11.38
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.18) $(0.22) $(0.18) $(0.20) $(0.11)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.66 0.30 3.47 (0.87) 3.30
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.48 $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) $0.00(w) $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.35 $16.87 $16.79 $13.50 $14.57
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 20.63 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 1.72 1.73 1.66 1.78(a)
Expenses after expense reductions (f) 1.62 1.62 1.63 1.66 N/A
Net investment loss (1.19) (1.27) (1.17) (1.32) (1.26)(a)
Portfolio turnover 94 99 112 122 104
Net assets at end of period (000 Omitted) $7,799 $11,691 $16,926 $7,262 $1,824
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 8/31
-----------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $16.16 $16.18 $14.50
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.26) $(0.31) $(0.10)
Net realized and unrealized gain (loss) on investments
and foreign currency 3.47 0.29 1.78
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.21 $(0.02) $1.68
- -------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.37 $16.16 $16.18
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 19.86 (0.12) 11.59(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.37 2.43 2.43(a)
Expenses after expense reductions (f) 2.22 2.22 2.33(a)
Net investment loss (1.79) (1.86) (1.69)(a)
Portfolio turnover 94 99 112
Net assets at end of period (000 Omitted) $2,609 $857 $206
- -------------------------------------------------------------------------------------------------------------------
CLASS R2 YEARS ENDED 8/31
------------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $16.23 $16.19 $14.50
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.21) $(0.25) $(0.08)
Net realized and unrealized gain (loss) on investments
and foreign currency 3.51 0.29 1.77
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.30 $0.04 $1.69
- -------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.53 $16.23 $16.19
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 20.33 0.25 11.66(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.03 2.12 2.12(a)
Expenses after expense reductions (f) 1.87 1.88 2.02(a)
Net investment loss (1.45) (1.52) (1.02)(a)
Portfolio turnover 94 99 112
Net assets at end of period (000 Omitted) $1,590 $362 $135
- -------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 8/31
-----------------------------------------------------------------
2007 2006 2005 2004(i)
Net asset value, beginning of period $16.78 $16.72 $13.47 $15.35
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.20) $(0.24) $(0.22) $(0.11)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.63 0.30 3.47 (1.77)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.43 $0.06 $3.25 $(1.88)
- -------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $0.00(w)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.21 $16.78 $16.72 $13.47
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 20.44 0.36 24.13 (12.25)(b)(n)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.92 1.96 1.98 1.73(a)
Expenses after expense reductions (f) 1.77 1.77 1.88 1.73(a)
Net investment loss (1.34) (1.41) (1.42) (1.23)(a)
Portfolio turnover 94 99 112 122
Net assets at end of period (000 Omitted) $8,711 $4,417 $1,573 $454
- -------------------------------------------------------------------------------------------------------------------------
CLASS R4 YEARS ENDED 8/31
-----------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $16.94 $16.84 $15.04
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.17) $(0.21) $(0.04)
Net realized and unrealized gain (loss) on investments
and foreign currency 3.68 0.31 1.84
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.51 $0.10 $1.80
- -------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.45 $16.94 $16.84
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 20.72 0.59 11.97(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.62 1.62 1.63(a)
Expenses after expense reductions (f) 1.52 1.52 1.53(a)
Net investment loss (1.09) (1.15) (0.66)(a)
Portfolio turnover 94 99 112
Net assets at end of period (000 Omitted) $4,654 $2,404 $334
- -------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 8/31
-----------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $17.01 $16.86 $15.04
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.12) $(0.15) $(0.04)
Net realized and unrealized gain (loss) on investments
and foreign currency 3.71 0.30 1.86
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.59 $0.15 $1.82
- -------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.60 $17.01 $16.86
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 21.11 0.89 12.10(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.32 1.32 1.32(a)
Expenses after expense reductions (f) 1.22 1.22 1.22(a)
Net investment loss (0.79) (0.84) (0.67)(a)
Portfolio turnover 94 99 112
Net assets at end of period (000 Omitted) $67,212 $59,999 $56
- -------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529A YEARS ENDED 8/31
--------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $16.79 $16.73 $13.47 $14.53 $11.99
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.21) $(0.24) $(0.20) $(0.21) $(0.16)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.65 0.30 3.46 (0.85) 2.70
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.44 $0.06 $3.26 $(1.06) $2.54
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $0.00(w) $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.23 $16.79 $16.73 $13.47 $14.53
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 20.49 0.36 24.20 (7.30)(b) 21.18
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.82 1.83 1.83 1.75 1.84
Expenses after expense reductions (f) 1.72 1.72 1.73 1.75 N/A
Net investment loss (1.29) (1.37) (1.27) (1.43) (1.35)
Portfolio turnover 94 99 112 122 104
Net assets at end of period (000 Omitted) $1,715 $1,630 $1,637 $390 $180
- -----------------------------------------------------------------------------------------------------------------------------
CLASS 529B YEARS ENDED 8/31
--------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $16.03 $16.07 $13.02 $14.15 $11.75
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.28) $(0.33) $(0.28) $(0.30) $(0.24)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.45 0.29 3.33 (0.83) 2.64
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.17 $(0.04) $3.05 $(1.13) $2.40
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $0.00(w) $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.20 $16.03 $16.07 $13.02 $14.15
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 19.78 (0.25) 23.43 (7.99)(b) 20.43
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.47 2.47 2.47 2.40 2.49
Expenses after expense reductions (f) 2.37 2.37 2.37 2.40 N/A
Net investment loss (1.94) (2.02) (1.93) (2.07) (1.99)
Portfolio turnover 94 99 112 122 104
Net assets at end of period (000 Omitted) $239 $211 $177 $135 $84
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C YEARS ENDED 8/31
--------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $16.04 $16.08 $13.03 $14.16 $11.77
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.28) $(0.34) $(0.28) $(0.31) $(0.24)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.45 0.30 3.33 (0.82) 2.63
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.17 $(0.04) $3.05 $(1.13) $2.39
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $0.00(w) $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.21 $16.04 $16.08 $13.03 $14.16
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 19.76 (0.25) 23.41 (7.98)(b) 20.31
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.47 2.48 2.47 2.40 2.50
Expenses after expense reductions (f) 2.37 2.37 2.37 2.40 N/A
Net investment loss (1.94) (2.02) (1.93) (2.08) (1.99)
Portfolio turnover 94 99 112 122 104
Net assets at end of period (000 Omitted) $323 $332 $333 $240 $147
- -----------------------------------------------------------------------------------------------------------------------------
(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), 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. For securities held short for
which there were no sales reported for the day, the position is generally
valued at the last quoted daily ask quotation as reported by an independent
pricing service on the market or exchange on which such securities 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. Values obtained from pricing services can utilize both
dealer-supplied valuations and electronic data processing techniques, which
take into account factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data. 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 and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. 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. 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 September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the fund, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the fund's financial statements.
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 and other funds managed by
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.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
SHORT TERM FEES - The fund charged 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. Effective December 1, 2006, the fund
no longer charges a redemption fee. 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. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been disposed
of by the fund or in unrealized gain/loss if the security is still held by the
fund. Any other proceeds from litigation not related to portfolio holdings are
reflected as other income in the Statement of Operations.
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, 2007, 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 U.S. 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, passive foreign
investment companies, and wash sale loss deferrals.
The fund declared no distributions for the years ended August 31, 2007 and
August 31, 2006.
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/07
Cost of investments $857,481,336
----------------------------------------------------------------
Gross appreciation $81,123,954
Gross depreciation (71,319,548)
----------------------------------------------------------------
Net unrealized appreciation (depreciation) $9,804,406
Capital loss carryforwards (14,168,895)
Other temporary differences (10,625)
As of August 31, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
08/31/11 $(14,168,895)
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. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. 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 evaluated the application of the Interpretation to the fund, and has
determined that there is no impact 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 $798,273,
which is shown as a reduction of total expenses in the Statement of Operations.
The management fee incurred for the year ended August 31, 2007 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 $31,489 and $552 for the year ended August 31,
2007, 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% $1,491,992
Class B 0.75% 0.25% 1.00% 1.00% 1,204,786
Class C 0.75% 0.25% 1.00% 1.00% 474,959
Class R 0.25% 0.25% 0.50% 0.50% 56,852
Class R1 0.50% 0.25% 0.75% 0.75% 13,430
Class R2 0.25% 0.25% 0.50% 0.50% 4,070
Class R3 0.25% 0.25% 0.50% 0.50% 30,626
Class R4 -- 0.25% 0.25% 0.25% 8,194
Class 529A 0.25% 0.25% 0.50% 0.35% 6,412
Class 529B 0.75% 0.25% 1.00% 1.00% 2,416
Class 529C 0.75% 0.25% 1.00% 1.00% 3,519
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $3,297,256
(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, 2007 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, 2007, were as follows:
AMOUNT
Class A $14,488
Class B 122,751
Class C 2,442
Class 529B 126
Class 529C 8
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, 2007, were as follows:
AMOUNT
Class 529A $4,580
Class 529B 604
Class 529C 880
--------------------------------------------------
Total Program Manager Fees $6,064
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 daily net assets of
the fund as determined periodically under the supervision of the fund's Board
of Trustees. For the year ended August 31, 2007, the fee was $499,520, which
equated to 0.0626% annually of the fund's average daily net assets. MFSC also
receives payment from the fund for out-of-pocket expenses, sub-accounting and
other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the year ended August 31, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $1,099,689. The fund may also pay shareholder servicing related
costs directly to non-related parties.
Effective May 1, 2007, under a Special Servicing Agreement among MFS, each MFS
fund which invests in other MFS funds ("MFS fund-of-funds") and each underlying
fund in which a MFS fund-of-funds invests ("underlying funds"), each underlying
fund may pay a portion of each MFS fund-of-fund's transfer agent-related
expenses, including sub-accounting fees payable to financial intermediaries, to
the extent such payments do not exceed the benefits realized or expected to be
realized by the underlying fund from the investment in the underlying fund by
the MFS fund-of-fund. For the year ended August 31, 2007, these costs for the
fund amounted to $57,034 and are reflected in the shareholder servicing costs
on the Statement of Operations.
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 average daily net assets. The fund's annual fixed
amount is $17,500. The administrative services fee incurred for the year ended
August 31, 2007 was equivalent to an annual effective rate of 0.0184% 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, 2007,
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:
BEGINNING
OF PERIOD ANNUAL
THROUGH EFFECTIVE EFFECTIVE TOTAL
3/31/07 4/01/07 RATE (g) AMOUNT
Class R1 0.45% 0.35% 0.35% $7,119
Class R2 0.40% 0.25% 0.25% 2,486
Class R3 0.25% 0.15% 0.15% 12,297
Class R4 0.15% 0.15% 0.15% 4,916
Class R5 0.10% 0.10% 0.10% 67,793
- -------------------------------------------------------------------------------
Total Retirement Plan
Administration and Services Fees $94,611
(g) Prior to April 1, 2007, MFS had agreed in writing to waive a portion of
the retirement plan administration and services fee equal to 0.10% for
Class R1, 0.15% for Class R2, and 0.10% for Class R3 shares. This
agreement was discontinued on March 31, 2007. On April 1, 2007, the annual
retirement plan administration and services fee for Class R1, Class R2,
and Class R3 shares was lowered to 0.35%, 0.25%, and 0.15%, respectively.
For the year ended August 31, 2007, the waiver amounted to $4,410 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 $1,121. This amount is included
in independent trustees' compensation for the year ended August 31, 2007. The
liability for deferred retirement benefits payable to certain retired
independent trustees amounted to $10,704 at August 31, 2007, 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, 2007, the fee paid to Tarantino LLC
was $5,087. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $3,964, 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
$745,593,069 and $971,027,197, 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
8/31/07 8/31/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 5,563,012 $111,684,942 7,953,074 $139,051,896
Class B 599,714 11,263,960 1,176,971 19,953,581
Class C 243,280 4,592,254 418,367 7,100,792
Class I 1,789,894 38,201,060 1,827,818 33,352,164
Class R 142,739 2,778,955 236,757 4,181,606
Class R1 197,931 3,755,712 61,944 999,073
Class R2 86,299 1,688,610 20,328 341,919
Class R3 548,671 11,019,354 243,261 4,169,079
Class R4 304,819 6,218,173 171,176 3,009,174
Class R5 980,209 19,651,188 4,426,023 77,317,122
Class 529A 9,115 180,050 11,358 199,860
Class 529B 992 18,369 2,886 46,842
Class 529C 4,298 80,869 3,525 58,773
- ----------------------------------------------------------------------------------------------------------
10,470,973 $211,133,496 16,553,488 $289,781,881
Shares reacquired
Class A (10,378,331) $(206,306,927) (19,617,262) $(340,453,738)
Class B (4,053,017) (76,486,862) (5,571,782) (93,109,606)
Class C (986,396) (18,600,876) (1,106,411) (18,501,073)
Class I (3,869,881) (79,984,656) (1,248,388) (22,194,362)
Class R (452,494) (9,009,942) (551,980) (9,634,623)
Class R1 (116,297) (2,217,569) (21,640) (361,890)
Class R2 (27,164) (523,644) (6,398) (104,910)
Class R3 (380,943) (7,628,258) (74,071) (1,264,874)
Class R4 (219,218) (4,423,996) (49,063) (884,331)
Class R5 (1,244,602) (24,800,560) (902,323) (15,966,127)
Class 529A (21,408) (421,946) (12,151) (209,557)
Class 529B (1,740) (33,317) (747) (12,139)
Class 529C (8,189) (151,633) (3,536) (59,168)
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(21,759,680) $(430,590,186) (29,165,752) $(502,756,398)
Net change
Class A (4,815,319) $(94,621,985) (11,664,188) $(201,401,842)
Class B (3,453,303) (65,222,902) (4,394,811) (73,156,025)
Class C (743,116) (14,008,622) (688,044) (11,400,281)
Class I (2,079,987) (41,783,596) 579,430 11,157,802
Class R (309,755) (6,230,987) (315,223) (5,453,017)
Class R1 81,634 1,538,143 40,304 637,183
Class R2 59,135 1,164,966 13,930 237,009
Class R3 167,728 3,391,096 169,190 2,904,205
Class R4 85,601 1,794,177 122,113 2,124,843
Class R5 (264,393) (5,149,372) 3,523,700 61,350,995
Class 529A (12,293) (241,896) (793) (9,697)
Class 529B (748) (14,948) 2,139 34,703
Class 529C (3,891) (70,764) (11) (395)
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(11,288,707) $(219,456,690) (12,612,264) $(212,974,517)
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
9% of the value of outstanding voting shares. In addition, the MFS Lifetime
2020 Fund and the MFS Lifetime 2030 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 funds managed by MFS 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 funds managed by MFS 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 0.30%. 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, 2007, the fund's commitment fee and interest expense were $4,076
and $17,936, 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, 2007, 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, 2007, 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, 2007, 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 16, 2007
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2007, 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); MIT Sloan School
(education), Senior Lecturer
(since 2006); 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 (until 2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Retired; Cleveland-Cliffs Inc.
(born 5/30/42) (mining products and service
provider), Vice Chairman/Director
(until May 2007); Portman Limited
(mining), Director (since 2005);
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;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
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 New Profit, Inc. (venture
(born 8/05/57) philanthropy), Partner (since
2006); Private investor; Prism
Venture Partners (venture
capital), Co-founder and General
Partner (until June 2004); The
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) Chief
Compliance Officer (since December
2006); 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)
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
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(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, Gutow, 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, 2007, the Trustees served as board members of 97 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
Thomas Wetherald
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment advisory
agreement with MFS. The Trustees consider matters bearing on the Fund and its
advisory arrangements at their meetings throughout the year, including a review
of performance data at each regular meeting. In addition, the independent
Trustees met several times over the course of three months beginning in May and
ending in July, 2007 ("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 that included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2006 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 in 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, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's Class A shares 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 2nd quintile
for the one-year period and the 5th quintile for the five-year period ended
December 31, 2006 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 continued concern to MFS about the 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 changes to the
portfolio management team in 2005 and the Fund's improved performance in the
one-year period. In addition, the Trustees requested that they receive a
separate update on the Fund's performance at each of their regular 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 daily 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
average daily net assets up to $1.5 billion and to waive a further portion of
its advisory fee on average daily net assets over $1.5 billion, which may not
be changed without the Trustees' approval. The Trustees also considered that,
according to the Lipper data (which takes into account the advisory fee
waiver), the Fund's effective advisory fee rate and total expense ratio were
each approximately at the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the
Fund in comparison to institutional accounts, the higher demands placed on MFS'
investment personnel and trading infrastructure as a result of the daily cash
in-flows and out-flows of the Fund, and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
currently subject to 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 that 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, 2007.
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, 2007
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 2007 income
tax forms in January 2008.
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 02205-5824
1-800-637-8255
24 hours a day OVERNIGHT MAIL
MFS Service Center, Inc.
ACCOUNT SERVICE AND 500 Boylston Street
LITERATURE 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
- -------------------------------------------------------------------------------
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and proxies directly to your e-mail inbox. You'll get timely information and
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postage costs).
SIGN UP: If your account is registered with us, simply go to MFS.COM, log in to
your account via MFS(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) 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) RESEARCH INTERNATIONAL FUND
LETTER FROM THE CEO 1
- --------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- --------------------------------------------------------------
MANAGEMENT REVIEW 3
- --------------------------------------------------------------
PERFORMANCE SUMMARY 6
- --------------------------------------------------------------
EXPENSE TABLE 9
- --------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 11
- --------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 17
- --------------------------------------------------------------
STATEMENT OF OPERATIONS 20
- --------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 21
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS 23
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 37
- --------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 49
- --------------------------------------------------------------
TRUSTEES AND OFFICERS 50
- --------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 56
- --------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 60
- --------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 60
- --------------------------------------------------------------
FEDERAL TAX INFORMATION 60
- --------------------------------------------------------------
MFS(R) PRIVACY NOTICE 61
- --------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- --------------------------------------------------------------
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
- ------------------------------------------------------------------------------
8/31/07
RIF-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. But the Dow's upward
rise has not been without hiccups. After hitting new records in July 2007, the
Dow lost 8% in the following weeks as a crisis swept global credit markets. As
we have said before, markets can be volatile, and investors should make sure
they have an investment plan that can carry them through the peaks and
troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short-term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss.
Investing and planning for the long term require 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 15, 2007
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 97.9%
Cash & Other Net Assets 2.1%
TOP TEN HOLDINGS
BHP Billiton PLC 2.6%
-----------------------------------------------
Royal Dutch Shell PLC, "A" 2.6%
-----------------------------------------------
Nestle S.A. ` 2.5%
-----------------------------------------------
E.ON AG 2.5%
-----------------------------------------------
TOTAL S.A. 2.4%
-----------------------------------------------
Linde AG 2.2%
-----------------------------------------------
HSBC Holdings PLC 1.9%
-----------------------------------------------
Credit Agricole S.A. 1.8%
-----------------------------------------------
WPP Group PLC 1.8%
-----------------------------------------------
Vodafone Group PLC 1.8%
-----------------------------------------------
EQUITY SECTORS
Financial Services 27.1%
-----------------------------------------------
Utilities & Communications 9.5%
-----------------------------------------------
Energy 8.8%
-----------------------------------------------
Basic Materials 7.9%
-----------------------------------------------
Health Care 6.9%
-----------------------------------------------
Consumer Staples 6.8%
-----------------------------------------------
Technology 6.7%
-----------------------------------------------
Industrial Goods & Services 5.7%
-----------------------------------------------
Retailing 5.4%
-----------------------------------------------
Autos & Housing 4.9%
-----------------------------------------------
Special Products & Services 3.9%
-----------------------------------------------
Leisure 2.7%
-----------------------------------------------
Transportation 1.6%
-----------------------------------------------
COUNTRY WEIGHTINGS
United Kingdom 19.8%
-----------------------------------------------
Japan 13.4%
-----------------------------------------------
Germany 13.2%
-----------------------------------------------
France 11.9%
-----------------------------------------------
Switzerland 10.6%
-----------------------------------------------
Italy 4.0%
-----------------------------------------------
Netherlands 2.7%
-----------------------------------------------
South Korea 2.4%
-----------------------------------------------
Australia 2.2%
-----------------------------------------------
Other Countries 19.8%
-----------------------------------------------
Percentages are based on net assets as of 08/31/07.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2007, Class A shares of the MFS
Research International Fund provided a total return of 17.82%, at net asset
value. This compares with a return of 19.20% for the fund's benchmark, the
MSCI EAFE Index. The fund's other benchmark, the MSCI All Country World (ex-
U.S.) Index provided a return of 23.00%.
MARKET ENVIRONMENT
The U.S. economy continues to decouple from the rest of the world, growing at
a slower pace than other major economies. Overall, global economies have seen
moderate to strong growth over the last twelve months as domestic demand
improves and world trade accelerates.
With the stronger growth, however, has come increased concern about rising
global inflation, especially as capacity becomes more constrained, wages rise,
and energy and food prices advance. Late in the reporting period, continued
robust global growth and fears of rising inflationary pressures led global
central banks to tighten monetary conditions beyond market expectations, which
in turn pushed global bond yields to their highest levels during this economic
expansion.
However, beginning in late July and August, heightened uncertainty and
distress concerning the subprime mortgage market caused several global credit
markets to seize up, forcing central banks to inject liquidity and to reassess
their tightening biases as sovereign bond yields plummeted and credit spreads
widened considerably. Increased market volatility has been exacerbated by U.S.
home foreclosures, falling housing prices, and weaker-than-expected jobs
growth reported by the U.S. Department of Labor. Despite increased volatility
across all asset classes, and the widening in credit spreads, global equity
markets have experienced only a mild correction to date.
DETRACTORS FROM PERFORMANCE
For the MFS Research International Fund, security selection in the financial
services sector was the primary detractor to performance relative to the MSCI
EAFE Index. In particular, our positions in banking and financial services
firms Sumitomo Mitsui Financial (Japan) and Shinsei Bank (Japan)(g), and
consumer finance firm Aeon Credit Service (Japan), hurt results. Aeon Credit
Service was negatively affected by regulatory changes that limit the interest
rate credit card companies can charge customers and changes to reserve
requirements. We continue to hold the position given its attractive valuation,
strong position in the Japanese market, and its exposure to faster emerging
economies through its subsidiaries in Hong Kong, Thailand, Taiwan, and
Malaysia. Japanese financial firms have also been affected by the recent sub-
prime mortgage and asset-backed security woes. Other holdings in the sector
that dampened results included bank Credit Agricole (France) and investment
management and banking firm UBS (Switzerland).
In the technology sector, the fund's holdings of microchip and electronics
manufacturer Samsung Electronics (South Korea)(aa) hurt results as shares
suffered from lower demand and pricing pressure on LCD and memory components.
Consumer electronics manufacturer Funai Electric (Japan)(aa) also adversely
impacted results. Not owning benchmark constituent Nokia (Finland), a mobile
phone maker, detracted from results as the stock outperformed the benchmark.
Security selection in the autos and housing sector also held back relative
performance over the reporting period, although no individual holdings within
this sector were among the top detractors.
Elsewhere, our holdings of pharmaceutical firm GlaxoSmithKline (U.K.) and
telecom company Vodafone (U.K.) hurt relative returns.
During the reporting period, our currency exposure was a detractor from 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 funds to have different currency exposure than the benchmark.
CONTRIBUTORS TO PERFORMANCE
The basic materials and health care sectors were the top contributors to
performance relative to the MSCI EAFE Index. In the basic materials sector,
the fund's shares of strong-performing steel manufacturers Steel Authority of
India (India)(aa) and Posco Ads (South Korea)(aa)(g) benefited from access to
cheap raw materials in an environment where demand exceeds supply. Also
contributing to relative results was our overweighted position in mining giant
BHP Billiton (U.K.).
Stock selection in the health care sector helped boost the fund's relative
performance over the reporting period. The fund derived solid gains from our
investments in biopharmaceutical company Actelion Ltd. (Switzerland)(aa) and
healthcare products maker Bayer (Germany). Not owning benchmark constituent
AstraZeneca (U.K.), a pharmaceutical firm, also helped as shares of this firm
performed poorly relative to the benchmark.
Within the utilities & communications sector, our overweighted position of
telecommunications company Telenor A.S.A. (Norway) aided results as this
benchmark constituent outperformed the index over the period.
Elsewhere, our holdings in banking firm Unibanco-Uniao de Banco Brasileiros
(Brazil)(aa) contributed to relative results. Not owning financial services firm
Mizuho Financial (Japan) and integrated oil company BP (U.K.) also helped.
Respectfully,
Jose Luis Garcia Thomas Melendez
Portfolio Manager Portfolio Manager
(aa) Security is not a benchmark constituent.
(g) 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 or
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 8/31/07
The following chart illustrates a representative class of the fund's
historical performance 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. 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 Research MSCI MSCI AC World
International EAFE (ex-U.S.)
Fund - Class A Index Index
8/97 $ 9,425 $10,000 $10,000
8/98 9,795 10,013 9,353
8/99 12,100 12,619 12,132
8/00 16,093 13,858 13,567
8/01 12,591 10,521 10,136
8/02 11,080 8,976 8,812
8/03 11,850 9,836 9,889
8/04 14,653 12,106 12,128
8/05 17,974 15,023 15,413
8/06 22,860 18,746 19,334
8/07 26,935 22,345 23,781
TOTAL RETURNS THROUGH 8/31/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
- ----------------------------------------------------------------------------
A 1/02/97 17.82% 19.44% 11.07%
- ----------------------------------------------------------------------------
B 1/02/98 17.08% 18.65% 10.41%
- ----------------------------------------------------------------------------
C 1/02/98 17.05% 18.66% 10.40%
- ----------------------------------------------------------------------------
I 1/02/97 18.27% 19.85% 11.47%
- ----------------------------------------------------------------------------
W 5/01/06 18.15% 19.52% 11.11%
- ----------------------------------------------------------------------------
R 12/31/02 17.70% 19.28% 11.00%
- ----------------------------------------------------------------------------
R1 4/01/05 17.00% 19.01% 10.87%
- ----------------------------------------------------------------------------
R2 4/01/05 17.34% 19.20% 10.96%
- ----------------------------------------------------------------------------
R3 10/31/03 17.50% 19.12% 10.92%
- ----------------------------------------------------------------------------
R4 4/01/05 17.78% 19.41% 11.06%
- ----------------------------------------------------------------------------
R5 4/01/05 18.13% 19.59% 11.14%
- ----------------------------------------------------------------------------
529A 7/31/02 17.51% 19.14% 10.93%
- ----------------------------------------------------------------------------
529B 7/31/02 16.78% 18.36% 10.57%
- ----------------------------------------------------------------------------
529C 7/31/02 16.79% 18.35% 10.57%
- ----------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmark
- ----------------------------------------------------------------------------
MSCI EAFE Index (f) 19.20% 20.01% 8.37%
- ----------------------------------------------------------------------------
MSCI AC World (ex-U.S.) Index (f) 23.00% 21.96% 9.05%
- ----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- ----------------------------------------------------------------------------
A 11.05% 18.04% 10.42%
With Initial Sales Charge (5.75%)
- ----------------------------------------------------------------------------
B 13.08% 18.45% 10.41%
With CDSC (Declining over six years
from 4% to 0%) (x)
- ----------------------------------------------------------------------------
C 16.05% 18.66% 10.40%
With CDSC (1% for 12 months) (x)
- ----------------------------------------------------------------------------
529A 10.76% 17.74% 10.28%
With Initial Sales Charge (5.75%)
- ----------------------------------------------------------------------------
529B 12.78% 18.15% 10.57%
With CDSC (Declining over six years from 4% to 0%) (x)
- ----------------------------------------------------------------------------
529C 15.79% 18.35% 10.57%
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 DEFINITIONS
Morgan Stanley Capital International (MSCI) All Country World (ex-U.S.) Index
- - a market capitalization index that is designed to measure equity market
performance in the developed and emerging markets, excluding the U.S.
Morgan Stanley Capital International (MSCI) EAFE (Europe, Australasia, Far
East) Index - a market capitalization index that is designed to measure equity
market performance in the developed markets, excluding the U.S. and Canada.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
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, 2007
through August 31, 2007
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 (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, 2007 through August 31,
2007.
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). 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 3/01/07-
Class Ratio 3/01/07 8/31/07 8/31/07
- --------------------------------------------------------------------------------
Actual 1.35% $1,000.00 $1,065.80 $7.03
A -----------------------------------------------------------------------
Hypothetical (h) 1.35% $1,000.00 $1,018.40 $6.87
- --------------------------------------------------------------------------------
Actual 2.00% $1,000.00 $1,062.30 $10.40
B -----------------------------------------------------------------------
Hypothetical (h) 2.00% $1,000.00 $1,015.12 $10.16
- --------------------------------------------------------------------------------
Actual 2.00% $1,000.00 $1,062.00 $10.39
C -----------------------------------------------------------------------
Hypothetical (h) 2.00% $1,000.00 $1,015.12 $10.16
- --------------------------------------------------------------------------------
Actual 1.00% $1,000.00 $1,067.70 $5.21
I -----------------------------------------------------------------------
Hypothetical (h) 1.00% $1,000.00 $1,020.16 $5.09
- --------------------------------------------------------------------------------
Actual 1.11% $1,000.00 $1,066.90 $5.78
W -----------------------------------------------------------------------
Hypothetical (h) 1.11% $1,000.00 $1,019.61 $5.65
- --------------------------------------------------------------------------------
Actual 1.50% $1,000.00 $1,065.30 $7.81
R -----------------------------------------------------------------------
Hypothetical (h) 1.50% $1,000.00 $1,017.64 $7.63
- --------------------------------------------------------------------------------
Actual 2.10% $1,000.00 $1,061.90 $10.91
R1 -----------------------------------------------------------------------
Hypothetical (h) 2.10% $1,000.00 $1,014.62 $10.66
- --------------------------------------------------------------------------------
Actual 1.76% $1,000.00 $1,063.30 $9.15
R2 -----------------------------------------------------------------------
Hypothetical (h) 1.76% $1,000.00 $1,016.33 $8.94
- --------------------------------------------------------------------------------
Actual 1.65% $1,000.00 $1,064.50 $8.59
R3 -----------------------------------------------------------------------
Hypothetical (h) 1.65% $1,000.00 $1,016.89 $8.39
- --------------------------------------------------------------------------------
Actual 1.40% $1,000.00 $1,065.60 $7.29
R4 -----------------------------------------------------------------------
Hypothetical (h) 1.40% $1,000.00 $1,018.15 $7.12
- --------------------------------------------------------------------------------
Actual 1.10% $1,000.00 $1,067.40 $5.73
R5 -----------------------------------------------------------------------
Hypothetical (h) 1.10% $1,000.00 $1,019.66 $5.60
- --------------------------------------------------------------------------------
Actual 1.60% $1,000.00 $1,064.40 $8.33
529A -----------------------------------------------------------------------
Hypothetical (h) 1.60% $1,000.00 $1,017.14 $8.13
- --------------------------------------------------------------------------------
Actual 2.25% $1,000.00 $1,061.00 $11.69
529B -----------------------------------------------------------------------
Hypothetical (h) 2.25% $1,000.00 $1,013.86 $11.42
- --------------------------------------------------------------------------------
Actual 2.25% $1,000.00 $1,061.00 $11.69
529C -----------------------------------------------------------------------
Hypothetical (h) 2.25% $1,000.00 $1,013.86 $11.42
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads).
If these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
8/31/07
The Portfolio of Investments is a complete list of all securities owned by your fund.
It is categorized by broad-based asset classes.
Common Stocks - 97.9%
- ----------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ----------------------------------------------------------------------------------------------------
Aerospace - 0.9%
- ----------------------------------------------------------------------------------------------------
Finmeccanica S.p.A.(l) 1,399,310 $ 41,010,100
- ----------------------------------------------------------------------------------------------------
Alcoholic Beverages - 1.8%
- ----------------------------------------------------------------------------------------------------
Heineken N.V. (l) 954,840 $ 60,469,059
Pernod Ricard S.A. (l) 111,628 23,502,953
---------------
$ 83,972,012
- ----------------------------------------------------------------------------------------------------
Apparel Manufacturers - 3.7%
- ----------------------------------------------------------------------------------------------------
Adidas AG (l) 1,243,210 $ 73,090,642
Billabong International Ltd. (l) 986,358 12,776,700
Li & Fung Ltd. 7,400,000 27,425,860
LVMH Moet Hennessy Louis Vuitton S.A. (l) 574,120 64,135,731
---------------
$ 177,428,933
- ----------------------------------------------------------------------------------------------------
Automotive - 3.2%
- ----------------------------------------------------------------------------------------------------
Bayerische Motoren Werke AG (l) 1,048,760 $ 63,773,387
Bridgestone Corp. 3,460,300 69,316,548
Compagnie Generale des Etablissements Michelin 154,637 19,482,772
---------------
$ 152,572,707
- ----------------------------------------------------------------------------------------------------
Biotechnology - 0.6%
- ----------------------------------------------------------------------------------------------------
Actelion Ltd. (a)(l) 486,536 $ 26,982,793
- ----------------------------------------------------------------------------------------------------
Broadcasting - 2.7%
- ----------------------------------------------------------------------------------------------------
Antena 3 de Television S.A. (l) 1,007,135 $ 18,826,877
Grupo Televisa S.A., ADR 768,200 20,019,292
WPP Group PLC 6,164,300 87,757,952
---------------
$ 126,604,121
- ----------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.8%
- ----------------------------------------------------------------------------------------------------
EFG International 722,440 $ 31,992,832
Nomura Holdings, Inc. (l) 3,044,400 53,887,838
---------------
$ 85,880,670
- ----------------------------------------------------------------------------------------------------
Business Services - 2.0%
- ----------------------------------------------------------------------------------------------------
Bunzl PLC 1,681,330 $ 23,359,858
Intertek Group PLC 1,492,540 29,555,307
Mitsubishi Corp. 1,025,500 28,866,123
Mitsui & Co. Ltd. 731,000 15,211,415
---------------
$ 96,992,703
- ----------------------------------------------------------------------------------------------------
Chemicals - 1.6%
- ----------------------------------------------------------------------------------------------------
Makhteshim-Agan Industries Ltd. (a) 3,552,900 $ 27,298,662
Syngenta AG 264,244 49,454,158
---------------
$ 76,752,820
- ----------------------------------------------------------------------------------------------------
Computer Software - 1.1%
- ----------------------------------------------------------------------------------------------------
SAP AG (l) 1,016,430 $ 54,744,535
- ----------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.2%
- ----------------------------------------------------------------------------------------------------
HCL Technologies Ltd. 1,384,750 $ 10,325,916
- ----------------------------------------------------------------------------------------------------
Conglomerates - 1.9%
- ----------------------------------------------------------------------------------------------------
Siemens AG (l) 624,090 $ 78,391,238
Smiths Group PLC 734,414 14,616,928
---------------
$ 93,008,166
- ----------------------------------------------------------------------------------------------------
Construction - 1.7%
- ----------------------------------------------------------------------------------------------------
CRH PLC 788,340 $ 34,156,799
Geberit AG 224,019 33,006,690
Siam Cement Public Co. Ltd. 1,811,900 13,413,658
---------------
$ 80,577,147
- ----------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.2%
- ----------------------------------------------------------------------------------------------------
Kao Corp. (l) 1,650,000 $ 46,872,167
Kimberly-Clark de Mexico S.A. de C.V., "A" 3,325,230 14,174,919
Reckitt Benckiser PLC 820,880 44,676,647
---------------
$ 105,723,733
- ----------------------------------------------------------------------------------------------------
Electrical Equipment - 2.5%
- ----------------------------------------------------------------------------------------------------
LS Industrial Systems Co. Ltd. 223,030 $ 12,764,946
OMRON Corp. 1,641,800 43,520,494
Schneider Electric S.A. (l) 484,830 64,406,631
---------------
$ 120,692,071
- ----------------------------------------------------------------------------------------------------
Electronics - 5.2%
- ----------------------------------------------------------------------------------------------------
ARM Holdings PLC 12,856,490 $ 38,174,709
Funai Electric Co. Ltd. (l) 302,100 13,303,199
Konica Minolta Holdings, Inc. 1,572,500 24,684,238
Nippon Electric Glass Co. Ltd. 1,749,000 25,340,604
Royal Philips Electronics N.V 1,122,510 44,246,114
Samsung Electronics Co. Ltd. 92,333 58,160,195
Taiwan Semiconductor Manufacturing Co. Ltd. 10,291,000 19,552,900
Venture Corp. Ltd. 2,317,000 23,683,910
---------------
$ 247,145,869
- ----------------------------------------------------------------------------------------------------
Energy - Independent - 1.2%
- ----------------------------------------------------------------------------------------------------
INPEX Holdings, Inc. (l) 2,820 $ 25,810,128
OMV AG 236,200 14,659,014
PTT Public Co. Ltd. 2,185,500 18,600,000
---------------
$ 59,069,142
- ----------------------------------------------------------------------------------------------------
Energy - Integrated - 7.1%
- ----------------------------------------------------------------------------------------------------
OAO Gazprom, ADR 735,220 $ 30,548,391
Petroleo Brasileiro S.A., ADR 375,730 23,235,143
Royal Dutch Shell PLC, "A" 3,142,850 121,997,912
Statoil A.S.A. (l) 1,723,490 49,688,756
TOTAL S.A 1,516,090 114,128,405
---------------
$ 339,598,607
- ----------------------------------------------------------------------------------------------------
Food & Beverages - 2.8%
- ----------------------------------------------------------------------------------------------------
Nestle S.A 277,781 $ 120,829,332
Nong Shim Co. Ltd. 43,347 11,087,962
---------------
$ 131,917,294
- ----------------------------------------------------------------------------------------------------
Insurance - 2.7%
- ----------------------------------------------------------------------------------------------------
AXA 2,052,200 $ 82,233,958
Suncorp-Metway Ltd. 2,732,309 44,882,881
---------------
$ 127,116,839
- ----------------------------------------------------------------------------------------------------
Internet - 0.2%
- ----------------------------------------------------------------------------------------------------
Universo Online S.A., IPS (a) 1,668,500 $ 9,127,201
- ----------------------------------------------------------------------------------------------------
Machinery & Tools - 2.3%
- ----------------------------------------------------------------------------------------------------
Bucyrus International, Inc. (l) 759,900 $ 47,486,151
GEA Group AG (a) 1,072,450 34,630,749
KOMATSU Ltd. 967,000 29,807,797
---------------
$ 111,924,697
- ----------------------------------------------------------------------------------------------------
Major Banks - 14.3%
- ----------------------------------------------------------------------------------------------------
Barclays PLC 5,274,980 $ 65,257,945
BNP Paribas (l) 603,023 63,609,726
BOC Hong Kong Holdings Ltd. 21,125,500 50,715,830
Credit Agricole S.A. (l) 2,337,474 88,219,185
Deutsche Postbank AG (l) 443,050 32,126,550
Erste Bank der Oesterreichischen Sparkassen AG (l) 574,778 41,654,949
Royal Bank of Scotland Group PLC 6,888,955 79,807,074
Standard Bank Group Ltd. 1,672,330 24,482,208
Standard Chartered PLC 1,718,302 53,013,800
Sumitomo Mitsui Financial Group, Inc. 9,301 73,482,839
Unibanco - Uniao de Bancos Brasileiros S.A., GDR 329,640 36,781,231
UniCredito Italiano S.p.A. (l) 8,648,990 73,993,294
---------------
$ 683,144,631
- ----------------------------------------------------------------------------------------------------
Metals & Mining - 3.9%
- ----------------------------------------------------------------------------------------------------
BHP Billiton PLC 4,212,500 $ 123,934,784
Steel Authority of India Ltd. 15,001,435 61,804,077
---------------
$ 185,738,861
- ----------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.9%
- ----------------------------------------------------------------------------------------------------
Gaz de France (l) 437,061 $ 21,914,237
Tokyo Gas Co. Ltd. (l) 4,241,390 21,057,715
---------------
$ 42,971,952
- ----------------------------------------------------------------------------------------------------
Oil Services - 0.5%
- ----------------------------------------------------------------------------------------------------
Saipem S.p.A 649,830 $ 24,312,901
- ----------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 7.9%
- ----------------------------------------------------------------------------------------------------
Aeon Credit Service Co. Ltd. 1,854,700 $ 22,836,439
Anglo Irish Bank Corp. PLC 1,223,800 22,910,452
Bank of Cyprus Public Co. Ltd. 1,168,516 19,519,182
CSU Cardsystem S.A. (a) 1,538,540 6,274,953
Hana Financial Group, Inc. 674,100 31,899,856
HSBC Holdings PLC 5,039,916 91,161,980
Macquarie Bank Ltd. (l) 610,939 36,597,943
Sapporo Hokuyo Holdings, Inc. 1,803 19,304,235
UBS AG 1,508,687 78,675,011
Unione di Banche Italiane Scpa 1,970,775 50,373,991
---------------
$ 379,554,042
- ----------------------------------------------------------------------------------------------------
Pharmaceuticals - 6.3%
- ----------------------------------------------------------------------------------------------------
Astellas Pharma, Inc. 758,600 $ 35,174,045
Bayer AG (l) 650,290 51,318,282
GlaxoSmithKline PLC 1,912,640 49,946,034
Novartis AG (l) 1,628,130 85,914,483
Roche Holding AG 451,390 78,463,621
---------------
$ 300,816,465
- ----------------------------------------------------------------------------------------------------
Precious Metals & Minerals - 0.2%
- ----------------------------------------------------------------------------------------------------
Paladin Resources Ltd. (a) 2,015,683 $ 9,982,739
- ----------------------------------------------------------------------------------------------------
Railroad & Shipping - 1.1%
- ----------------------------------------------------------------------------------------------------
East Japan Railway Co. 6,319 $ 50,359,945
- ----------------------------------------------------------------------------------------------------
Real Estate - 0.4%
- ----------------------------------------------------------------------------------------------------
Hypo Real Estate Holding AG (l) 387,500 $ 21,277,139
- ----------------------------------------------------------------------------------------------------
Specialty Chemicals - 2.2%
- ----------------------------------------------------------------------------------------------------
Linde AG (l) 896,730 $ 105,257,600
- ----------------------------------------------------------------------------------------------------
Specialty Stores - 1.7%
- ----------------------------------------------------------------------------------------------------
Fast Retailing Co. Ltd. (l) 726,000 $ 42,563,917
NEXT PLC 970,740 37,799,252
---------------
$ 80,363,169
- ----------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 3.0%
- ----------------------------------------------------------------------------------------------------
America Movil S.A.B. de C.V., "L", ADR 396,030 $ 23,943,974
Philippine Long Distance Telephone Co. 319,550 18,229,593
Rogers Communications, Inc., "B" 341,330 15,523,235
Vodafone Group PLC 26,916,610 86,735,153
---------------
$ 144,431,955
- ----------------------------------------------------------------------------------------------------
Telephone Services - 2.6%
- ----------------------------------------------------------------------------------------------------
Hellenic Telecommunications Organization S.A 582,930 $ 19,061,810
Telefonica S.A. (l) 2,590,530 64,309,256
Telenor A.S.A 1,302,840 24,034,751
TELUS Corp. 361,970 19,162,109
---------------
$ 126,567,926
- ----------------------------------------------------------------------------------------------------
Trucking - 0.5%
- ----------------------------------------------------------------------------------------------------
TNT N.V. (l) 549,610 $ 23,214,151
- ----------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.0%
- ----------------------------------------------------------------------------------------------------
E.ON AG (l) 709,510 $ 119,050,006
SUEZ S.A. (l) 465,258 26,459,570
---------------
$ 145,509,576
- ----------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $4,116,751,341) $ 4,682,671,128
- ----------------------------------------------------------------------------------------------------
Short-Term Obligations - 0.6% (y)
- ----------------------------------------------------------------------------------------------------
Abbey National North America LLC, 5.313%, due 9/04/07 $ 2,910,000 $ 2,908,712
American Express Credit Corp., 5.18%, due 9/04/07 23,784,000 23,773,733
Citigroup Funding, Inc., 5.25%, due 9/04/07 3,049,000 3,047,666
- ----------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS, AT AMORTIZED COST AND VALUE $ 29,730,111
- ----------------------------------------------------------------------------------------------------
Repurchase Agreements - 0.1%
- ----------------------------------------------------------------------------------------------------
Merrill Lynch, 5.3%, dated 8/31/07, due 9/04/07, total to be
received $1,260,742 (secured by U.S. Treasury and Federal
Agency obligations and Mortgage Backed securities
in a jointly traded account), at Cost $ 1,260,000 $ 1,260,000
- ----------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 11.6%
- ----------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Cost and Net Asset Value 554,955,445 $ 554,955,445
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $4,702,696,897) (k) $ 5,268,616,684
- ----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (10.2)% (486,136,912)
- ----------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 4,782,479,772
- ----------------------------------------------------------------------------------------------------
(a) Non-income producing security.
(k) As of August 31, 2007, the fund had one security that was fair valued, aggregating $27,298,662
and 0.52% 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.
(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
IPS International Preference Stock
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/07
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 $532,709,773 of securities
on loan (identified cost, $4,702,696,897) $5,268,616,684
Cash 361
Foreign currency, at value (identified cost, $22,599,742) 22,411,042
Receivable for investments sold 61,196,738
Receivable for fund shares sold 20,468,301
Interest and dividends receivable 11,187,024
Other Assets 17,413
- -------------------------------------------------------------------------------------------------------
Total assets $5,383,897,563
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $38,736,715
Payable for fund shares reacquired 2,189,708
Collateral for securities loaned, at value (c) 554,955,445
Payable to affiliates
Management fee 196,623
Shareholder servicing costs 1,488,934
Distribution and service fees 59,346
Administrative services fee 3,077
Program manager fees 49
Retirement plan administration and services fees 1,942
Payable for independent trustees' compensation 35,957
Accrued expenses and other liabilities 3,749,995
- -------------------------------------------------------------------------------------------------------
Total liabilities $601,417,791
- -------------------------------------------------------------------------------------------------------
Net assets $4,782,479,772
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -------------------------------------------------------------------------------------------------------
Paid-in capital $3,774,698,649
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies
(net of $2,593,963 deferred country tax) 563,041,748
Accumulated net realized gain (loss) on investments and
foreign currency transactions 388,477,611
Undistributed net investment income 56,261,764
- -------------------------------------------------------------------------------------------------------
Net assets $4,782,479,772
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 230,716,228
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares:
- -------------------------------------------------------------------------------------------------------
Net assets $1,813,832,587
Shares outstanding 88,210,476
- -------------------------------------------------------------------------------------------------------
Net asset value per share $20.56
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $21.81
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $185,669,682
Shares outstanding 9,466,770
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $19.61
- -------------------------------------------------------------------------------------------------------
Class C shares:
- -------------------------------------------------------------------------------------------------------
Net assets $200,490,960
Shares outstanding 10,270,031
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $19.52
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $2,210,257,207
Shares outstanding 104,565,108
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $21.14
- -------------------------------------------------------------------------------------------------------
Class W shares
- -------------------------------------------------------------------------------------------------------
Net assets $10,272,310
Shares outstanding 499,480
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.57
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $69,152,087
Shares outstanding 3,392,071
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.39
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $5,440,766
Shares outstanding 280,741
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.38
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $5,072,936
Shares outstanding 260,238
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $19.49
- -------------------------------------------------------------------------------------------------------
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $36,143,039
Shares outstanding 1,794,813
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.14
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $64,331,647
Shares outstanding 3,143,206
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.47
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $178,238,229
Shares outstanding 8,653,404
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $20.60
- -------------------------------------------------------------------------------------------------------
Class 529A shares
- -------------------------------------------------------------------------------------------------------
Net assets $2,059,634
Shares outstanding 101,247
- -------------------------------------------------------------------------------------------------------
Net asset value per share $20.34
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $21.58
- -------------------------------------------------------------------------------------------------------
Class 529B shares
- -------------------------------------------------------------------------------------------------------
Net assets $581,070
Shares outstanding 30,092
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $19.31
- -------------------------------------------------------------------------------------------------------
Class 529C shares
- -------------------------------------------------------------------------------------------------------
Net assets $937,618
Shares outstanding 48,551
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $19.31
- -------------------------------------------------------------------------------------------------------
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.
(c) Non-cash collateral not included.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 8/31/07
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 $116,508,340
Interest 5,750,086
Foreign taxes withheld (9,976,587)
- ------------------------------------------------------------------------------------------------------
Total investment income $112,281,839
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $32,997,482
Distribution and service fees 10,268,188
Program manager fees 8,155
Shareholder servicing costs 5,613,018
Administrative services fee 597,392
Retirement plan administration and services fees 275,324
Independent trustees' compensation 64,069
Custodian fee 2,373,094
Shareholder communications 203,730
Auditing fees 50,587
Legal fees 64,506
Miscellaneous 483,320
- ------------------------------------------------------------------------------------------------------
Total expenses $52,998,865
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (137,265)
Reduction of expenses by investment adviser (34,554)
- ------------------------------------------------------------------------------------------------------
Net expenses $52,827,046
- ------------------------------------------------------------------------------------------------------
Net investment income $59,454,793
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions (net of $9,030 country tax) $521,480,087
Foreign currency transactions (2,212,799)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $519,267,288
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments (net of $2,593,963 increase in deferred country tax) $92,107,788
Translation of assets and liabilities in foreign currencies (284,270)
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency
translation $91,823,518
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $611,090,806
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $670,545,599
- ------------------------------------------------------------------------------------------------------
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
----------------------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income $59,454,793 $30,991,305
Net realized gain (loss) on investments and foreign
currency transactions 519,267,288 379,594,014
Net unrealized gain (loss) on investments and foreign
currency translation 91,823,518 209,290,585
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $670,545,599 $619,875,904
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A $(16,967,603) $(7,372,365)
Class B (1,072,793) (226,370)
Class C (1,096,339) (254,257)
Class I (24,753,020) (9,060,373)
Class W (24,752) --
Class R (787,598) (303,000)
Class R1 (19,857) (2,858)
Class R2 (14,104) (1,155)
Class R3 (173,134) (29,271)
Class R4 (225,637) (1,034)
Class R5 (2,054,416) (523)
Class 529A (17,590) (4,962)
Class 529B (2,810) (80)
Class 529C (3,613) (10)
Statements of Changes in Net Assets - continued
From net realized gain on investments and foreign
currency transactions
Class A $(141,613,840) $(80,787,062)
Class B (19,000,322) (12,159,865)
Class C (17,352,910) (9,704,848)
Class I (163,196,758) (70,748,663)
Class W (166,668) --
Class R (7,397,422) (3,873,527)
Class R1 (244,118) (33,799)
Class R2 (125,262) (13,584)
Class R3 (1,606,783) (346,752)
Class R4 (1,723,640) (9,270)
Class R5 (14,271,300) (4,369)
Class 529A (171,280) (70,615)
Class 529B (44,384) (15,904)
Class 529C (75,790) (39,146)
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(414,203,743) $(195,063,662)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $1,060,147,793 $931,454,179
- -------------------------------------------------------------------------------------------------------
Total change in net assets $1,316,489,649 $1,356,266,421
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period 3,465,990,123 2,109,723,702
At end of period (including undistributed net investment
income of $56,261,764 and $44,576,374, respectively) $4,782,479,772 $3,465,990,123
- -------------------------------------------------------------------------------------------------------
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.
CLASS A YEARS ENDED 8/31
----------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $19.44 $16.65 $14.25 $11.53 $10.78
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.26 $0.19 $0.12 $0.10 $0.04
Net realized and unrealized gain (loss)
on investments and foreign currency 3.03 4.08 3.04 2.63 0.71
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.29 $4.27 $3.16 $2.73 $0.75
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.23) $(0.12) $(0.08) $(0.01) $--
From net realized gain on investments
and foreign currency transactions (1.94) (1.36) (0.68) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(2.17) $(1.48) $(0.76) $(0.01) $--
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.56 $19.44 $16.65 $14.25 $11.53
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 17.82 27.18 22.67 23.65 6.96
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.34 1.43 1.52 1.61 1.80
Expenses after expense reductions (f) 1.34 1.43 1.55(e) 1.67(e) 1.75
Net investment income 1.28 1.06 0.80 0.75 0.36
Portfolio turnover 66 85 79 102 96
Net assets at end of period
(000 Omitted) $1,813,833 $1,344,754 $958,878 $593,574 $387,732
- ---------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
---------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $18.63 $16.02 $13.76 $11.19 $10.54
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.11 $0.07 $0.01 $0.02 $(0.03)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.92 3.93 2.93 2.55 0.68
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.03 $4.00 $2.94 $2.57 $0.65
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.11) $(0.03) $(0.00)(w) $-- $--
From net realized gain on investments and
foreign currency transactions (1.94) (1.36) (0.68) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(2.05) $(1.39) $(0.68) $-- $--
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.61 $18.63 $16.02 $13.76 $11.19
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 17.08 26.36 21.77 22.97 6.17
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.99 2.08 2.17 2.25 2.45
Expenses after expense reductions (f) 1.99 2.08 2.20(e) 2.31(e) 2.40
Net investment income (loss) 0.55 0.40 0.08 0.12 (0.32)
Portfolio turnover 66 85 79 102 96
Net assets at end of period
(000 Omitted) $185,670 $184,341 $141,515 $116,165 $88,177
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C YEARS ENDED 8/31
---------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $18.57 $15.98 $13.73 $11.17 $10.52
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.12 $0.07 $0.02 $0.02 $(0.03)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.89 3.92 2.92 2.54 0.68
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.01 $3.99 $2.94 $2.56 $0.65
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.12) $(0.04) $(0.01) $-- $--
From net realized gain on investments and
foreign currency transactions (1.94) (1.36) (0.68) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(2.06) $(1.40) $(0.69) $-- $--
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.52 $18.57 $15.98 $13.73 $11.17
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 17.05 26.38 21.84 22.92 6.18
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.99 2.08 2.17 2.25 2.45
Expenses after expense reductions (f) 1.99 2.08 2.20(e) 2.31(e) 2.40
Net investment income (loss) 0.62 0.41 0.13 0.15 (0.32)
Portfolio turnover 66 85 79 102 96
Net assets at end of period
(000 Omitted) $200,491 $158,564 $109,347 $75,580 $46,022
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 8/31
-------------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $19.92 $17.02 $14.54 $11.75 $10.95
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.34 $0.26 $0.19 $0.16 $0.10
Net realized and unrealized gain (loss)
on investments and foreign currency 3.11 4.17 3.10 2.66 0.70
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.45 $4.43 $3.29 $2.82 $0.80
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.29) $(0.17) $(0.13) $(0.03) $--
From net realized gain on investments
and foreign currency transactions (1.94) (1.36) (0.68) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(2.23) $(1.53) $(0.81) $(0.03) $--
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $21.14 $19.92 $17.02 $14.54 $11.75
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 18.27 27.61 23.09 24.05 7.31
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.99 1.08 1.17 1.26 1.45
Expenses after expense reductions (f) 0.99 1.08 1.20(e) 1.32(e) 1.40
Net investment income 1.64 1.41 1.18 1.18 0.95
Portfolio turnover 66 85 79 102 96
Net assets at end of period
(000 Omitted) $2,210,257 $1,565,596 $851,484 $469,181 $232,328
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS W YEARS ENDED 8/31
-----------------------------
2007 2006(i)
Net asset value, beginning of period $19.45 $19.54
- -----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------
Net investment income (d) $0.35 $0.04
Net realized and unrealized gain (loss) on investments and foreign
currency 3.00 (1.13)(g)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations $3.35 $(0.09)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------
From net investment income $(0.29) $--
From net realized gain on investments and foreign currency transactions (1.94) --
- -----------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(2.23) $--
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.57 $19.45
- -----------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 18.15 (0.46)(n)
- -----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.10 1.20(a)
Expenses after expense reductions (f) 1.10 1.20(a)
Net investment income 1.78 1.02(a)
Portfolio turnover 66 85
Net assets at end of period (000 Omitted) $10,272 $1,033
- -----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R YEARS ENDED 8/31
----------------------------------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $19.29 $16.54 $14.20 $11.52 $10.32
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.22 $0.17 $0.11 $0.09 $(0.01)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.03 4.05 3.01 2.61 1.21
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.25 $4.22 $3.12 $2.70 $1.20
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.21) $(0.11) $(0.10) $(0.02) $--
From net realized gain on investments and
foreign currency transactions (1.94) (1.36) (0.68) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(2.15) $(1.47) $(0.78) $(0.02) $--
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.39 $19.29 $16.54 $14.20 $11.52
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 17.70 26.98 22.40 23.50 11.63(n)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.49 1.58 1.66 1.75 1.95(a)
Expenses after expense reductions (f) 1.49 1.58 1.69(e) 1.81(e) 1.90(a)
Net investment income (loss) 1.11 0.95 0.73 0.69 (0.09)(a)
Portfolio turnover 66 85 79 102 96
Net assets at end of period
(000 Omitted) $69,152 $69,507 $44,300 $19,596 $4,810
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 8/31
-----------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $18.49 $16.02 $15.07
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.12 $0.11 $0.03
Net realized and unrealized gain (loss)
on investments and foreign currency 2.87 3.84 0.92
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations $2.99 $3.95 $0.95
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------
From net investment income $(0.16) $(0.12) $--
From net realized gain on investments
and foreign currency transactions (1.94) (1.36) --
- -----------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(2.10) $(1.48) $--
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.38 $18.49 $16.02
- -----------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 17.00 26.12 6.30(n)
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.14 2.26 2.36(a)
Expenses after expense reductions (f) 2.09 2.16 2.39(a)(e)
Net investment income 0.64 0.65 0.46(a)
Portfolio turnover 66 85 79
Net assets at end of period (000 Omitted) $5,441 $2,027 $171
- -----------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R2 YEARS ENDED 8/31
-----------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $18.59 $16.04 $15.07
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.19 $0.14 $0.06
Net realized and unrealized gain (loss)
on investments and foreign currency 2.87 3.89 0.91
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations $3.06 $4.03 $0.97
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------
From net investment income $(0.22) $(0.12) $--
From net realized gain on investments
and foreign currency transactions (1.94) (1.36) --
- -----------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(2.16) $(1.48) $--
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.49 $18.59 $16.04
- -----------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 17.34 26.63 6.44(n)
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.80 1.96 2.04(a)
Expenses after expense reductions (f) 1.75 1.82 2.07(a)(e)
Net investment income 1.03 0.83 1.12(a)
Portfolio turnover 66 85 79
Net assets at end of period (000 Omitted) $5,073 $1,021 $178
- -----------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 8/31
-----------------------------------------------------------------
2007 2006 2005 2004(i)
Net asset value, beginning of period $19.11 $16.43 $14.16 $12.71
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.22 $0.15 $0.11 $0.02
Net realized and unrealized gain (loss)
on investments and foreign currency 2.96 4.01 2.96 1.46
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.18 $4.16 $3.07 $1.48
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.21) $(0.12) $(0.12) $(0.03)
From net realized gain on investments
and foreign currency transactions (1.94) (1.36) (0.68) --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(2.15) $(1.48) $(0.80) $(0.03)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.14 $19.11 $16.43 $14.16
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 17.50 26.79 22.13 11.69(n)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.69 1.82 1.92 2.01(a)
Expenses after expense reductions (f) 1.64 1.73 1.95(e) 2.07(a)(e)
Net investment income 1.13 0.83 0.74 0.18(a)
Portfolio turnover 66 85 79 102
Net assets at end of period (000 Omitted) $36,143 $13,799 $2,357 $431
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 YEARS ENDED 8/31
-----------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $19.39 $16.65 $15.62
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.31 $0.25 $0.12
Net realized and unrealized gain (loss)
on investments and foreign currency 2.96 4.00 0.91
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations $3.27 $4.25 $1.03
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------
From net investment income $(0.25) $(0.15) $--
From net realized gain on investments
and foreign currency transactions (1.94) (1.36) --
- -----------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(2.19) $(1.51) $--
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.47 $19.39 $16.65
- -----------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 17.78 27.07 6.59(n)
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.39 1.47 1.55(a)
Expenses after expense reductions (f) 1.39 1.47 1.58(a)(e)
Net investment income 1.54 1.42 1.79(a)
Portfolio turnover 66 85 79
Net assets at end of period (000 Omitted) $64,332 $12,796 $53
- -----------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 8/31
-------------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $19.47 $16.67 $15.62
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.32 $0.33 $0.14
Net realized and unrealized gain (loss)
on investments and foreign currency 3.03 3.99 0.91
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations $3.35 $4.32 $1.05
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------
From net investment income $(0.28) $(0.16) $--
From net realized gain on investments
and foreign currency transactions (1.94) (1.36) --
- -----------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(2.22) $(1.52) $--
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.60 $19.47 $16.67
- -----------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 18.13 27.50 6.72(n)
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.09 1.17 1.25(a)
Expenses after expense reductions (f) 1.09 1.17 1.28(a)(e)
Net investment income 1.56 1.82 2.09(a)
Portfolio turnover 66 85 79
Net assets at end of period (000 Omitted) $178,238 $109,993 $53
- -----------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529A YEARS ENDED 8/31
-----------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $19.27 $16.53 $14.18 $11.50 $10.78
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.20 $0.16 $0.10 $0.08 $0.03
Net realized and unrealized gain (loss)
on investments and foreign currency 3.01 4.04 3.01 2.61 0.69
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.21 $4.20 $3.11 $2.69 $0.72
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.20) $(0.10) $(0.08) $(0.01) $--
From net realized gain on investments
and foreign currency transactions (1.94) (1.36) (0.68) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(2.14) $(1.46) $(0.76) $(0.01) $--
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.34 $19.27 $16.53 $14.18 $11.50
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 17.51 26.86 22.35 23.39 6.68
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.59 1.68 1.76 1.85 2.05
Expenses after expense reductions (f) 1.59 1.68 1.79(e) 1.91(e) 2.00
Net investment income 1.01 0.88 0.65 0.62 0.30
Portfolio turnover 66 85 79 102 96
Net assets at end of period (000 Omitted) $2,060 $1,552 $760 $332 $112
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529B YEARS ENDED 8/31
------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $18.43 $15.88 $13.68 $11.17 $10.54
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.08 $0.03 $(0.02) $(0.00)(w) $(0.05)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.86 3.89 2.91 2.51 0.68
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.94 $3.92 $2.89 $2.51 $0.63
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.12) $(0.01) $(0.01) $-- $--
From net realized gain on investments
and foreign currency transactions (1.94) (1.36) (0.68) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(2.06) $(1.37) $(0.69) $-- $--
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.31 $18.43 $15.88 $13.68 $11.17
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 16.78 26.06 21.54 22.47 5.98
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.24 2.33 2.42 2.50 2.70
Expenses after expense reductions (f) 2.24 2.33 2.45(e) 2.56(e) 2.65
Net investment income (loss) 0.42 0.15 (0.13) (0.03) (0.43)
Portfolio turnover 66 85 79 102 96
Net assets at end of period (000 Omitted) $581 $356 $174 $110 $41
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C YEARS ENDED 8/31
-------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $18.40 $15.86 $13.66 $11.14 $10.52
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.08 $0.03 $(0.01) $(0.00)(w) $(0.04)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.86 3.87 2.90 2.52 0.66
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.94 $3.90 $2.89 $2.52 $0.62
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.09) $(0.00)(w) $(0.01) $-- $--
From net realized gain on investments and
foreign currency transactions (1.94) (1.36) (0.68) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(2.03) $(1.36) $(0.69) $-- $--
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.31 $18.40 $15.86 $13.66 $11.14
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 16.79 25.98 21.53 22.62 5.89
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.24 2.33 2.42 2.49 2.70
Expenses after expense reductions (f) 2.24 2.33 2.45(e) 2.55(e) 2.65
Net investment income (loss) 0.40 0.16 (0.07) (0.02) (0.36)
Portfolio turnover 66 85 79 102 96
Net assets at end of period (000 Omitted) $938 $650 $454 $280 $81
- ------------------------------------------------------------------------------------------------------------------------------
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), 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. For securities held
short for which there were no sales reported for the day, the position is
generally valued at the last quoted daily ask quotation as reported by an
independent pricing service on the market or exchange on which such securities
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. Values obtained from pricing services can utilize
both dealer-supplied valuations and electronic data processing techniques,
which take into account factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics, and other market data. 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 and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. 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. 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 September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for
measuring fair value and expanded disclosures about fair value measurements.
Management is evaluating the application of the Statement to the fund, and
believes the impact will be limited to expanded disclosures resulting from the
adoption of this Statement in the fund's financial statements.
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 and other funds managed by
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. Net income from securities
lending is included in interest income on the Statement of Operations. The
dividend and interest income earned on the securities loaned is accounted for
in the same manner as other dividend and interest income.
At August 31, 2007, the value of securities loaned was $532,709,773. These
loans were collateralized by cash of $554,955,445 and U.S. Treasury
obligations of $2,070,662.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the
normal course of business, the fund enters into agreements with service
providers that may contain indemnification clauses. The fund's maximum
exposure under these agreements is unknown as this would involve future claims
that may be made against the fund that have not yet occurred.
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. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been
disposed of by the fund or in unrealized gain/loss if the security is still
held by the fund. Any other proceeds from litigation not related to portfolio
holdings are reflected as other income in the Statement of Operations.
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, 2007, 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 U.S. 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 passive foreign investment companies,
wash sale loss deferrals, foreign currency transactions, treating a portion of
the proceeds from redemptions as a distribution for tax purposes, and
foreign taxes.
The tax character of distributions declared to shareholders is as follows:
8/31/07 8/31/06
Ordinary income (including any
short-term capital gains) $214,389,394 $104,557,669
Long-term capital gain 199,814,349 90,505,993
- -------------------------------------------------------------------------
Total distributions $414,203,743 $195,063,662
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/07
Cost of investments $4,706,611,804
---------------------------------------------------------------
Gross appreciation $686,757,855
Gross depreciation (124,752,975)
---------------------------------------------------------------
Net unrealized appreciation (depreciation) $562,004,880
Undistributed ordinary income 197,395,067
Undistributed long-term capital gain 251,952,279
Other temporary differences (3,571,103)
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. On December 22, 2006, the SEC delayed the
implementation of the Interpretation for regulated investment companies for an
additional six months. 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 evaluated the application of the Interpretation to
the fund, and has determined that there is no impact 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 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, 2007 was equivalent
to an annual effective rate of 0.77% 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, 2007 unless changed or rescinded by the fund's
Board of Trustees. For the year ended August 31, 2007, 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 $200,803 and $1,402 for the year ended
August 31, 2007, 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% $5,737,906
Class B 0.75% 0.25% 1.00% 1.00% 1,970,268
Class C 0.75% 0.25% 1.00% 1.00% 1,898,198
Class W 0.10% -- 0.10% 0.10% 3,878
Class R 0.25% 0.25% 0.50% 0.50% 398,390
Class R1 0.50% 0.25% 0.75% 0.75% 24,312
Class R2 0.25% 0.25% 0.50% 0.50% 11,318
Class R3 0.25% 0.25% 0.50% 0.50% 118,618
Class R4 -- 0.25% 0.25% 0.25% 85,121
Class 529A 0.25% 0.25% 0.50% 0.35% 6,699
Class 529B 0.75% 0.25% 1.00% 1.00% 5,008
Class 529C 0.75% 0.25% 1.00% 1.00% 8,472
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $10,268,188
(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, 2007 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, 2007, were as follows:
AMOUNT
Class A $29,040
Class B 152,127
Class C 21,731
Class 529B 115
Class 529C 46
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, 2007, were as follows:
AMOUNT
Class 529A $4,785
Class 529B 1,252
Class 529C 2,118
--------------------------------------------------
Total Program Manager Fees $8,155
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 daily
net assets of the fund as determined periodically under the supervision of the
fund's Board of Trustees. For the year ended August 31, 2007, the fee was
$2,589,679, which equated to 0.0604% annually of the fund's average daily net
assets. MFSC also receives payment from the fund for out-of-pocket expenses,
sub-accounting and other shareholder servicing costs which may be paid
to affiliated and unaffiliated service providers. For the year ended
August 31, 2007, these out-of-pocket expenses, sub-accounting and other
shareholder servicing costs amounted to $2,546,684. The fund may also pay
shareholder servicing related costs directly to non-related parties.
Effective May 1, 2007, under a Special Servicing Agreement among MFS, each MFS
fund which invests in other MFS funds ("MFS fund-of-funds") and each
underlying fund in which a MFS fund-of-funds invests ("underlying funds"),
each underlying fund may pay a portion of each MFS fund-of-fund's transfer
agent-related expenses, including sub-accounting fees payable to financial
intermediaries, to the extent such payments do not exceed the benefits
realized or expected to be realized by the underlying fund from the investment
in the underlying fund by the MFS fund-of-fund. For the year ended August 31,
2007, these costs for the fund amounted to $372,781 and are reflected in the
shareholder servicing costs on the Statement of Operations.
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 average daily net assets. The fund's annual fixed
amount is $17,500. The administrative services fee incurred for the year ended
August 31, 2007 was equivalent to an annual effective rate of 0.0139% 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,
2007, 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:
BEGINNING OF ANNUAL
PERIOD THROUGH EFFECTIVE EFFECTIVE TOTAL
3/31/07 4/01/07 RATE (g) AMOUNT
Class R1 0.45% 0.35% 0.35% $12,846
Class R2 0.40% 0.25% 0.25% 6,891
Class R3 0.25% 0.15% 0.15% 46,424
Class R4 0.15% 0.15% 0.15% 51,072
Class R5 0.10% 0.10% 0.10% 158,091
- -----------------------------------------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $275,324
(g) Prior to April 1, 2007, MFS had agreed in writing to waive a portion of
the retirement plan administration and services fee equal to 0.10% for
Class R1, 0.15% for Class R2, and 0.10% for Class R3 shares. This
agreement was discontinued on March 31, 2007. On April 1, 2007, the annual
retirement plan administration and services fee for Class R1, Class R2,
and Class R3 shares was lowered to 0.35%, 0.25%, and 0.15%, respectively.
For the year ended August 31, 2007, the waiver amounted to $13,571 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 $543. The fund also has an
unfunded retirement benefit deferral plan for certain independent trustees
which resulted in an expense of $6,007. Both amounts are included in
independent trustees' compensation for the year ended August 31, 2007. The
liability for deferred retirement benefits payable to certain independent
trustees under both plans amounted to $35,604 at August 31, 2007, 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, 2007, the fee paid to Tarantino LLC
was $26,670. MFS has agreed to reimburse the fund for a portion of the
payments made by the funds to Tarantino LLC in the amount of $20,983, 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
$3,414,972,380 and $2,778,158,270, 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
8/31/07 8/31/06(i)
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 41,290,726 $828,064,496 30,630,255 $556,734,183
Class B 2,473,005 47,089,337 3,401,167 59,298,455
Class C 3,435,528 65,446,773 3,025,371 52,468,875
Class I 22,548,390 461,671,400 30,755,216 581,780,278
Class W 494,011 10,111,792 53,111 1,031,086
Class R 1,997,921 39,719,864 1,713,782 30,827,673
Class R1 338,647 6,374,881 118,411 2,100,359
Class R2 299,623 5,755,095 46,997 846,131
Class R3 2,178,813 42,475,221 805,222 14,237,540
Class R4 3,750,623 74,887,435 737,220 13,528,900
Class R5 5,937,198 122,889,097 6,785,761 117,544,808
Class 529A 22,711 448,508 35,512 640,671
Class 529B 9,906 186,302 7,849 136,554
Class 529C 17,209 324,653 7,149 123,841
- -------------------------------------------------------------------------------------------------------------
84,794,311 $1,705,444,854 78,123,023 $1,431,299,354
Shares issued to shareholders in
reinvestment of distributions
Class A 5,693,646 $108,520,893 3,732,231 $62,253,599
Class B 925,952 16,907,887 649,122 10,424,911
Class C 693,004 12,598,814 441,721 7,067,535
Class I 9,490,387 185,442,163 4,619,694 78,765,784
Class W 9,678 184,179 - -
Class R 395,201 7,477,210 234,859 3,891,575
Class R1 14,617 263,975 2,328 36,657
Class R2 7,691 139,366 922 14,739
Class R3 95,132 1,779,917 22,921 376,023
Class R4 102,687 1,948,996 619 10,304
Class R5 856,467 16,324,252 293 4,892
Class 529A 9,998 188,870 4,564 75,577
Class 529B 2,620 47,194 1,005 15,984
Class 529C 4,406 79,403 2,465 39,156
- ------------------------------------------------------------------------------------------------------------
18,301,486 $351,903,119 9,712,744 $162,976,736
Shares reacquired
Class A (27,955,365) $(564,150,425) (22,770,545) $(406,301,939)
Class B (3,825,976) (73,747,481) (2,987,955) (52,111,572)
Class C (2,398,809) (46,114,718) (1,768,974) (30,633,224)
Class I (6,070,791) (124,341,917) (6,808,899) (127,967,564)
Class W (57,320) (1,161,073) - -
Class R (2,604,111) (52,324,973) (1,023,578) (18,415,220)
Class R1 (182,138) (3,391,715) (21,804) (394,455)
Class R2 (102,033) (1,918,796) (4,075) (70,219)
Class R3 (1,201,203) (23,239,351) (249,484) (4,380,146)
Class R4 (1,370,125) (27,115,497) (81,019) (1,516,299)
Class R5 (3,790,821) (79,261,374) (1,138,695) (20,875,810)
Class 529A (12,022) (238,045) (5,526) (98,083)
Class 529B (1,755) (33,696) (463) (8,063)
Class 529C (8,388) (161,119) (2,944) (49,317)
- -------------------------------------------------------------------------------------------------------------
(49,580,857) $(997,200,180) (36,863,961) $(662,821,911)
Net change
Class A 19,029,007 $372,434,964 11,591,941 $212,685,843
Class B (427,019) (9,750,257) 1,062,334 17,611,794
Class C 1,729,723 31,930,869 1,698,118 28,903,186
Class I 25,967,986 522,771,646 28,566,011 532,578,498
Class W 446,369 9,134,898 53,111 1,031,086
Class R (210,989) (5,127,899) 925,063 16,304,028
Class R1 171,126 3,247,141 98,935 1,742,561
Class R2 205,281 3,975,665 43,844 790,651
Class R3 1,072,742 21,015,787 578,659 10,233,417
Class R4 2,483,185 49,720,934 656,820 12,022,905
Class R5 3,002,844 59,951,975 5,647,359 96,673,890
Class 529A 20,687 399,333 34,550 618,165
Class 529B 10,771 199,800 8,391 144,475
Class 529C 13,227 242,937 6,670 113,680
- -------------------------------------------------------------------------------------------------------------
53,514,940 $1,060,147,793 50,971,806 $931,454,179
(i) For the period from the class' inception, 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 International Diversification Fund, MFS Growth Allocation Fund, and MFS
Moderate Allocation fund were the owners of record of approximately 18%, 9%,
and 5%, 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 funds managed by MFS 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 funds managed by MFS 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 0.30%. 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, 2007, the fund's commitment fee and interest expense were $21,737
and $16,401, 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,
2007, 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, 2007, 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, 2007, 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 16, 2007
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2007, 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); MIT Sloan School
(education), Senior Lecturer
(since 2006); 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 (until 2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Retired; Cleveland-Cliffs Inc.
(born 5/30/42) (mining products and service
provider), Vice Chairman/Director
(until May 2007); Portman Limited
(mining), Director (since 2005);
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;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
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 New Profit, Inc. (venture
(born 8/05/57) philanthropy), Partner (since
2006); Private investor; Prism
Venture Partners (venture
capital), Co-founder and General
Partner (until June 2004); The
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) Chief
Compliance Officer (since December
2006); 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)
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 share- holders 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, Gutow, 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, 2007, the Trustees served as board members of 97 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
INDEPENDENT REGISTERED PUBLIC
DISTRIBUTOR ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 02116-3741 200 Clarendon Street, Boston, MA 02116
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, 2007 ("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 that included, among other items: (i) information provided
by Lipper Inc. on the investment performance of the Fund for various time
periods ended December 31, 2006 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 in 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, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's Class A shares was in the 1st 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, 2006 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 daily
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 currently observes an expense limitation for the Fund. The
Trustees also considered that, according to the Lipper data (which takes into
account the expense limitation and breakpoints described below), the Fund's
effective advisory fee rate and total expense ratio were each lower than the
Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information
provided by MFS as to the generally broader scope of services provided by MFS
to the Fund in comparison to institutional accounts, the higher demands placed
on MFS' investment personnel and trading infrastructure as a result of the
daily cash in-flows and out-flows of the Fund, and the impact on MFS and
expenses associated with the more extensive regulatory regime to which the
Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
subject to contractual breakpoints that reduce the Fund's advisory fee rate on
average daily net assets over $1 billion and $2 billion. 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 that 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, 2007.
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, 2007 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 2007 income
tax forms in January 2008. 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 $236,709,768 as capital gain dividends paid during the
fiscal year.
Income derived from foreign sources was $74,125,660. The fund intends to pass
through foreign tax credits of $3,721,353 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
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
MFS(R) TECHNOLOGY FUND
LETTER FROM THE CEO 1
- --------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- --------------------------------------------------------------
MANAGEMENT REVIEW 3
- --------------------------------------------------------------
PERFORMANCE SUMMARY 6
- --------------------------------------------------------------
EXPENSE TABLE 9
- --------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 11
- --------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 14
- --------------------------------------------------------------
STATEMENT OF OPERATIONS 17
- --------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 19
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS 20
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 26
- --------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 37
- --------------------------------------------------------------
TRUSTEES AND OFFICERS 38
- --------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 44
- --------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 49
- --------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 49
- --------------------------------------------------------------
FEDERAL TAX INFORMATION 49
- --------------------------------------------------------------
MFS(R) PRIVACY NOTICE 50
- --------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- --------------------------------------------------------------
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
- -------------------------------------------------------------------------------
8/31/07
SCT-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. But the Dow's upward
rise has not been without hiccups. After hitting new records in July 2007, the
Dow lost 8% in the following weeks as a crisis swept global credit markets. As
we have said before, markets can be volatile, and investors should make sure
they have an investment plan that can carry them through the peaks and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short-term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss. Investing
and planning for the long term require 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 15, 2007
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 (i)
Common Stocks 95.3%
Options 1.6%
Cash & Other Net Assets 3.1%
TOP TEN HOLDINGS (i)
Intel Corp. 7.3%
-------------------------------------------------
International Business Machines Corp. 4.7%
-------------------------------------------------
MSC. Software Corp. 4.5%
-------------------------------------------------
EMC Corp. 4.3%
-------------------------------------------------
salesforce.com, Inc. 4.3%
-------------------------------------------------
Network Appliance, Inc. 3.8%
-------------------------------------------------
Google, Inc., "A" 3.7%
-------------------------------------------------
VeriSign, Inc. 3.7%
-------------------------------------------------
Oracle Corp. 3.2%
-------------------------------------------------
Flextronics International Ltd. 2.9%
-------------------------------------------------
TOP FIVE INDUSTRIES (i)
Electronics 26.1%
-------------------------------------------------
Computer Software 22.8%
-------------------------------------------------
Computer Software - Systems 16.5%
-------------------------------------------------
Internet 7.6%
-------------------------------------------------
Network & Telecom 7.5%
-------------------------------------------------
(i) For purposes of this presentation, the bond component includes both
accrued interest amounts and the equivalent exposure from any derivative
holdings, if applicable.
Percentages are based on net assets as of 08/31/07.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2007, Class A shares of the MFS
Technology Fund provided a total return of 31.69%, at net asset value. This
compares with a return of 25.66% for the fund's benchmark, the Goldman Sachs
Technology Industry Composite Index.
MARKET ENVIRONMENT
The U.S. economy continues to decouple from the rest of the world, growing at a
slower pace than other major economies. Overall, global economies have seen
moderate to strong growth over the last twelve months as domestic demand
improves and world trade accelerates.
With the stronger growth, however, has come increased concern about rising
global inflation, especially as capacity becomes more constrained, wages rise,
and energy and food prices advance. Late in the reporting period, continued
robust global growth and fears of rising inflationary pressures led global
central banks to tighten monetary conditions beyond market expectations, which
in turn pushed global bond yields to their highest levels during this economic
expansion.
However, beginning in late July and August, heightened uncertainty and distress
concerning the subprime mortgage market caused several global credit markets to
seize up, forcing central banks to inject liquidity and to reassess their
tightening biases as sovereign bond yields plummeted and credit spreads widened
considerably. Increased market volatility has been exacerbated by U.S. home
foreclosures, falling housing prices, and weaker-than-expected jobs growth
reported by the U.S. Department of Labor. Despite increased volatility across
all asset classes, and the widening in credit spreads, global equity markets
have experienced only a mild correction to date.
CONTRIBUTORS TO PERFORMANCE
In the MFS Technology Fund, stock selection in the internet industry was a
primary driver of relative performance over the reporting period. Our
positioning in Chinese language internet search provider Baidu.com(aa) was the
single largest contributor. Other stocks within the industry that contributed
to results included holdings in internet software service provider Tencent
Holdings(aa) and on-line information services provider NHN Corp.(aa). The
fund's minimal exposure to poor-performing on-line information portal Yahoo!
also helped. Both Baidu.com and NHN Corp. benefited from rapid earnings growth
driven by the emerging and secular shifts to on-line advertising in their home
markets. Tencent benefited from very high user growth and monetization of its
traffic via fee and advertising revenue.
Stock selection in the leisure and toys industry benefited performance. Video
game publishing and distribution company Ubisoft Entertainment was a top
contributor.
Stock selection in the computer software industry added to positive results
over the reporting period. Underweighting software giant Microsoft(g) helped
results as this stock underperformed the benchmark.
Another positive for relative performance included our holdings of Japanese
video game console maker Nintendo(g)(aa). Nintendo benefited from the runaway
success of their Wii gaming console. Overweighting network equipment
manufacturer Juniper Networks(g) also helped. Juniper was one of last year's
largest detractors from performance, but we stayed the course. During this
reporting period, the stock performed well as growth in its core router markets
recovered, driven by rapid growth in bandwidth requirements among its
customers. Holdings of managed network services company Equinix(g) and
underweighting poor-performing wireless and broadband communications firm
Motorola also helped.
DETRACTORS FROM PERFORMANCE
Stock selection and an underweighted position in the computer systems industry
held back relative performance. Underweighting strong-performing computer
companies Apple(g) and IBM hindered results over the reporting period. We owned
Apple for a significant portion of the period but exited too early as
excitement over the iPhone and Mac computers propelled the stock to record
highs. Other stocks that detracted from performance included our positioning in
network storage company Network Appliance and manufacturer and marketer of high
performance computer systems Cray(aa).
The fund's allocation to the broadcasting industry, which is not represented in
the benchmark, also hurt results. No individual securities within this sector
were among the top detractors.
Stock selection in the electronics industry was another area of weakness.
Overweighting NAND flash memory storage products maker SanDisk and networking
chip maker Marvell Technology hampered performance as both stocks
underperformed during the period. SanDisk suffered from what we believe was a
temporary oversupply of flash memory chips.
Our positioning in non-benchmark constituent MSC.Software(aa), an enterprise
software company, and telecommunications equipment provider Sonus Networks hurt
results as both stocks underperformed the benchmark. MSC experienced delays in
its turnaround efforts due to weaker sales of new software releases. Elsewhere,
our holdings in Redback Networks(g), a broadband networking systems company,
and missing the run-up in the price of internet retailer Amazon.com hurt
relative performance.
Respectfully,
Telis Bertsekas
Portfolio Manager
(aa) Security is not a benchmark constituent.
(g) 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 or
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 8/31/07
The following chart illustrates a representative class of the fund's historical
performance 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. 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
Goldman Sachs
MFS Technology Technology Industry
Fund -- Class A Composite Index
8/97 $ 9,425 $10,000
8/98 9,368 9,671
8/99 15,481 20,302
8/00 29,092 33,134
8/01 11,342 12,141
8/02 6,631 7,682
8/03 8,806 10,631
8/04 8,169 10,313
8/05 9,379 12,022
8/06 10,747 12,225
8/07 14,153 15,361
TOTAL RETURNS THROUGH 8/31/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
- ----------------------------------------------------------------------------
A 1/02/97 31.69% 16.37% 4.15%
- ----------------------------------------------------------------------------
B 4/14/00 30.94% 15.64% 3.65%
- ----------------------------------------------------------------------------
C 4/14/00 30.86% 15.61% 3.64%
- ----------------------------------------------------------------------------
I 1/02/97 32.24% 16.77% 4.47%
- ----------------------------------------------------------------------------
R 12/31/02 31.51% 16.18% 4.06%
- ----------------------------------------------------------------------------
R1 4/01/05 30.66% 15.95% 3.96%
- ----------------------------------------------------------------------------
R2 4/01/05 31.22% 16.16% 4.06%
- ----------------------------------------------------------------------------
R3 10/31/03 31.40% 16.08% 4.02%
- ----------------------------------------------------------------------------
R4 4/01/05 31.72% 16.36% 4.14%
- ----------------------------------------------------------------------------
R5 4/01/05 32.06% 16.53% 4.22%
- ----------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmark
- ----------------------------------------------------------------------------
Goldman Sachs Technology Industry
Composite Index (f) 25.66% 14.87% 4.39%
- ----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- ----------------------------------------------------------------------------
A 24.12% 15.00% 3.53%
With Initial Sales Charge (5.75%)
- ----------------------------------------------------------------------------
B 26.94% 15.42% 3.65%
With CDSC (Declining over six years
from 4% to 0%) (x)
- ----------------------------------------------------------------------------
C 29.86% 15.61% 3.64%
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
Goldman Sachs Technology Industry Composite Index - a modified market
capitalization-weighted index of selected technology stocks.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
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, 2007 through August 31, 2007
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 (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, 2007 through August 31,
2007.
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). 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 3/01/07-
Class Ratio 3/01/07 8/31/07 8/31/07
- --------------------------------------------------------------------------------
Actual 1.50% $1,000.00 $1,120.10 $8.02
A ------------------------------------------------------------------------
Hypothetical (h) 1.50% $1,000.00 $1,017.64 $7.63
- --------------------------------------------------------------------------------
Actual 2.15% $1,000.00 $1,116.60 $11.47
B ------------------------------------------------------------------------
Hypothetical (h) 2.15% $1,000.00 $1,014.37 $10.92
- --------------------------------------------------------------------------------
Actual 2.15% $1,000.00 $1,116.80 $11.47
C ------------------------------------------------------------------------
Hypothetical (h) 2.15% $1,000.00 $1,014.37 $10.92
- --------------------------------------------------------------------------------
Actual 1.15% $1,000.00 $1,122.50 $6.15
I ------------------------------------------------------------------------
Hypothetical (h) 1.15% $1,000.00 $1,019.41 $5.85
- --------------------------------------------------------------------------------
Actual 1.65% $1,000.00 $1,119.30 $8.81
R ------------------------------------------------------------------------
Hypothetical (h) 1.65% $1,000.00 $1,016.89 $8.39
- --------------------------------------------------------------------------------
Actual 2.25% $1,000.00 $1,115.00 $11.99
R1 ------------------------------------------------------------------------
Hypothetical (h) 2.25% $1,000.00 $1,013.86 $11.42
- --------------------------------------------------------------------------------
Actual 1.90% $1,000.00 $1,118.70 $10.15
R2 ------------------------------------------------------------------------
Hypothetical (h) 1.90% $1,000.00 $1,015.63 $9.65
- --------------------------------------------------------------------------------
Actual 1.80% $1,000.00 $1,118.30 $9.61
R3 ------------------------------------------------------------------------
Hypothetical (h) 1.80% $1,000.00 $1,016.13 $9.15
- --------------------------------------------------------------------------------
Actual 1.55% $1,000.00 $1,120.20 $8.28
R4 ------------------------------------------------------------------------
Hypothetical (h) 1.55% $1,000.00 $1,017.39 $7.88
- --------------------------------------------------------------------------------
Actual 1.25% $1,000.00 $1,121.00 $6.68
R5 ------------------------------------------------------------------------
Hypothetical (h) 1.25% $1,000.00 $1,018.90 $6.36
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads).
If these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
8/31/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Common Stocks - 95.3%
- ----------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ----------------------------------------------------------------------------------------------------------------
Broadcasting - 1.9%
- ----------------------------------------------------------------------------------------------------------------
XM Satellite Radio Holdings, Inc., "A" (a)(l) 194,053 $ 2,419,841
- ----------------------------------------------------------------------------------------------------------------
Business Services - 3.3%
- ----------------------------------------------------------------------------------------------------------------
Amdocs Ltd. (a)(l) 53,320 $ 1,882,196
First Data Corp. 71,034 2,359,749
------------
$ 4,241,945
- ----------------------------------------------------------------------------------------------------------------
Computer Software - 22.8%
- ----------------------------------------------------------------------------------------------------------------
ACI Worldwide, Inc. (a)(l) 55,777 $ 1,449,086
Adobe Systems, Inc. (a) 80,438 3,438,725
Business Objects S.A., ADR (a) 71,404 3,135,350
McAfee, Inc. (a) 24,020 858,715
MSC.Software Corp. (a)(l) 452,796 5,727,869
Oracle Corp. (a) 201,818 4,092,869
salesforce.com, Inc. (a)(l) 136,003 5,498,601
VeriSign, Inc. (a) 145,596 4,688,191
------------
$ 28,889,406
- ----------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 16.5%
- ----------------------------------------------------------------------------------------------------------------
Cray, Inc. (a)(l) 319,440 $ 2,255,246
EMC Corp. (a) 280,083 5,506,432
International Business Machines Corp. (l) 50,960 5,946,522
Network Appliance, Inc. (a) 172,318 4,800,779
Salary.com, Inc. (a) 202,140 2,472,172
------------
$ 20,981,151
- ----------------------------------------------------------------------------------------------------------------
Electronics - 26.1%
- ----------------------------------------------------------------------------------------------------------------
Flextronics International Ltd. (a)(l) 324,270 $ 3,693,435
Intel Corp. 358,866 9,240,800
Marvell Technology Group Ltd. (a) 139,106 2,304,986
National Semiconductor Corp. (l) 137,180 3,610,578
Samsung Electronics Co. Ltd., GDR 11,103 3,525,203
SanDisk Corp. (a)(l) 59,416 3,330,861
Solectron Corp. (a)(l) 940,530 3,649,256
Taiwan Semiconductor Manufacturing Co. Ltd., ADR 371,265 3,682,949
------------
$ 33,038,068
- ----------------------------------------------------------------------------------------------------------------
Internet - 7.6%
- ----------------------------------------------------------------------------------------------------------------
Google, Inc., "A" (a) 9,135 $ 4,706,809
NHN Corp. (a) 8,624 1,663,676
Tencent Holdings Ltd. 624,000 3,240,935
------------
$ 9,611,420
- ----------------------------------------------------------------------------------------------------------------
Leisure & Toys - 3.8%
- ----------------------------------------------------------------------------------------------------------------
Electronic Arts, Inc. (a)(l) 55,300 $ 2,927,582
Ubisoft Entertainment S.A. (a) 29,482 1,830,511
------------
$ 4,758,093
- ----------------------------------------------------------------------------------------------------------------
Network & Telecom - 7.5%
- ----------------------------------------------------------------------------------------------------------------
Motorola, Inc. 92,310 $ 1,564,655
QLogic Corp. (a) 136,700 1,818,110
Research In Motion Ltd. (a) 37,081 3,167,088
Sonus Networks, Inc. (a)(l) 509,980 2,947,684
------------
$ 9,497,537
- ----------------------------------------------------------------------------------------------------------------
Specialty Stores - 2.0%
- ----------------------------------------------------------------------------------------------------------------
GameStop Corp., "A" (a) 50,300 $ 2,522,042
- ----------------------------------------------------------------------------------------------------------------
Telephone Services - 3.8%
- ----------------------------------------------------------------------------------------------------------------
AT&T, Inc. 64,100 $ 2,555,667
Qwest Communications International, Inc. (a)(l) 256,250 2,293,439
------------
$ 4,849,106
- ----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $120,197,316) $120,808,609
- ----------------------------------------------------------------------------------------------------------------
NUMBER
ISSUER/EXPIRATION DATE/STRIKE PRICE OF CONTRACTS VALUE ($)
- ----------------------------------------------------------------------------------------------------------------
Call Options Purchased - 0.2%
- ----------------------------------------------------------------------------------------------------------------
Yahoo!, Inc. - April 2008 @ $25 (Premiums Paid, $322,332) (a) 1,490 $ 322,332
- ----------------------------------------------------------------------------------------------------------------
Put Options Purchased - 1.4%
- ----------------------------------------------------------------------------------------------------------------
Baidu.com, Inc. - December 2007 @ $220 (a) 108 $ 328,320
Sap Aktiengesellschaft - March 2008 @ $60 871 627,120
Nvidia Corp. - March 2008 @ $60 (a) 760 874,000
- ----------------------------------------------------------------------------------------------------------------
TOTAL PUT OPTIONS PURCHASED (PREMIUMS PAID, $2,386,989) $ 1,829,440
- ----------------------------------------------------------------------------------------------------------------
Short-Term Obligations - 2.1%
- ----------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ----------------------------------------------------------------------------------------------------------------
Citigroup Funding, Inc., 5.25%, due 9/04/07,
at Amortized Cost and Value (y) $ 2,642,000 $ 2,640,844
- ----------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 17.9%
- ----------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Cost and Net Asset Value 22,661,936 $ 22,661,936
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $148,209,417) $148,263,161
- ----------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (16.9)% (21,447,790)
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $126,815,371
- ----------------------------------------------------------------------------------------------------------------
(a) Non-income producing security.
(l) All or a portion of this security is on loan.
(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
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/07
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 $22,678,235 of securities
on loan (identified cost, $148,209,417) $148,263,161
Cash 102,463
Foreign currency, at value (identified cost, $33) 30
Receivable for investments sold 2,942,755
Receivable for fund shares sold 619,929
Interest and dividends receivable 61,039
Receivable from investment adviser 11,274
Other assets 707
- -------------------------------------------------------------------------------------------------------
Total assets $152,001,358
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $2,123,745
Payable for fund shares reacquired 125,243
Collateral for securities loaned, at value (c) 22,661,936
Payable to affiliates
Management fee 5,142
Shareholder servicing costs 107,883
Distribution and service fees 4,330
Administrative services fee 160
Retirement plan administration and services fees 95
Payable for independent trustees' compensation 58,668
Accrued expenses and other liabilities 98,785
- -------------------------------------------------------------------------------------------------------
Total liabilities $25,185,987
- -------------------------------------------------------------------------------------------------------
Net assets $126,815,371
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -------------------------------------------------------------------------------------------------------
Paid-in capital $416,670,698
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 53,975
Accumulated net realized gain (loss) on investments and
foreign currency transactions (289,909,302)
- -------------------------------------------------------------------------------------------------------
Net assets $126,815,371
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 9,707,343
- -------------------------------------------------------------------------------------------------------
(c) Non-cash collateral not included.
Statement of Assets and Liabilities - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $56,598,032
Shares outstanding 4,242,059
- -------------------------------------------------------------------------------------------------------
Net asset value per share $13.34
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $14.15
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $38,539,668
Shares outstanding 3,025,083
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $12.74
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $16,063,558
Shares outstanding 1,263,001
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $12.72
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $4,179,622
Shares outstanding 304,195
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $13.74
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $2,042,607
Shares outstanding 154,386
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $13.23
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,234,610
Shares outstanding 97,192
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $12.70
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,236,655
Shares outstanding 96,494
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $12.82
- -------------------------------------------------------------------------------------------------------
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $5,291,856
Shares outstanding 402,757
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $13.14
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,547,467
Shares outstanding 116,123
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $13.33
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $81,296
Shares outstanding 6,053
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $13.43
- -------------------------------------------------------------------------------------------------------
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 8/31/07
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 $674,318
Interest 120,123
Income on securities loaned 77,096
Foreign taxes withheld (45,976)
- ------------------------------------------------------------------------------------------------------
Total investment income $825,561
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $910,687
Distribution and service fees 777,081
Shareholder servicing costs 311,236
Administrative services fee 29,876
Retirement plan administration and services fees 10,229
Independent trustees' compensation 21,504
Custodian fee 70,554
Shareholder communications 133,189
Auditing fees 50,067
Legal fees 3,079
Miscellaneous 112,489
- ------------------------------------------------------------------------------------------------------
Total expenses $2,429,991
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (2,021)
Reduction of expenses by investment adviser (245,759)
- ------------------------------------------------------------------------------------------------------
Net expenses $2,182,211
- ------------------------------------------------------------------------------------------------------
Net investment loss $(1,356,650)
- ------------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions (s) $31,036,465
Foreign currency transactions (79,306)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $30,957,159
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $1,743,168
Translation of assets and liabilities in foreign currencies 51,260
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $1,794,428
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $32,751,587
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $31,394,937
- ------------------------------------------------------------------------------------------------------
(s) Includes proceeds received from a non-recurring cash settlement in the amount of $675,148 from a
litigation settlement against Global Research Analyst II.
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
------------------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment loss $(1,356,650) $(1,614,441)
Net realized gain (loss) on investments and foreign
currency transactions 30,957,159 21,168,444
Net unrealized gain (loss) on investments and foreign
currency translation 1,794,428 (4,992,797)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $31,394,937 $14,561,206
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(6,670,719) $(23,708,788)
- -------------------------------------------------------------------------------------------------------
Total change in net assets $24,724,218 $(9,147,582)
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period 102,091,153 111,238,735
At end of period $126,815,371 $102,091,153
- -------------------------------------------------------------------------------------------------------
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.
CLASS A YEARS ENDED 8/31
----------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $10.13 $8.84 $7.70 $8.30 $6.25
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.10) $(0.11) $(0.05) $(0.10) $(0.07)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.31 1.40 1.19 (0.50) 2.12
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.21 $1.29 $1.14 $(0.60) $2.05
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.34 $10.13 $8.84 $7.70 $8.30
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 31.69 14.59 14.81 (7.23)(b) 32.80
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.70 1.79 1.79 1.60 1.76
Expenses after expense reductions (f) 1.50 1.50 1.51 1.50 1.52
Net investment loss (0.82) (1.13) (0.56) (1.10) (1.05)
Portfolio turnover 266 217 163 141 162
Net assets at end of period (000 Omitted) $56,598 $43,313 $48,945 $75,786 $101,059
- ---------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $9.73 $8.55 $7.50 $8.13 $6.16
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.17) $(0.17) $(0.10) $(0.15) $(0.11)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.18 1.35 1.15 (0.48) 2.08
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.01 $1.18 $1.05 $(0.63) $1.97
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.74 $9.73 $8.55 $7.50 $8.13
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 30.94 13.80 14.00 (7.75)(b) 31.98
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.36 2.44 2.44 2.25 2.42
Expenses after expense reductions (f) 2.15 2.15 2.16 2.15 2.18
Net investment loss (1.47) (1.79) (1.24) (1.74) (1.71)
Portfolio turnover 266 217 163 141 162
Net assets at end of period (000 Omitted) $38,540 $39,025 $43,765 $50,896 $61,353
- ------------------------------------------------------------------------------------------------------------------------------
CLASS C YEARS ENDED 8/31
----------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $9.72 $8.54 $7.48 $8.12 $6.16
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.17) $(0.17) $(0.10) $(0.15) $(0.11)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.17 1.35 1.16 (0.49) 2.07
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.00 $1.18 $1.06 $(0.64) $1.96
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.72 $9.72 $8.54 $7.48 $8.12
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 30.86 13.82 14.17 (7.88)(b) 31.82
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.35 2.44 2.44 2.25 2.42
Expenses after expense reductions (f) 2.15 2.15 2.16 2.15 2.18
Net investment loss (1.46) (1.78) (1.22) (1.74) (1.71)
Portfolio turnover 266 217 163 141 162
Net assets at end of period (000 Omitted) $16,064 $11,659 $12,414 $15,367 $20,210
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 8/31
----------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $10.39 $9.04 $7.85 $8.43 $6.33
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $(0.06) $(0.08) $0.01 $(0.06) $(0.05)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.41 1.43 1.18 (0.52) 2.15
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.35 $1.35 $1.19 $(0.58) $2.10
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.74 $10.39 $9.04 $7.85 $8.43
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 32.24 14.93 15.16 (6.88)(b) 33.18
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.35 1.43 1.44 1.26 1.41
Expenses after expense reductions (f) 1.15 1.15 1.16 1.16 1.17
Net investment income (loss) (0.47) (0.78) 0.17 (0.70) (0.71)
Portfolio turnover 266 217 163 141 162
Net assets at end of period (000 Omitted) $4,180 $3,492 $3,384 $13,404 $4,179
- -----------------------------------------------------------------------------------------------------------------------------
CLASS R YEARS ENDED 8/31
-----------------------------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $10.06 $8.80 $7.67 $8.28 $6.16
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.12) $(0.13) $(0.07) $(0.10) $(0.08)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.29 1.39 1.20 (0.51) 2.20
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.17 $1.26 $1.13 $(0.61) $2.12
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.23 $10.06 $8.80 $7.67 $8.28
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 31.51 14.32 14.73 (7.37)(b) 34.42(n)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.87 1.93 1.94 1.76 1.88(a)
Expenses after expense reductions (f) 1.65 1.65 1.66 1.66 1.64(a)
Net investment loss (0.99) (1.28) (0.79) (1.21) (1.22)(a)
Portfolio turnover 266 217 163 141 162
Net assets at end of period (000 Omitted) $2,043 $3,047 $2,283 $1,266 $173
- ---------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 8/31
------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $9.72 $8.55 $8.01
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.19) $(0.18) $(0.07)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.17 1.35 0.61(g)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.98 $1.17 $0.54
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.70 $9.72 $8.55
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 30.66 13.68 6.74(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.48 2.63 2.62(a)
Expenses after expense reductions (f) 2.25 2.25 2.34(a)
Net investment loss (1.63) (1.88) (1.90)(a)
Portfolio turnover 266 217 163
Net assets at end of period (000 Omitted) $1,235 $213 $64
- -------------------------------------------------------------------------------------------------------------------
CLASS R2 YEARS ENDED 8/31
-------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $9.77 $8.56 $8.01
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.14) $(0.15) $(0.05)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.19 1.36 0.60(g)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.05 $1.21 $0.55
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.82 $9.77 $8.56
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 31.22 14.14 6.87(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.13 2.33 2.32(a)
Expenses after expense reductions (f) 1.90 1.90 2.04(a)
Net investment loss (1.16) (1.52) (1.60)(a)
Portfolio turnover 266 217 163
Net assets at end of period (000 Omitted) $1,237 $367 $85
- -------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 8/31
------------------------------------------------------------
2007 2006 2005 2004(i)
Net asset value, beginning of period $10.00 $8.76 $7.66 $8.79
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.13) $(0.14) $(0.09) $(0.09)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.27 1.38 1.19 (1.04)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.14 $1.24 $1.10 $(1.13)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.14 $10.00 $8.76 $7.66
- ------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 31.40 14.16 14.36 (12.86)(b)(n)
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.98 2.18 2.19 2.01(a)
Expenses after expense reductions (f) 1.80 1.80 1.91 1.91(a)
Net investment loss (1.07) (1.41) (1.07) (1.47)(a)
Portfolio turnover 266 217 163 141
Net assets at end of period (000 Omitted) $5,292 $800 $192 $132
- ------------------------------------------------------------------------------------------------------------------------
CLASS R4 YEARS ENDED 8/31
------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $10.12 $8.85 $8.26
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.10) $(0.14) $(0.04)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.31 1.41 0.63(g)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.21 $1.27 $0.59
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.33 $10.12 $8.85
- ------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 31.72 14.35 7.14(n)
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.70 1.84 1.82(a)
Expenses after expense reductions (f) 1.55 1.55 1.54(a)
Net investment loss (0.76) (1.18) (1.10)(a)
Portfolio turnover 266 217 163
Net assets at end of period (000 Omitted) $1,547 $113 $54
- ------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 8/31
------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $10.17 $8.86 $8.26
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.07) $(0.09) $(0.03)
Net realized and unrealized gain (loss)
on investments and foreign currency 3.33 1.40 0.63(g)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.26 $1.31 $0.60
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.43 $10.17 $8.86
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 32.06 14.79 7.26(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.45 1.53 1.52(a)
Expenses after expense reductions (f) 1.25 1.25 1.24(a)
Net investment loss (0.56) (0.88) (0.79)(a)
Portfolio turnover 266 217 163
Net assets at end of period (000 Omitted) $81 $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 per share amount of 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) 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. Excluding the effect of the proceeds received from a non-recurring litigation against Global
Research Analyst II, the Class A, Class B, Class C, Class I, Class R, Class R1, Class R2, Class R3, Class R4,
and Class R5 total returns for the year ended August 31, 2007 would have each been lower by approximately
0.56%.
(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. For securities held short for
which there were no sales reported for the day, the position is generally
valued at the last quoted daily ask quotation as reported by an independent
pricing service on the market or exchange on which such securities 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.
Exchange-traded options are generally valued at the last sale or official
closing price as reported by an independent pricing service on the exchange on
which such options are primarily traded. Exchange-traded options for which
there were no sales reported that day are generally valued at the last daily
bid quotation as reported by an independent pricing service on the exchange on
which such options are primarily traded. Options not traded on an exchange are
generally valued at a broker-dealer bid quotation. Foreign currency options are
generally valued using an external pricing model that uses market data from an
independent source. 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. Values obtained from pricing services can
utilize both dealer-supplied valuations and electronic data processing
techniques, which take into account factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data. 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 and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. 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. 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 September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the fund, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the fund's financial statements.
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 and other funds managed by
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.
DERIVATIVE RISK - The fund may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the fund uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include purchased options.
PURCHASED OPTIONS - The fund may purchase call or put options for a premium.
Purchasing call options may be a hedge against an anticipated increase in the
dollar cost of securities to be acquired or to increase the fund's exposure to
the underlying instrument. Purchasing put options may hedge against a decline
in the value of portfolio securities. The premium paid is included as an
investment in the Statement of Assets and Liabilities and is subsequently
adjusted to the current value of the option. Premiums paid for purchased
options which have expired are treated as realized losses on investments in the
Statement of Operations. Premiums paid for purchased options which are
exercised or closed are added to the amount paid or offset against the proceeds
on the underlying security or financial instrument to determine the realized
gain or loss. The risk of loss associated with purchased options is limited to
the premium paid.
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.
At August 31, 2007, the value of securities loaned was $22,678,235. These loans
were collateralized by cash of $22,661,936 and U.S. Treasury obligations of
$584,692.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
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. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been disposed
of by the fund or in unrealized gain/loss if the security is still held by the
fund. Any other proceeds from litigation not related to portfolio holdings are
reflected as other income in the Statement of Operations. The fund was a
participant in litigation against Global Research Analyst II. On May 18, 2007,
the fund received a cash settlement in the amount of $675,148.
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, 2007, 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 U.S. 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, derivative transactions and foreign currency transactions.
The fund declared no distributions for the years ended August 31, 2007 and
August 31, 2006.
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/07
Cost of investments $148,350,291
--------------------------------------------------------
Gross appreciation $6,762,105
Gross depreciation (6,849,235)
--------------------------------------------------------
Net unrealized appreciation (depreciation) $(87,130)
Capital loss carryforwards $(290,006,147)
Other temporary differences 237,950
As of August 31, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
8/31/08 $(5,483,255)
8/31/09 (113,374,272)
8/31/10 (91,793,756)
8/31/11 (74,891,618)
8/31/12 (4,463,246)
-----------------------------------------------
$(290,006,147)
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. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. 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 evaluated the application of the Interpretation to the fund, and has
determined that there is no impact 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. The
investment adviser has agreed in writing to reduce its management fee to 0.70%
of average daily net assets in excess of $1 billion. This written agreement may
be rescinded only upon consent of the fund's Board of Trustees. For the year
ended August 31, 2007, the fund's average daily net assets did not exceed $1
billion and therefore, the management fee was not reduced.
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, 2007 unless changed or rescinded by the fund's Board of Trustees.
For the year ended August 31, 2007, this reduction amounted to $243,688 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 $25,913 for the year ended August 31, 2007, 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% $193,230
Class B 0.75% 0.25% 1.00% 1.00% 405,938
Class C 0.75% 0.25% 1.00% 1.00% 141,381
Class R 0.25% 0.25% 0.50% 0.50% 14,930
Class R1 0.50% 0.25% 0.75% 0.75% 4,283
Class R2 0.25% 0.25% 0.50% 0.50% 4,307
Class R3 0.25% 0.25% 0.50% 0.50% 10,932
Class R4 -- 0.25% 0.25% 0.25% 2,080
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $777,081
(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, 2007 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,
2007, were as follows:
AMOUNT
Class A $1,469
Class B $53,360
Class C $3,829
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 daily net assets of
the fund as determined periodically under the supervision of the fund's Board
of Trustees. For the year ended August 31, 2007, the fee was $74,674, which
equated to 0.0614% annually of the fund's average daily net assets. MFSC also
receives payment from the fund for out-of-pocket expenses, sub-accounting and
other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the year ended August 31, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $200,361. The fund may also pay shareholder servicing related costs
directly 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 average daily net assets. The fund's annual fixed
amount is $17,500.
The administrative services fee incurred for the year ended August 31, 2007 was
equivalent to an annual effective rate of 0.0246% 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, 2007,
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:
BEGINNING OF ANNUAL
PERIOD THROUGH EFFECTIVE EFFECTIVE TOTAL
3/31/07 4/01/07 RATE (g) AMOUNT
Class R1 0.45% 0.35% 0.35% $2,244
Class R2 0.40% 0.25% 0.25% 2,705
Class R3 0.25% 0.15% 0.15% 3,958
Class R4 0.15% 0.15% 0.15% 1,248
Class R5 0.10% 0.10% 0.10% 74
- -------------------------------------------------------------------------------
Total Retirement Plan Administration
and Services Fees $10,229
(g) Prior to April 1, 2007, MFS had agreed in writing to waive a portion of
the retirement plan administration and services fee equal to 0.10% for
Class R1, 0.15% for Class R2, and 0.10% for Class R3 shares. This
agreement was discontinued on March 31, 2007. On April 1, 2007, the annual
retirement plan administration and services fee for Class R1, Class R2,
and Class R3 shares was lowered to 0.35%, 0.25%, and 0.15%, respectively.
For the year ended August 31, 2007, the waiver amounted to $1,474 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 $537. The fund also has an
unfunded retirement benefit deferral plan for certain independent trustees
which resulted in an expense of $15,781. Both amounts are included in
independent trustees' compensation for the year ended August 31, 2007. The
liability for deferred retirement benefits payable to certain independent
trustees under both plans amounted to $58,605 at August 31, 2007, 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, 2007, the fee paid to Tarantino LLC
was $772. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $597, 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
$311,893,601 and $324,710,450 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
8/31/07 8/31/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 3,442,780 $41,496,726 936,633 $9,265,824
Class B 421,660 4,813,524 431,689 4,087,393
Class C 437,671 5,063,349 168,042 1,594,448
Class I 165,126 2,024,322 84,307 859,389
Class R 110,132 1,325,272 100,509 991,380
Class R1 117,084 1,353,781 24,284 239,333
Class R2 102,083 1,194,966 31,881 288,973
Class R3 524,754 6,394,355 97,787 947,694
Class R4 154,810 1,893,456 77,723 839,955
Class R5 -- -- 8 78
- ----------------------------------------------------------------------------------------------------------
5,476,100 $65,559,751 1,952,863 $19,114,467
Shares reacquired
Class A (3,477,640) $(42,197,715) (2,193,910) $(21,391,336)
Class B (1,406,387) (16,189,416) (1,538,128) (14,435,786)
Class C (374,649) (4,293,791) (421,535) (3,939,737)
Class I (196,959) (2,409,326) (122,505) (1,226,997)
Class R (258,793) (3,124,742) (57,043) (568,460)
Class R1 (41,812) (475,041) (9,866) (98,868)
Class R2 (43,177) (516,713) (4,276) (38,622)
Class R3 (202,048) (2,403,309) (39,636) (372,004)
Class R4 (49,880) (620,417) (72,583) (751,370)
Class R5 -- -- (8) (75)
- -----------------------------------------------------------------------------------------------------------
(6,051,345) $(72,230,470) (4,459,490) $(42,823,255)
Net change
Class A (34,860) $(700,989) (1,257,277) $(12,125,512)
Class B (984,727) (11,375,892) (1,106,439) (10,348,393)
Class C 63,022 769,558 (253,493) (2,345,289)
Class I (31,833) (385,004) (38,198) (367,608)
Class R (148,661) (1,799,470) 43,466 422,920
Class R1 75,272 878,740 14,418 140,465
Class R2 58,906 678,253 27,605 250,351
Class R3 322,706 3,991,046 58,151 575,690
Class R4 104,930 1,273,039 5,140 88,585
Class R5 -- -- -- 3
- -----------------------------------------------------------------------------------------------------------
(575,245) $(6,670,719) (2,506,627) $(23,708,788)
(6) LINE OF CREDIT
The fund and other funds managed by MFS 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 funds managed by MFS 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 0.30%. 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, 2007, the fund's commitment fee and interest expense were $598 and
$1,774, 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, 2007, 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, 2007, 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, 2007, 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 16, 2007
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2007, 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); MIT Sloan School
(education), Senior Lecturer
(since 2006); 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 (until 2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Retired; Cleveland-Cliffs Inc.
(born 5/30/42) (mining products and service
provider), Vice Chairman/Director
(until May 2007); Portman Limited
(mining), Director (since 2005);
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;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
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 New Profit, Inc. (venture
(born 8/05/57) philanthropy), Partner (since
2006); Private investor; Prism
Venture Partners (venture
capital), Co-founder and General
Partner (until June 2004); The
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) Chief
Compliance Officer (since December
2006); 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)
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, Gutow, 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, 2007, the Trustees served as board members of 97 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.
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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
MFS Fund Distributors, Inc. ACCOUNTING FIRM
500 Boylston Street, Boston, MA 02116-3741 Ernst & Young LLP
200 Clarendon Street, Boston, MA 02116
PORTFOLIO MANAGER
Telis 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, 2007 ("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 that included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2006 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 in 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, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's Class A shares was in the 1st 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 3rd quintile for the five-year period ended
December 31, 2006 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 addition to considering the performance information provided in connection
with the contract review meetings, the independent Trustees noted that, in
light of the Fund's substandard relative performance at the time of their
contract review meetings in 2006, they had met at each of their regular
meetings through January 2007 with MFS' senior investment management personnel
to discuss the Fund's performance and MFS' efforts to improve the Fund's
performance, as well as met with portfolio management personnel at investment
review meetings conducted during the course of the year. The independent
Trustees further noted that the Fund's relative performance for the three-year
period ended December 31, 2006 had improved in comparison to the prior year.
Taking this information into account, 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 daily 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
average daily net 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 (which
takes into account the expense limitation), the Fund's effective advisory fee
rate and total expense ratio were each lower than the Lipper expense group
median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the
Fund in comparison to institutional accounts, the higher demands placed on MFS'
investment personnel and trading infrastructure as a result of the daily cash
in-flows and out-flows of the Fund, and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
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 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 that 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, 2007.
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, 2007
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 2007 income
tax forms in January 2008.
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 02205-5824
1-800-637-8255
24 hours a day OVERNIGHT MAIL
MFS Service Center, Inc.
ACCOUNT SERVICE AND 500 Boylston Street
LITERATURE 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(R) 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(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) 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) VALUE 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 15
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STATEMENT OF OPERATIONS 18
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STATEMENTS OF CHANGES IN NET ASSETS 20
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FINANCIAL HIGHLIGHTS 22
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NOTES TO FINANCIAL STATEMENTS 36
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 48
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TRUSTEES AND OFFICERS 49
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 55
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PROXY VOTING POLICIES AND INFORMATION 59
- ------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 59
- ------------------------------------------------------------------
FEDERAL TAX INFORMATION 59
- ------------------------------------------------------------------
MFS(R) PRIVACY NOTICE 60
- ------------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
8/31/07
EIF-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. But the Dow's upward
rise has not been without hiccups. After hitting new records in July 2007, the
Dow lost 8% in the following weeks as a crisis swept global credit markets. As
we have said before, markets can be volatile, and investors should make sure
they have an investment plan that can carry them through the peaks and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short- term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss. Investing
and planning for the long term require 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 15, 2007
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 99.0%
Cash & Other Net Assets 1.0%
TOP TEN HOLDINGS
Lockheed Martin Corp. 4.4%
------------------------------------------------
Altria Group, Inc. 3.5%
------------------------------------------------
Bank of America Corp. 3.4%
------------------------------------------------
Allstate Corp. 3.0%
------------------------------------------------
Citigroup, Inc. 2.8%
------------------------------------------------
Exxon Mobil Corp. 2.7%
------------------------------------------------
MetLife, Inc. 2.6%
------------------------------------------------
TOTAL S.A., ADR 2.4%
------------------------------------------------
Johnson & Johnson 2.4%
------------------------------------------------
Goldman Sachs Group, Inc. 2.1%
------------------------------------------------
EQUITY SECTORS
Financial Services 29.0%
------------------------------------------------
Energy 12.0%
------------------------------------------------
Industrial Goods & Services 11.2%
------------------------------------------------
Consumer Staples 9.4%
------------------------------------------------
Health Care 8.7%
------------------------------------------------
Utilities & Communications 7.5%
------------------------------------------------
Retailing 4.6%
------------------------------------------------
Basic Materials 4.3%
------------------------------------------------
Technology 4.2%
------------------------------------------------
Autos & Housing 3.2%
------------------------------------------------
Leisure 2.9%
------------------------------------------------
Special Products & Services 1.0%
------------------------------------------------
Transportation 1.0%
------------------------------------------------
Percentages are based on net assets as of 08/31/07.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended August 31, 2007, Class A shares of the MFS Value
Fund provided a total return of 16.42%, at net asset value. This compares with
a return of 12.85% for the fund's benchmark, the Russell 1000 Value Index.
MARKET ENVIRONMENT
The U.S. economy continues to decouple from the rest of the world, growing at a
slower pace than other major economies. Overall, global economies have seen
moderate to strong growth over the last twelve months as domestic demand
improves and world trade accelerates.
With the stronger growth, however, has come increased concern about rising
global inflation, especially as capacity becomes more constrained, wages rise,
and energy and food prices advance. Late in the reporting period, continued
robust global growth and fears of rising inflationary pressures led global
central banks to tighten monetary conditions beyond market expectations, which
in turn pushed global bond yields to their highest levels during this economic
expansion.
However, beginning in late July and August, heightened uncertainty and distress
concerning the subprime mortgage market caused several global credit markets to
seize up, forcing central banks to inject liquidity and to reassess their
tightening biases as sovereign bond yields plummeted and credit spreads widened
considerably. Increased market volatility has been exacerbated by U.S. home
foreclosures, falling housing prices, and weaker-than-expected jobs growth
reported by the U.S. Department of Labor. Despite increased volatility across
all asset classes, and the widening in credit spreads, global equity markets
have experienced only a mild correction to date.
CONTRIBUTORS TO PERFORMANCE
For the MFS Value Fund, stock selection in the financial services sector was a
principal factor in positive performance relative to the benchmark. Investment
banking firm Goldman Sachs was among the top contributors. Goldman Sachs
reported strong quarterly earnings and benefited from a robust capital markets
environment prior to the turmoil in the subprime mortgage markets. Not owning
financial services firm Wachovia, a poor-performing benchmark constituent, was
also a positive factor for relative performance.
A combination of stock selection and an overweighted position in the strong-
performing industrial goods and services sector boosted relative performance.
Agricultural equipment manufacturer Deere & Co. and defense contractor Lockheed
Martin(aa) were top contributors. Deere & Co. turned in solid quarterly results
and raised guidance for the fiscal year 2007. Gains by Lockheed Martin were
driven by strong revenue growth, improved margins, and key contract awards
during the reporting period.
Stock selection in the consumer staples sector aided results. The fund's
underweighted positioning in household products maker Procter & Gamble, which
underperformed the benchmark, benefited performance.
Stock selection in the technology sector also helped generate favorable
results. Semiconductor manufacturer Intel(aa) was among the fund's top
contributors.
Avoiding poor-performing pharmaceutical company Pfizer for most of the
reporting period also helped. Elsewhere, communications services provider
Vodafone(aa), athletic shoes and apparel manufacturer Nike(aa), and management
consulting firm Accenture(aa) posted strong relative returns.
DETRACTORS FROM PERFORMANCE
Stock selection and, to a lesser extent, an underweighted position in the
energy sector dampened relative performance. The fund's underweighting in
integrated oil and gas companies, Chevron and Exxon Mobil, particularly hurt.
Underweighting the leisure sector also held back results. Not owning fast food
chain giant McDonald's detracted from performance as the company's stock
outperformed the benchmark over the reporting period.
Elsewhere, the fund's underweighted positioning in strong-performing
telecommunications company AT&T hurt. Health care products maker Johnson &
Johnson, insurance companies Allstate and Genworth Financial, department stores
operator Macy's, financial services firm UBS(aa), and home improvement products
maker Masco were top detractors. Concerns regarding the deterioration of the
U.S. housing market and weaker-than-expected earnings due to rising raw
materials prices weighed on Masco's shares during the period.
Respectfully,
Nevin Chitkara Steven Gorham
Portfolio Manager Portfolio Manager
(aa) Security is not a benchmark constituent.
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 or
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 8/31/07
The following chart illustrates a representative class of the fund's historical
performance 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. 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
Fund -- Russell 1000
Class A Value Index
8/97 $ 9,425 $10,000
8/98 10,321 10,389
8/99 12,826 13,514
8/00 14,872 14,076
8/01 15,345 13,918
8/02 13,866 12,090
8/03 14,729 13,496
8/04 17,252 15,860
8/05 19,901 18,534
8/06 22,362 21,120
8/07 26,035 23,835
TOTAL RETURNS THROUGH 8/31/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
- ----------------------------------------------------------------------------
A 1/02/96 16.42% 13.43% 10.69%
- ----------------------------------------------------------------------------
B 11/04/97 15.64% 12.68% 10.00%
- ----------------------------------------------------------------------------
C 11/05/97 15.66% 12.68% 10.00%
- ----------------------------------------------------------------------------
I 1/02/97 16.78% 13.81% 11.09%
- ----------------------------------------------------------------------------
W 5/01/06 16.73% 13.50% 10.73%
- ----------------------------------------------------------------------------
R 12/31/02 16.22% 13.27% 10.62%
- ----------------------------------------------------------------------------
R1 4/01/05 15.55% 13.01% 10.49%
- ----------------------------------------------------------------------------
R2 4/01/05 15.92% 13.21% 10.59%
- ----------------------------------------------------------------------------
R3 10/31/03 16.07% 13.13% 10.55%
- ----------------------------------------------------------------------------
R4 4/01/05 16.38% 13.41% 10.69%
- ----------------------------------------------------------------------------
R5 4/01/05 16.70% 13.57% 10.76%
- ----------------------------------------------------------------------------
529A 7/31/02 16.09% 13.11% 10.54%
- ----------------------------------------------------------------------------
529B 7/31/02 15.37% 12.41% 10.19%
- ----------------------------------------------------------------------------
529C 7/31/02 15.34% 12.41% 10.19%
- -------------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmark
- -------------------------------------------------------------------------------
Russell 1000 Value Index (f) 12.85% 14.54% 9.07%
- -------------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -------------------------------------------------------------------------------
A 9.73% 12.09% 10.04%
With Initial Sales Charge (5.75%)
-------------------------------------------------------------------------
B 11.64% 12.43% 10.00%
With CDSC (Declining over six years
from 4% to 0%) (x)
-------------------------------------------------------------------------
C 14.66% 12.68% 10.00%
With CDSC (1% for 12 months) (x)
-------------------------------------------------------------------------
529A 9.41% 11.78% 9.89%
With Initial Sales Charge (5.75%)
-------------------------------------------------------------------------
529B 11.37% 12.16% 10.19%
With CDSC (Declining over six years
from 4% to 0%) (x)
-------------------------------------------------------------------------
529C 14.34% 12.41% 10.19%
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
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, 2007 through August 31, 2007
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 (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, 2007 through August 31,
2007.
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). 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
Beginning Ending Paid During
Annualized Account Account Period (p)
Share Expense Value Value 3/01/07-
Class Ratio 3/01/07 8/31/07 8/31/07
- --------------------------------------------------------------------------------
Actual 1.12% $1,000.00 $1,049.40 $5.79
A -----------------------------------------------------------------------
Hypothetical(h) 1.12% $1,000.00 $1,019.56 $5.70
- --------------------------------------------------------------------------------
Actual 1.77% $1,000.00 $1,045.50 $9.13
B -----------------------------------------------------------------------
Hypothetical(h) 1.77% $1,000.00 $1,016.28 $9.00
- --------------------------------------------------------------------------------
Actual 1.77% $1,000.00 $1,045.80 $9.13
C -----------------------------------------------------------------------
Hypothetical(h) 1.77% $1,000.00 $1,016.28 $9.00
- --------------------------------------------------------------------------------
Actual 0.77% $1,000.00 $1,050.90 $3.98
I -----------------------------------------------------------------------
Hypothetical(h) 0.77% $1,000.00 $1,021.32 $3.92
- --------------------------------------------------------------------------------
Actual 0.87% $1,000.00 $1,050.80 $4.50
W -----------------------------------------------------------------------
Hypothetical(h) 0.87% $1,000.00 $1,020.82 $4.43
- --------------------------------------------------------------------------------
Actual 1.27% $1,000.00 $1,048.10 $6.56
R -----------------------------------------------------------------------
Hypothetical(h) 1.27% $1,000.00 $1,018.80 $6.46
- --------------------------------------------------------------------------------
Actual 1.87% $1,000.00 $1,045.20 $9.64
R1 -----------------------------------------------------------------------
Hypothetical(h) 1.87% $1,000.00 $1,015.78 $9.50
- --------------------------------------------------------------------------------
Actual 1.52% $1,000.00 $1,047.00 $7.84
R2 -----------------------------------------------------------------------
Hypothetical(h) 1.52% $1,000.00 $1,017.54 $7.73
- --------------------------------------------------------------------------------
Actual 1.42% $1,000.00 $1,047.40 $7.33
R3 -----------------------------------------------------------------------
Hypothetical(h) 1.42% $1,000.00 $1,018.05 $7.22
- --------------------------------------------------------------------------------
Actual 1.17% $1,000.00 $1,049.00 $6.04
R4 -----------------------------------------------------------------------
Hypothetical(h) 1.17% $1,000.00 $1,019.31 $5.96
- --------------------------------------------------------------------------------
Actual 0.87% $1,000.00 $1,050.30 $4.50
R5 -----------------------------------------------------------------------
Hypothetical(h) 0.87% $1,000.00 $1,020.82 $4.43
- --------------------------------------------------------------------------------
Actual 1.37% $1,000.00 $1,047.90 $7.07
529A -----------------------------------------------------------------------
Hypothetical(h) 1.37% $1,000.00 $1,018.30 $6.97
- --------------------------------------------------------------------------------
Actual 2.02% $1,000.00 $1,044.60 $10.41
529B -----------------------------------------------------------------------
Hypothetical(h) 2.02% $1,000.00 $1,015.02 $10.26
- --------------------------------------------------------------------------------
Actual 2.02% $1,000.00 $1,044.30 $10.41
529C -----------------------------------------------------------------------
Hypothetical(h) 2.02% $1,000.00 $1,015.02 $10.26
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads). If
these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
8/31/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset
classes.
Common Stocks - 99.0%
- ----------------------------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ----------------------------------------------------------------------------------------------------------------------------------
Aerospace - 8.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 4,603,500 $ 456,390,990
Northrop Grumman Corp. (l) 2,647,710 208,745,456
United Technologies Corp. 2,443,370 182,348,703
---------------
$ 847,485,149
- ----------------------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 1.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Diageo PLC 5,337,699 $ 113,985,091
- ----------------------------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Nike, Inc., "B" 2,697,000 $ 151,948,980
- ----------------------------------------------------------------------------------------------------------------------------------
Automotive - 0.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Johnson Controls, Inc. (l) 563,030 $ 63,678,693
- ----------------------------------------------------------------------------------------------------------------------------------
Broadcasting - 1.7%
- ----------------------------------------------------------------------------------------------------------------------------------
Citadel Broadcasting Corp. (l) 108,089 $ 439,922
E.W. Scripps Co., "A" (l) 630,790 25,925,469
Viacom, Inc., "B" (a)(l) 1,929,531 76,139,293
Walt Disney Co. 1,415,760 47,569,536
WPP Group PLC 2,162,160 30,781,554
---------------
$ 180,855,774
- ----------------------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 3.9%
- ----------------------------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc. 553,620 $ 72,950,507
Goldman Sachs Group, Inc. 1,264,720 222,603,367
Lehman Brothers Holdings, Inc. (l) 957,840 52,518,367
Merrill Lynch & Co., Inc. 732,850 54,011,045
---------------
$ 402,083,286
- ----------------------------------------------------------------------------------------------------------------------------------
Business Services - 1.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Accenture Ltd., "A" 2,631,730 $ 108,453,593
- ----------------------------------------------------------------------------------------------------------------------------------
Chemicals - 2.7%
- ----------------------------------------------------------------------------------------------------------------------------------
Dow Chemical Co. 889,920 $ 37,937,290
PPG Industries, Inc. (l) 2,044,850 149,989,748
Syngenta AG 481,460 90,106,867
---------------
$ 278,033,905
- ----------------------------------------------------------------------------------------------------------------------------------
Computer Software - 1.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Oracle Corp. (a) 7,862,480 $ 159,451,094
- ----------------------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Hewlett-Packard Co. 1,855,980 $ 91,592,613
International Business Machines Corp. (l) 291,200 33,980,128
---------------
$ 125,572,741
- ----------------------------------------------------------------------------------------------------------------------------------
Construction - 2.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Masco Corp. (l) 5,861,190 $ 152,508,164
Sherwin-Williams Co. (l) 742,980 51,273,050
Toll Brothers, Inc. (a)(l) 3,045,670 65,055,511
---------------
$ 268,836,725
- ----------------------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 1.8%
- ----------------------------------------------------------------------------------------------------------------------------------
Procter & Gamble Co. 2,919,640 $ 190,681,688
- ----------------------------------------------------------------------------------------------------------------------------------
Containers - 0.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp. (a)(l) 1,547,940 $ 16,346,246
- ----------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Rockwell Automation, Inc. (l) 1,002,240 $ 70,617,830
W.W. Grainger, Inc. 919,210 84,208,828
---------------
$ 154,826,658
- ----------------------------------------------------------------------------------------------------------------------------------
Electronics - 1.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Intel Corp. 6,163,340 $ 158,706,005
- ----------------------------------------------------------------------------------------------------------------------------------
Energy - Independent - 2.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Apache Corp. 1,152,870 $ 89,209,081
Devon Energy Corp. 1,535,280 115,621,937
EOG Resources, Inc. (l) 914,580 61,606,109
---------------
$ 266,437,127
- ----------------------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 9.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Chevron Corp. (l) 968,084 $ 84,959,052
ConocoPhillips 1,706,280 139,727,269
Exxon Mobil Corp. 3,283,680 281,509,886
Hess Corp. (l) 2,047,810 125,674,100
Marathon Oil Corp. 711,800 38,358,902
Royal Dutch Shell PLC, ADR 689,640 53,343,654
TOTAL S.A., ADR 3,384,720 254,158,625
---------------
$ 977,731,488
- ----------------------------------------------------------------------------------------------------------------------------------
Food & Beverages - 3.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Kellogg Co. (l) 2,094,750 $ 115,064,618
Nestle S.A. 252,910 110,010,930
PepsiCo, Inc. 1,358,466 92,416,442
---------------
$ 317,491,990
- ----------------------------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.8%
- ----------------------------------------------------------------------------------------------------------------------------------
CVS Caremark Corp. 2,295,407 $ 86,812,293
- ----------------------------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Bowater, Inc. (l) 353,090 $ 5,946,036
- ----------------------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (l) 3,004,280 $ 114,252,768
- ----------------------------------------------------------------------------------------------------------------------------------
General Merchandise - 1.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Macy's, Inc. (l) 4,776,870 $ 151,522,316
- ----------------------------------------------------------------------------------------------------------------------------------
Health Maintenance Organizations - 1.8%
- ----------------------------------------------------------------------------------------------------------------------------------
UnitedHealth Group, Inc. 943,290 $ 47,173,933
WellPoint, Inc. (a) 1,734,600 139,791,414
---------------
$ 186,965,347
- ----------------------------------------------------------------------------------------------------------------------------------
Insurance - 8.7%
- ----------------------------------------------------------------------------------------------------------------------------------
Allstate Corp. 5,759,240 $ 315,318,390
Chubb Corp. 1,150,160 58,807,681
Genworth Financial, Inc., "A" 3,005,420 87,097,072
Hartford Financial Services Group, Inc. 1,146,085 101,898,417
MetLife, Inc. (l) 4,266,770 273,286,619
Prudential Financial, Inc. (l) 764,390 68,626,934
---------------
$ 905,035,113
- ----------------------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 1.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Deere & Co. 875,016 $ 119,054,677
Eaton Corp. 258,940 24,397,327
Timken Co. 747,090 26,566,520
---------------
$ 170,018,524
- ----------------------------------------------------------------------------------------------------------------------------------
Major Banks - 8.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Bank of America Corp. 7,054,455 $ 357,519,779
Bank of New York Mellon Corp. 4,280,248 173,050,427
PNC Financial Services Group, Inc. (l) 1,594,940 112,235,928
State Street Corp. (l) 1,075,210 65,974,886
SunTrust Banks, Inc. (l) 1,921,540 151,321,275
---------------
$ 860,102,295
- ----------------------------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 8.1%
- ----------------------------------------------------------------------------------------------------------------------------------
American Express Co. 1,937,340 $ 113,566,871
Citigroup, Inc. 6,228,430 291,988,798
Fannie Mae 3,233,830 212,171,586
Freddie Mac 848,820 52,295,800
UBS AG 3,394,971 177,040,951
---------------
$ 847,064,006
- ----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 6.9%
- ----------------------------------------------------------------------------------------------------------------------------------
Abbott Laboratories 726,730 $ 37,724,554
Eli Lilly & Co. 379,300 21,752,855
GlaxoSmithKline PLC 2,110,880 55,122,807
Johnson & Johnson 4,054,320 250,516,433
Merck & Co., Inc. 2,639,830 132,440,271
Pfizer, Inc. 1,905,600 47,335,104
Wyeth 3,862,750 178,845,325
---------------
$ 723,737,349
- ----------------------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.1%
- ----------------------------------------------------------------------------------------------------------------------------------
New York Times Co., "A" (l) 622,700 $ 13,686,946
- ----------------------------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 1.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 1,116,210 $ 90,580,442
Norfolk Southern Corp. 253,730 12,993,513
---------------
$ 103,573,955
- ----------------------------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Air Products & Chemicals, Inc. 883,468 $ 79,520,955
Praxair, Inc. 752,820 56,958,361
---------------
$ 136,479,316
- ----------------------------------------------------------------------------------------------------------------------------------
Specialty Stores - 0.8%
- ----------------------------------------------------------------------------------------------------------------------------------
Advance Auto Parts, Inc. 575,600 $ 20,468,336
Lowe's Cos., Inc. 658,260 20,445,556
Staples, Inc. 1,768,400 41,999,500
---------------
$ 82,913,392
- ----------------------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 2.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Sprint Nextel Corp. 5,349,790 $ 101,218,027
Vodafone Group PLC 32,421,303 104,473,285
---------------
$ 205,691,312
- ----------------------------------------------------------------------------------------------------------------------------------
Telephone Services - 2.0%
- ----------------------------------------------------------------------------------------------------------------------------------
AT&T, Inc. 1,583,300 $ 63,126,171
Embarq Corp. 1,144,729 71,453,984
TELUS Corp. (non-voting shares) 409,090 21,214,516
Verizon Communications, Inc. 1,187,300 49,724,124
---------------
$ 205,518,795
- ----------------------------------------------------------------------------------------------------------------------------------
Tobacco - 3.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Altria Group, Inc. 5,260,450 $ 365,127,835
- ----------------------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Dominion Resources, Inc. 1,395,580 $ 118,875,504
Entergy Corp. 702,160 72,757,819
FPL Group, Inc. 1,727,590 101,651,396
PPL Corp. (l) 660,100 31,856,426
Public Service Enterprise Group, Inc. 413,070 35,106,819
---------------
$ 360,247,964
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $7,886,671,451) $10,307,301,795
- ----------------------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 2.7%
- ----------------------------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 286,667,246 $ 286,667,246
- ----------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements - 0.7%
- ----------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch, 5.3%, dated 8/31/07, due 9/04/07, total to be
received $73,911,500 (secured by U.S. Treasury and Federal
Agency obligations and Mortgage Backed securities in a
jointly traded account), at Cost $ 73,868,000 $ 73,868,000
- ----------------------------------------------------------------------------------------------------------------------------------
Short-Term Obligations - 0.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Citigroup Funding, Inc., 5.25%, due 9/04/07 (y) $ 18,618,000 $ 18,609,855
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $8,265,816,552) $10,686,446,896
- ----------------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (2.6)% (274,894,036)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $10,411,552,860
- ----------------------------------------------------------------------------------------------------------------------------------
(a) Non-income producing security.
(l) All or a portion of this security is on loan.
(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 8/31/07
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 $293,829,947 of
securities on loan (identified cost, $8,265,816,552) $10,686,446,896
Cash 630
Receivable for investments sold 913,357
Receivable for fund shares sold 38,362,247
Interest and dividends receivable 21,057,899
Receivable from investment adviser 52,439
Other assets 38,125
- -------------------------------------------------------------------------------------------------------
Total assets $10,746,871,593
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $12,484,460
Payable for fund shares reacquired 31,537,922
Collateral for securities loaned, at value (c) 286,667,246
Payable to affiliates
Management fee 331,544
Shareholder servicing costs 3,364,464
Distribution and service fees 241,137
Administrative services fee 3,077
Program manager fees 142
Retirement plan administration and services fees 3,072
Payable for independent trustees' compensation 10,007
Accrued expenses and other liabilities 675,662
- -------------------------------------------------------------------------------------------------------
Total liabilities $335,318,733
- -------------------------------------------------------------------------------------------------------
Net assets $10,411,552,860
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -------------------------------------------------------------------------------------------------------
Paid-in capital $7,457,392,890
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 2,420,626,964
Accumulated net realized gain (loss) on investments and
foreign currency transactions 518,532,677
Undistributed net investment income 15,000,329
- -------------------------------------------------------------------------------------------------------
Net assets $10,411,552,860
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 370,743,781
- -------------------------------------------------------------------------------------------------------
(c) Non-cash collateral not included.
Statement of Assets and Liabilities - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $6,239,175,973
Shares outstanding 221,967,952
- -------------------------------------------------------------------------------------------------------
Net asset value per share $28.11
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $29.82
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,049,401,286
Shares outstanding 37,583,780
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $27.92
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,052,466,717
Shares outstanding 37,749,749
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $27.88
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,529,643,178
Shares outstanding 54,157,708
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $28.24
- -------------------------------------------------------------------------------------------------------
Class W shares
- -------------------------------------------------------------------------------------------------------
Net assets $69,115,240
Shares outstanding 2,459,050
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $28.11
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $67,300,136
Shares outstanding 2,399,077
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $28.05
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $15,823,359
Shares outstanding 569,973
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $27.76
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $12,743,051
Shares outstanding 457,009
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $27.88
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $98,970,496
Shares outstanding 3,541,853
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $27.94
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $128,908,771
Shares outstanding 4,592,862
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $28.07
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $137,524,361
Shares outstanding 4,888,407
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $28.13
- -------------------------------------------------------------------------------------------------------
Class 529A shares
- -------------------------------------------------------------------------------------------------------
Net assets $6,194,000
Shares outstanding 221,501
- -------------------------------------------------------------------------------------------------------
Net asset value per share $27.96
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $29.67
- -------------------------------------------------------------------------------------------------------
Class 529B shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,822,810
Shares outstanding 65,839
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $27.69
- -------------------------------------------------------------------------------------------------------
Class 529C shares
- -------------------------------------------------------------------------------------------------------
Net assets $2,463,482
Shares outstanding 89,021
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $27.67
- -------------------------------------------------------------------------------------------------------
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 8/31/07
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 $211,811,318
Interest 6,887,476
Other 4,259
Foreign taxes withheld (2,738,559)
- --------------------------------------------------------------------------------------------------
Total investment income $215,964,494
- --------------------------------------------------------------------------------------------------
Expenses
Management fee $58,643,696
Distribution and service fees 43,207,617
Program manager fees 21,541
Shareholder servicing costs 14,079,940
Administrative services fee 608,171
Retirement plan administration and services fees 417,805
Independent trustees' compensation 127,519
Custodian fee 945,690
Shareholder communications 536,928
Auditing fees 46,112
Legal fees 135,788
Miscellaneous 782,282
- --------------------------------------------------------------------------------------------------
Total expenses $119,553,089
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (199,928)
Reduction of expenses by investment adviser (1,222,554)
- --------------------------------------------------------------------------------------------------
Net expenses $118,130,607
- --------------------------------------------------------------------------------------------------
Net investment income $97,833,887
- --------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $644,506,759
Foreign currency transactions (41,967)
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $644,464,792
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $651,126,108
Translation of assets and liabilities in foreign currencies (9,570)
- --------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $651,116,538
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $1,295,581,330
- --------------------------------------------------------------------------------------------------
Change in net assets from operations $1,393,415,217
- --------------------------------------------------------------------------------------------------
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
---------------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income $97,833,887 $101,398,166
Net realized gain (loss) on investments and foreign
currency transactions 644,464,792 303,639,543
Net unrealized gain (loss) on investments and foreign
currency translation 651,116,538 521,315,817
- ---------------------------------------------------------------------------------------------
Change in net assets from operations $1,393,415,217 $926,353,526
- ---------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------
From net investment income
Class A $(74,843,923) $(56,268,368)
Class B (7,854,264) (6,779,390)
Class C (6,903,771) (4,984,908)
Class I (22,163,116) (15,180,640)
Class W (379,376) (388)
Class R (1,172,262) (1,084,796)
Class R1 (55,300) (14,051)
Class R2 (73,907) (12,119)
Class R3 (607,901) (160,191)
Class R4 (984,911) (168,024)
Class R5 (1,457,291) (571,771)
Class 529A (56,466) (32,149)
Class 529B (7,521) (2,874)
Class 529C (10,543) (4,307)
From net realized gain on investments and foreign
currency transactions
Class A (161,744,414) (217,446,760)
Class B (34,846,208) (58,304,573)
Class C (28,334,762) (41,125,028)
Class I (37,523,913) (44,433,140)
Class W (415,807) --
Class R (3,323,744) (5,057,671)
Class R1 (202,116) (65,732)
Class R2 (177,924) (32,165)
Class R3 (1,332,483) (644,654)
Class R4 (1,724,464) (108,618)
Class R5 (1,986,525) (2,214,112)
Class 529A (129,843) (147,960)
Class 529B (31,527) (34,246)
Class 529C (45,316) (54,564)
- ---------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(388,389,598) $(454,933,199)
- ---------------------------------------------------------------------------------------------
Statements of Changes in Net Assets - continued
YEARS ENDED 8/31
----------------------------------
2007 2006
Change in net assets from fund share transactions $1,030,845,190 $224,602,050
- ----------------------------------------------------------------------------------------------
Total change in net assets $2,035,870,809 $696,022,377
- ----------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------
At beginning of period 8,375,682,051 7,679,659,674
At end of period (including undistributed net investment
income of $15,000,329 and $33,778,961, respectively) $10,411,552,860 $8,375,682,051
- ----------------------------------------------------------------------------------------------
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.
CLASS A YEARS ENDED 8/31
------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $25.20 $23.81 $20.88 $18.03 $17.21
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.30 $0.34 $0.28 $0.23 $0.24
Net realized and unrealized gain (loss)
on investments and foreign currency 3.77 2.48 2.91 2.84 0.81
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations $4.07 $2.82 $3.19 $3.07 $1.05
- ------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.36) $(0.29) $(0.26) $(0.22) $(0.23)
From net realized gain on investments
and foreign currency transactions (0.80) (1.14) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.16) $(1.43) $(0.26) $(0.22) $(0.23)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $28.11 $25.20 $23.81 $20.88 $18.03
- ------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 16.42 12.36 15.36 17.13(b) 6.22
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.13 1.17 1.16 1.18 1.20
Expenses after expense reductions (f) 1.11 1.16 1.16 1.18 N/A
Net investment income 1.10 1.40 1.23 1.14 1.41
Portfolio turnover 26 26 24 42 55
Net assets at end of period (000 Omitted) $6,239,176 $4,929,525 $4,554,484 $3,527,854 $3,039,085
- ------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $25.04 $23.66 $20.77 $17.94 $17.13
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.12 $0.17 $0.13 $0.10 $0.12
Net realized and unrealized gain (loss)
on investments and foreign currency 3.74 2.49 2.90 2.83 0.81
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.86 $2.66 $3.03 $2.93 $0.93
- ------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.18) $(0.14) $(0.14) $(0.10) $(0.12)
From net realized gain on investments
and foreign currency transactions (0.80) (1.14) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.98) $(1.28) $(0.14) $(0.10) $(0.12)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.92 $25.04 $23.66 $20.77 $17.94
- ------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 15.64 11.66 14.61 16.35(b) 5.50
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.78 1.82 1.81 1.82 1.85
Expenses after expense reductions (f) 1.76 1.81 1.81 1.82 N/A
Net investment income 0.44 0.72 0.58 0.49 0.76
Portfolio turnover 26 26 24 42 55
Net assets at end of period (000 Omitted) $1,049,401 $1,139,651 $1,262,029 $1,199,074 $1,069,389
- ------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C YEARS ENDED 8/31
------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $25.01 $23.64 $20.75 $17.93 $17.12
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.12 $0.18 $0.13 $0.10 $0.12
Net realized and unrealized gain (loss)
on investments and foreign currency 3.74 2.47 2.90 2.82 0.81
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations $3.86 $2.65 $3.03 $2.92 $0.93
- ------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.19) $(0.14) $(0.14) $(0.10) $(0.12)
From net realized gain on investments
and foreign currency transactions (0.80) (1.14) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.99) $(1.28) $(0.14) $(0.10) $(0.12)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.88 $25.01 $23.64 $20.75 $17.93
- ------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 15.66 11.65 14.63 16.32(b) 5.52
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.78 1.82 1.81 1.82 1.85
Expenses after expense reductions (f) 1.76 1.81 1.81 1.82 N/A
Net investment income 0.45 0.74 0.58 0.49 0.76
Portfolio turnover 26 26 24 42 55
Net assets at end of period (000 Omitted) $1,052,467 $881,538 $863,486 $761,669 $648,318
- ------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 8/31
------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $25.32 $23.91 $20.95 $18.10 $17.27
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.40 $0.43 $0.37 $0.30 $0.30
Net realized and unrealized gain (loss)
on investments and foreign currency 3.77 2.49 2.91 2.84 0.82
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations $4.17 $2.92 $3.28 $3.14 $1.12
- ------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.45) $(0.37) $(0.32) $(0.29) $(0.29)
From net realized gain on investments
and foreign currency transactions (0.80) (1.14) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.25) $(1.51) $(0.32) $(0.29) $(0.29)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $28.24 $25.32 $23.91 $20.95 $18.10
- ------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 16.78 12.78 15.78 17.47(b) 6.61
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.78 0.82 0.81 0.83 0.85
Expenses after expense reductions (f) 0.76 0.81 0.81 0.83 N/A
Net investment income 1.45 1.77 1.59 1.50 1.76
Portfolio turnover 26 26 24 42 55
Net assets at end of period (000 Omitted) $1,529,643 $1,162,665 $899,654 $593,364 $296,961
- ------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS W YEARS ENDED 8/31
---------------------------
2007 2006(i)
Net asset value, beginning of period $25.20 $25.04
- ----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------
Net investment income (d) $0.37 $0.24
Net realized and unrealized gain (loss)
on investments and foreign currency 3.77 0.02(g)
- ----------------------------------------------------------------------------------------------------
Total from investment operations $4.14 $0.26
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------
From net investment income $(0.43) $(0.10)
From net realized gain on investments
and foreign currency transactions (0.80) --
- ----------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.23) $(0.10)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $28.11 $25.20
- ----------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 16.73 1.05(n)
- ----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.88 0.92(a)
Expenses after expense reductions (f) 0.86 0.91(a)
Net investment income 1.37 3.32(a)
Portfolio turnover 26 26
Net assets at end of period (000 Omitted) $69,115 $8,952
- ----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R YEARS ENDED 8/31
----------------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $25.15 $23.76 $20.84 $18.01 $16.53
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------
Net investment income (d) $0.26 $0.30 $0.25 $0.21 $0.15
Net realized and unrealized gain (loss)
on investments and foreign currency 3.75 2.49 2.90 2.82 1.45
- ----------------------------------------------------------------------------------------------------------
Total from investment operations $4.01 $2.79 $3.15 $3.03 $1.60
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------
From net investment income $(0.31) $(0.26) $(0.23) $(0.20) $(0.12)
From net realized gain on investments
and foreign currency transactions (0.80) (1.14) -- -- --
- ----------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.11) $(1.40) $(0.23) $(0.20) $(0.12)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $28.05 $25.15 $23.76 $20.84 $18.01
- ----------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 16.22 12.22 15.21 16.92(b) 9.76(n)
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.28 1.31 1.31 1.33 1.42(a)
Expenses after expense reductions (f) 1.26 1.31 1.31 1.33 N/A
Net investment income 0.94 1.24 1.10 1.02 1.26(a)
Portfolio turnover 26 26 24 42 55
Net assets at end of period (000 Omitted) $67,300 $101,162 $85,302 $47,970 $14,583
- ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 8/31
-------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $24.93 $23.63 $23.17
- -----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------
Net investment income (d) $0.10 $0.22 $0.09
Net realized and unrealized gain (loss) on investments and
foreign currency 3.72 2.39 0.42(g)
- -----------------------------------------------------------------------------------------------------
Total from investment operations $3.82 $2.61 $0.51
- -----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------
From net investment income $(0.19) $(0.17) $(0.05)
From net realized gain on investments and foreign currency
transactions (0.80) (1.14) --
- -----------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.99) $(1.31) $(0.05)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $27.76 $24.93 $23.63
- -----------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 15.55 11.51 2.21(n)
- -----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.92 2.02 2.04(a)
Expenses after expense reductions (f) 1.86 1.92 2.04(a)
Net investment income 0.36 0.93 0.89(a)
Portfolio turnover 26 26 24
Net assets at end of period (000 Omitted) $15,823 $4,639 $574
- -----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R2 YEARS ENDED 8/31
------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $25.03 $23.67 $23.17
- ----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------
Net investment income (d) $0.19 $0.30 $0.11
Net realized and unrealized gain (loss)
on investments and foreign currency 3.74 2.42 0.43(g)
- ----------------------------------------------------------------------------------------------------
Total from investment operations $3.93 $2.72 $0.54
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------
From net investment income $(0.28) $(0.22) $(0.04)
From net realized gain on investments
and foreign currency transactions (0.80) (1.14) --
- ----------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.08) $(1.36) $(0.04)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $27.88 $25.03 $23.67
- ----------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 15.92 11.96 2.34(n)
- ----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.59 1.71 1.73(a)
Expenses after expense reductions (f) 1.51 1.57 1.73(a)
Net investment income 0.71 1.33 1.49(a)
Portfolio turnover 26 26 24
Net assets at end of period (000 Omitted) $12,743 $4,520 $732
- ----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 8/31
-----------------------------------------------------
2007 2006 2005 2004(i)
Net asset value, beginning of period $25.07 $23.71 $20.84 $18.73
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.22 $0.31 $0.21 $0.11
Net realized and unrealized gain (loss) on investments
and foreign currency 3.75 2.43 2.88 2.12
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations $3.97 $2.74 $3.09 $2.23
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------
From net investment income $(0.30) $(0.24) $(0.22) $(0.12)
From net realized gain on investments and foreign
currency transactions (0.80) (1.14) -- --
- -----------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.10) $(1.38) $(0.22) $(0.12)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.94 $25.07 $23.71 $20.84
- -----------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 16.07 12.03 14.91 11.93(b)(n)
- -----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.47 1.56 1.57 1.59(a)
Expenses after expense reductions (f) 1.41 1.47 1.57 1.59(a)
Net investment income 0.81 1.27 0.93 0.80(a)
Portfolio turnover 26 26 24 42
Net assets at end of period (000 Omitted) $98,970 $30,001 $8,316 $414
- -----------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 YEARS ENDED 8/31
-----------------------------
2007 2006 2005(i)
Net asset value, beginning of period $25.17 $23.81 $23.29
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------
Net investment income (d) $0.30 $0.42 $0.15
Net realized and unrealized gain (loss) on investments and
foreign currency 3.75 2.39 0.44(g)
- ----------------------------------------------------------------------------------------------------------
Total from investment operations $4.05 $2.81 $0.59
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------
From net investment income $(0.35) $(0.31) $(0.07)
From net realized gain on investments and foreign currency
transactions (0.80) (1.14) --
- ----------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.15) $(1.45) $(0.07)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $28.07 $25.17 $23.81
- ----------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 16.38 12.33 2.53(n)
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.18 1.22 1.23(a)
Expenses after expense reductions (f) 1.16 1.22 1.23(a)
Net investment income 1.07 1.80 1.94(a)
Portfolio turnover 26 26 24
Net assets at end of period (000 Omitted) $128,909 $46,731 $400
- ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 8/31
-----------------------------
2007 2006 2005(i)
Net asset value, beginning of period $25.22 $23.83 $23.29
- ---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment income (d) $0.39 $0.45 $0.15
Net realized and unrealized gain (loss) on investments and
foreign currency 3.75 2.43 0.47(g)
- ---------------------------------------------------------------------------------------------------
Total from investment operations $4.14 $2.88 $0.62
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------
From net investment income $(0.43) $(0.35) $(0.08)
From net realized gain on investments and foreign currency
transactions (0.80) (1.14) --
- ---------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.23) $(1.49) $(0.08)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $28.13 $25.22 $23.83
- ---------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 16.70 12.64 2.68(n)
- ---------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.88 0.92 0.92(a)
Expenses after expense reductions (f) 0.86 0.91 0.92(a)
Net investment income 1.39 1.80 1.57(a)
Portfolio turnover 26 26 24
Net assets at end of period (000 Omitted) $137,524 $60,124 $51
- ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529A YEARS ENDED 8/31
----------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $25.09 $23.71 $20.80 $18.00 $17.21
- ----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------
Net investment income (d) $0.23 $0.28 $0.23 $0.18 $0.20
Net realized and unrealized gain (loss)
on investments and foreign currency 3.74 2.48 2.90 2.80 0.81
- ----------------------------------------------------------------------------------------------------
Total from investment operations $3.97 $2.76 $3.13 $2.98 $1.01
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------
From net investment income $(0.30) $(0.24) $(0.22) $(0.18) $(0.22)
From net realized gain on investments
and foreign currency transactions (0.80) (1.14) -- -- --
- ----------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.10) $(1.38) $(0.22) $(0.18) $(0.22)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $27.96 $25.09 $23.71 $20.80 $18.00
- ----------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 16.09 12.11 15.09 16.63(b) 5.98
- ----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.38 1.42 1.41 1.43 1.48
Expenses after expense reductions (f) 1.36 1.41 1.41 1.43 N/A
Net investment income 0.85 1.18 0.99 0.91 1.20
Portfolio turnover 26 26 24 42 55
Net assets at end of period (000 Omitted) $6,194 $3,947 $2,914 $1,673 $806
- ----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529B YEARS ENDED 8/31
----------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $24.87 $23.52 $20.67 $17.87 $17.12
- ----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------
Net investment income (d) $0.06 $0.13 $0.08 $0.05 $0.09
Net realized and unrealized gain (loss)
on investments and foreign currency 3.71 2.45 2.87 2.81 0.80
- ----------------------------------------------------------------------------------------------------
Total from investment operations $3.77 $2.58 $2.95 $2.86 $0.89
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------
From net investment income $(0.15) $(0.09) $(0.10) $(0.06) $(0.14)
From net realized gain on investments
and foreign currency transactions (0.80) (1.14) -- -- --
- ----------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.95) $(1.23) $(0.10) $(0.06) $(0.14)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $27.69 $24.87 $23.52 $20.67 $17.87
- ----------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 15.37 11.39 14.32 16.03(b) 5.29
- ----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.03 2.06 2.06 2.07 2.13
Expenses after expense reductions (f) 2.01 2.06 2.06 2.07 N/A
Net investment income 0.20 0.53 0.34 0.27 0.52
Portfolio turnover 26 26 24 42 55
Net assets at end of period (000 Omitted) $1,823 $946 $655 $439 $181
- ----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C YEARS ENDED 8/31
----------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $24.86 $23.51 $20.66 $17.86 $17.11
- ----------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------
Net investment income (d) $0.06 $0.12 $0.08 $0.05 $0.09
Net realized and unrealized gain (loss)
on investments and foreign currency 3.70 2.46 2.87 2.81 0.80
- ----------------------------------------------------------------------------------------------------
Total from investment operations $3.76 $2.58 $2.95 $2.86 $0.89
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------
From net investment income $(0.15) $(0.09) $(0.10) $(0.06) $(0.14)
From net realized gain on investments
and foreign currency transactions (0.80) (1.14) -- -- --
- ----------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.95) $(1.23) $(0.10) $(0.06) $(0.14)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $27.67 $24.86 $23.51 $20.66 $17.86
- ----------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 15.34 11.39 14.32 16.03(b) 5.31
- ----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.03 2.06 2.06 2.07 2.13
Expenses after expense reductions (f) 2.01 2.06 2.06 2.07 N/A
Net investment income 0.20 0.51 0.36 0.26 0.55
Portfolio turnover 26 26 24 42 55
Net assets at end of period (000 Omitted) $2,463 $1,279 $1,062 $643 $352
- ----------------------------------------------------------------------------------------------------
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), 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. For securities held short for
which there were no sales reported for the day, the position is generally
valued at the last quoted daily ask quotation as reported by an independent
pricing service on the market or exchange on which such securities 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 and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. 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. 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 September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the fund, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the fund's financial statements.
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 and other funds managed by
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. Net income from securities lending is
included in interest income on the Statement of Operations. The dividend and
interest income earned on the securities loaned is accounted for in the same
manner as other dividend and interest income.
At August 31, 2007 the value of securities loaned was $293,829,947. These loans
were collateralized by cash of $286,667,246 and U.S. Treasury obligations of
$14,483,455.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
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. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been disposed
of by the fund or in unrealized gain/loss if the security is still held by the
fund. Any other proceeds from litigation not related to portfolio holdings are
reflected as other income in the Statement of Operations.
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, 2007, 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 U.S. 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 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:
8/31/07 8/31/06
Ordinary income (including any
short-term capital gains) $125,426,306 $90,625,348
Long-term capital gain 262,963,292 364,307,851
----------------------------------------------------------------
Total distributions $388,389,598 $454,933,199
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/07
Cost of investments $8,282,609,839
----------------------------------------------------------------
Gross appreciation $2,541,769,568
Gross depreciation (137,932,511)
----------------------------------------------------------------
Net unrealized appreciation (depreciation) $2,403,837,057
Undistributed ordinary income 70,525,120
Undistributed long-term capital gain 479,810,679
Other temporary differences (12,886)
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. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. 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 evaluated the application of the Interpretation to the fund, and has
determined that there is no impact 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 $1,136,975, which is shown as a
reduction of total expenses in the Statement of Operations.
The management fee incurred for the year ended August 31, 2007 was equivalent
to an annual effective rate of 0.59% of the fund's average daily net assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $561,082 and $3,519 for the year ended August 31,
2007, 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% $20,400,573
Class B 0.75% 0.25% 1.00% 1.00% 11,548,292
Class C 0.75% 0.25% 1.00% 1.00% 10,047,929
Class W 0.10% -- 0.10% 0.10% 28,423
Class R 0.25% 0.25% 0.50% 0.50% 486,428
Class R1 0.50% 0.25% 0.75% 0.75% 69,894
Class R2 0.25% 0.25% 0.50% 0.50% 41,604
Class R3 0.25% 0.25% 0.50% 0.50% 318,920
Class R4 -- 0.25% 0.25% 0.25% 213,481
Class 529A 0.25% 0.25% 0.50% 0.35% 18,358
Class 529B 0.75% 0.25% 1.00% 1.00% 14,120
Class 529C 0.75% 0.25% 1.00% 1.00% 19,595
- -----------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $43,207,617
(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, 2007 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, 2007, were as follows:
AMOUNT
Class A $77,740
Class B $1,002,063
Class C $55,309
Class 529B $662
Class 529C $38
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, 2007, were as follows:
AMOUNT
Class 529A $13,112
Class 529B 3,530
Class 529C 4,899
--------------------------------------------------
Total Program Manager Fees $21,541
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 daily net assets of
the fund as determined periodically under the supervision of the fund's Board
of Trustees. For the year ended August 31, 2007, the fee was $5,964,633, which
equated to 0.0610% annually of the fund's average daily net assets. MFSC also
receives payment from the fund for out-of-pocket expenses, sub-accounting and
other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the year ended August 31, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $7,451,157. The fund may also pay shareholder servicing related
costs directly to non-related parties.
Effective May 1, 2007, under a Special Servicing Agreement among MFS, each MFS
fund which invests in other MFS funds ("MFS fund-of-funds") and each underlying
fund in which a MFS fund-of-funds invests ("underlying funds"), each underlying
fund may pay a portion of each MFS fund-of-fund's transfer agent-related
expenses, including sub-accounting fees payable to financial intermediaries, to
the extent such payments do not exceed the benefits realized or expected to be
realized by the underlying fund from the investment in the underlying fund by
the MFS fund-of-fund. For the year ended August 31, 2007, these costs for the
fund amounted to $279,477 and are reflected in the shareholder servicing costs
on the Statement of Operations.
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 average daily net assets. The fund's annual fixed
amount is $17,500.
The administrative services fee incurred for the year ended August 31, 2007 was
equivalent to an annual effective rate of 0.0062% 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, 2007,
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:
BEGINNING OF ANNUAL
PERIOD THROUGH EFFECTIVE EFFECTIVE TOTAL
3/31/07 4/01/07 RATE (g) AMOUNT
Class R1 0.45% 0.35% 0.35% $36,608
Class R2 0.40% 0.25% 0.25% 26,437
Class R3 0.25% 0.15% 0.15% 123,749
Class R4 0.15% 0.15% 0.15% 128,088
Class R5 0.10% 0.10% 0.10% 102,923
- -------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $417,805
(g) Prior to April 1, 2007, MFS had agreed in writing to waive a portion of the
retirement plan administration and services fee equal to 0.10% for Class
R1, 0.15% for Class R2, and 0.10% for Class R3 shares. This agreement was
discontinued on March 31, 2007. On April 1, 2007, the annual retirement
plan administration and services fee for Class R1, Class R2, and Class R3
shares was lowered to 0.35%, 0.25%, and 0.15%, respectively. For the year
ended August 31, 2007, the waiver amounted to $37,698 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 $1,111. This amount is included
in independent trustees' compensation for the year ended August 31, 2007. The
liability for deferred retirement benefits payable to certain retired
independent trustees amounted to $9,504 at August 31, 2007, 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, 2007, the fee paid to Tarantino LLC
was $61,125. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $47,881 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 $41,168,451 $1,533,157
- --------------------------------------------------------------------------------
Investments (non-U.S. government securities) $3,174,107,943 $2,464,396,192
- --------------------------------------------------------------------------------
(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
8/31/07 8/31/06(i)
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 82,897,137 $2,284,935,155 60,803,749 $1,470,033,391
Class B 4,097,957 110,802,297 4,311,711 103,369,845
Class C 7,629,570 207,679,463 5,194,373 124,008,983
Class I 12,095,417 335,715,810 9,361,214 225,782,424
Class W 2,226,482 62,441,031 355,829 8,707,026
Class R 1,032,032 28,054,647 2,171,753 51,431,346
Class R1 699,966 19,124,968 219,186 5,288,225
Class R2 576,831 15,856,845 192,249 4,708,059
Class R3 4,004,768 109,306,754 1,329,770 31,972,342
Class R4 5,573,616 153,833,399 2,221,181 53,759,704
Class R5 3,481,769 95,988,445 2,712,139 63,685,240
Class 529A 76,026 2,073,352 36,431 876,014
Class 529B 30,024 813,107 9,630 228,856
Class 529C 46,425 1,253,885 8,588 204,251
- ---------------------------------------------------------------------------------------------------------
124,468,020 $3,427,879,158 88,927,803 $2,144,055,706
Shares issued to shareholders in
reinvestment of distributions
Class A 7,002,269 $186,811,539 9,462,744 $221,685,921
Class B 1,327,246 35,109,854 2,278,450 53,009,523
Class C 834,009 22,045,467 1,259,073 29,257,616
Class I 2,113,899 56,679,995 2,428,532 57,190,569
Class W 25,338 685,714 16 388
Class R 157,270 4,176,605 246,252 5,756,203
Class R1 9,740 257,416 3,439 79,783
Class R2 9,477 251,790 1,901 44,284
Class R3 72,416 1,930,007 34,444 803,843
Class R4 101,166 2,708,973 11,675 276,619
Class R5 12,968 364,151 138 3,249
Class 529A 7,005 186,245 7,720 180,072
Class 529B 1,484 39,048 1,606 37,120
Class 529C 2,123 55,859 2,549 58,871
- ---------------------------------------------------------------------------------------------------------
11,676,410 $311,302,663 15,738,539 $368,384,061
Shares reacquired
Class A (63,526,514) $(1,756,904,603) (65,973,843) $(1,589,756,950)
Class B (13,355,675) (365,457,041) (14,415,374) (346,071,665)
Class C (5,960,195) (162,740,623) (7,736,571) (185,371,128)
Class I (5,977,035) (167,400,144) (3,495,733) (85,149,119)
Class W (147,993) (4,084,628) (622) (15,405)
Class R (2,812,920) (77,996,184) (1,985,641) (48,501,782)
Class R1 (325,820) (8,841,369) (60,823) (1,476,315)
Class R2 (309,910) (8,484,016) (44,464) (1,089,173)
Class R3 (1,731,828) (47,281,104) (518,447) (12,427,593)
Class R4 (2,938,269) (80,696,299) (393,300) (9,578,895)
Class R5 (990,264) (27,530,499) (330,497) (8,024,795)
Class 529A (18,872) (514,741) (9,716) (232,975)
Class 529B (3,710) (102,409) (1,056) (25,650)
Class 529C (10,964) (302,971) (4,854) (116,272)
- ---------------------------------------------------------------------------------------------------------
(98,109,969) $(2,708,336,631) (94,970,941) $(2,287,837,717)
Net change
Class A 26,372,892 $714,842,091 4,292,650 $101,962,362
Class B (7,930,472) (219,544,890) (7,825,213) (189,692,297)
Class C 2,503,384 66,984,307 (1,283,125) (32,104,529)
Class I 8,232,281 224,995,661 8,294,013 197,823,874
Class W 2,103,827 59,042,117 355,223 8,692,009
Class R (1,623,618) (45,764,932) 432,364 8,685,767
Class R1 383,886 10,541,015 161,802 3,891,693
Class R2 276,398 7,624,619 149,686 3,663,170
Class R3 2,345,356 63,955,657 845,767 20,348,592
Class R4 2,736,513 75,846,073 1,839,556 44,457,428
Class R5 2,504,473 68,822,097 2,381,780 55,663,694
Class 529A 64,159 1,744,856 34,435 823,111
Class 529B 27,798 749,746 10,180 240,326
Class 529C 37,584 1,006,773 6,283 146,850
- ---------------------------------------------------------------------------------------------------------
38,034,461 $1,030,845,190 9,695,401 $224,602,050
(i) For the period from the class' inception, 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 Moderate Allocation Fund, MFS Growth
Allocation Fund and MFS Aggressive Growth Allocation Fund were the owners of
record of approximately 1%, 3%, 4% and 2% respectively, of the value of
outstanding voting shares. In addition, the MFS Lifetime Retirement Income
Fund, the MFS Lifetime 2010 Fund, the MFS Lifetime 2020 Fund, 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 funds managed by MFS 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 funds managed by MFS 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 0.30%. 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, 2007, the fund's commitment fee and interest expense were $49,205
and $347, respectively, and are included in miscellaneous expense on the
Statement of Operations.
(7) GAIN CONTINGENCY
The fund's investment adviser, MFS, was the subject of an administrative
proceeding concerning market timing which resulted in the Securities and
Exchange Commission (the "SEC") entering an order approving a settlement with
MFS and two of its former officers (the "Settlement Order"). Under the terms of
the Settlement Order, MFS transferred $175 million in disgorgement and $50
million in penalty (the "Payments") to a Fair Fund established by the SEC, from
which settlement funds will be distributed to current and former shareholders
of the fund and certain other affected MFS retail funds. The Payments will be
distributed to shareholders in accordance with a plan developed by an
independent distribution consultant (the "IDC") in consultation with MFS and
the Board of Trustees of the MFS retail funds. The plan was approved in July
2007 by the SEC. Pursuant to the distribution plan, after the distributions to
eligible shareholders have been made, residual amounts, if any, may be
available for distribution to the fund and certain other affected MFS retail
funds. Payments made by third parties into other settlement funds to remediate
harm caused by the third party's late or excessive trading in certain MFS funds
may also become part of the residual amounts. At this time, the residual
amounts, if any, cannot be reasonably estimated and the fund has not accrued an
estimate for any amounts to be received.
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, 2007, 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, 2007, 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, 2007, 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 16, 2007
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2007, 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); MIT Sloan School
(education), Senior Lecturer
(since 2006); 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 (until 2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Retired; Cleveland-Cliffs Inc.
(born 5/30/42) (mining products and service
provider), Vice Chairman/Director
(until May 2007); Portman Limited
(mining), Director (since 2005);
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;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
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 New Profit, Inc. (venture
(born 8/05/57) philanthropy), Partner (since
2006); Private investor; Prism
Venture Partners (venture
capital), Co-founder and General
Partner (until June 2004); The
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) Chief
Compliance Officer (since December
2006); 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)
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 share- holders 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, Gutow, 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, 2007, the Trustees served as board members of 97 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, 2007 ("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 that included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2006 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 in 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, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's Class A shares was in the 1st 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 each of the one and five-year periods ended December 31, 2006 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 daily 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
average daily net assets over $7.5 billion, which may not be changed without
the Trustees' approval. The Trustees also considered that, according to the
Lipper data (which takes into account the advisory fee waiver), the Fund's
effective advisory fee rate and total expense ratio were each higher than the
Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the
Fund in comparison to institutional accounts, the higher demands placed on MFS'
investment personnel and trading infrastructure as a result of the daily cash
in-flows and out-flows of the Fund, and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
currently subject to 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 that 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, 2007.
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, 2007
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 2007 income
tax forms in January 2008. 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 $307,896,308 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 02205-5824
1-800-637-8255
24 hours a day OVERNIGHT MAIL
MFS Service Center, Inc.
ACCOUNT SERVICE AND 500 Boylston Street
LITERATURE 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(R) 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(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) 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 5
- ------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 7
- ------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 10
- ------------------------------------------------------------------
STATEMENT OF OPERATIONS 13
- ------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 14
- ------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 15
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 22
- ------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 31
- ------------------------------------------------------------------
TRUSTEES AND OFFICERS 32
- ------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 38
- ------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 42
- ------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 42
- ------------------------------------------------------------------
FEDERAL TAX INFORMATION 42
- ------------------------------------------------------------------
MFS(R) PRIVACY NOTICE 43
- ------------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
8/31/07
LMM-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. But the Dow's upward
rise has not been without hiccups. After hitting new records in July 2007, the
Dow lost 8% in the following weeks as a crisis swept global credit markets. As
we have said before, markets can be volatile, and investors should make sure
they have an investment plan that can carry them through the peaks and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short- term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss. Investing
and planning for the long term require 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 15, 2007
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 84.4%
Repurchase Agreements 9.9%
Certificates of Deposit 4.3%
U.S. Government Agency Obligations 1.0%
Other Assets Less Liabilities 0.4%
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 47.4%
------------------------------------------------
30-59 days 23.2%
------------------------------------------------
60-89 days 15.0%
------------------------------------------------
90-366 days 14.0%
------------------------------------------------
Other Assets Less Liabilities 0.4%
------------------------------------------------
(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 08/31/07.
(u) For purposes of this presentation, accrued interest, where applicable, is
included.
Percentages are based on net assets as of 08/31/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
PERFORMANCE SUMMARY THROUGH 8/31/07
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 the reinvestment of any dividends and capital gains
distributions. (See Notes to Performance Summary.)
An investment in the portfolio is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
portfolio seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the portfolio.
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. 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 Current
Return (without Current 7-day yield
Class Inception sales charge) 7-day yield without waiver
- --------------------------------------------------------------------------------
A 9/07/93 5.06% 5.02% 4.62%
- ----------------------------------------------------------------------------
B 12/29/86 4.02% 4.02% 3.62%
- ----------------------------------------------------------------------------
C 4/01/96 4.02% 4.02% 3.62%
- ----------------------------------------------------------------------------
R1 4/01/05 3.91% 3.92% 3.44%
- ----------------------------------------------------------------------------
R2 4/01/05 4.28% 4.27% 3.74%
- ----------------------------------------------------------------------------
R3 4/01/05 4.38% 4.37% 3.89%
- ----------------------------------------------------------------------------
R4 4/01/05 4.63% 4.62% 4.22%
- ----------------------------------------------------------------------------
R5 4/01/05 4.96% 4.92% 4.52%
- ----------------------------------------------------------------------------
529A 7/31/02 4.80% 4.77% 4.02%
- ----------------------------------------------------------------------------
529B 7/31/02 3.77% 3.77% 3.37%
- ----------------------------------------------------------------------------
529C 7/31/02 3.76% 3.77% 3.37%
- --------------------------------------------------------------------------------
Yields quoted are based on the latest seven days ended as of August 31, 2007,
with dividends annualized. The yield quotation more closely reflects the
current earnings of the fund than the total return quotation.
1 Year
Class Total Return
- --------------------------------------------------------------------------------
B with CDSC (Declining over
six years from 4% to 0%) (x) 0.02%
------------------------------------------------------------------------
C with CDSC (1% for 12 months) (x) 3.02%
------------------------------------------------------------------------
529B with CDSC (Declining over
six years from 4% to 0%) (x) -0.23%
------------------------------------------------------------------------
529C with CDSC (1% for
12 months) (x) 2.76%
- --------------------------------------------------------------------------------
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.
(x) Assuming redemption at the end of the applicable period.
NOTES TO PERFORMANCE SUMMARY
Performance for Class R4, R5, and 529A shares includes the performance of the
fund's Class A shares for periods prior to their offering. Performance for
Class 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, 2007 through August 31, 2007
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 (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, 2007 through August 31,
2007.
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). 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
Beginning Ending Paid During
Annualized Account Account Period (p)
Share Expense Value Value 3/01/07-
Class Ratio 3/01/07 8/31/07 8/31/07
- ----------------------------------------------------------------------------
Actual 0.41% $1,000.00 $1,025.20 $2.09
A -------------------------------------------------------------------
Hypothetical (h) 0.41% $1,000.00 $1,023.14 $2.09
- ----------------------------------------------------------------------------
Actual 1.41% $1,000.00 $1,020.10 $7.18
B -------------------------------------------------------------------
Hypothetical (h) 1.41% $1,000.00 $1,018.10 $7.17
- ----------------------------------------------------------------------------
Actual 1.41% $1,000.00 $1,020.10 $7.18
C -------------------------------------------------------------------
Hypothetical (h) 1.41% $1,000.00 $1,018.10 $7.17
- ----------------------------------------------------------------------------
Actual 1.51% $1,000.00 $1,019.50 $7.69
R1 -------------------------------------------------------------------
Hypothetical (h) 1.51% $1,000.00 $1,017.59 $7.68
- ----------------------------------------------------------------------------
Actual 1.16% $1,000.00 $1,021.30 $5.91
R2 -------------------------------------------------------------------
Hypothetical (h) 1.16% $1,000.00 $1,019.36 $5.90
- ----------------------------------------------------------------------------
Actual 1.06% $1,000.00 $1,021.90 $5.40
R3 -------------------------------------------------------------------
Hypothetical(h) 1.06% $1,000.00 $1,019.86 $5.40
- ----------------------------------------------------------------------------
Actual 0.81% $1,000.00 $1,023.10 $4.13
R4 -------------------------------------------------------------------
Hypothetical(h) 0.81% $1,000.00 $1,021.12 $4.13
- ----------------------------------------------------------------------------
Actual 0.49% $1,000.00 $1,024.70 $2.50
R5 -------------------------------------------------------------------
Hypothetical(h) 0.49% $1,000.00 $1,022.74 $2.50
- ----------------------------------------------------------------------------
Actual 0.66% $1,000.00 $1,023.90 $3.37
529A -------------------------------------------------------------------
Hypothetical(h) 0.66% $1,000.00 $1,021.88 $3.36
- ----------------------------------------------------------------------------
Actual 1.66% $1,000.00 $1,018.80 $8.45
529B -------------------------------------------------------------------
Hypothetical(h) 1.66% $1,000.00 $1,016.84 $8.44
- ----------------------------------------------------------------------------
Actual 1.66% $1,000.00 $1,018.80 $8.45
529C -------------------------------------------------------------------
Hypothetical(h) 1.66% $1,000.00 $1,016.84 $8.44
- ----------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads). If
these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
8/31/07
The Portfolio of Investments is a complete list of all securities owned by your
fund. It is categorized by broad-based asset classes.
Certificates of Deposit - 4.3%
- --------------------------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
Major Banks - 1.1%
- --------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Bank N.A., 5.28%, due 9/18/07 $ 5,000,000 $ 5,000,000
- --------------------------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 3.2%
- --------------------------------------------------------------------------------------------------------------------------------
Credit Suisse, NY, 5.31%, due 9/27/07 $14,218,000 $ 14,218,000
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT, AT AMORTIZED COST AND VALUE $ 19,218,000
- --------------------------------------------------------------------------------------------------------------------------------
Commercial Paper - 84.4% (y)
- --------------------------------------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 0.4%
- --------------------------------------------------------------------------------------------------------------------------------
Yorktown Capital LLC, 5.28%, due 9/07/07 (t) $ 1,636,000 $ 1,634,560
- --------------------------------------------------------------------------------------------------------------------------------
Automotive - 4.0%
- --------------------------------------------------------------------------------------------------------------------------------
Toyota Motor Credit Corp., 4.75%, due 9/04/07 $17,625,000 $ 17,618,023
- --------------------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 8.0%
- --------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 5.28%, due 9/04/07 $ 9,729,000 $ 9,724,719
Merrill Lynch & Co., Inc., 5.3%, due 9/18/07 7,991,000 7,971,000
Morgan Stanley, Inc., 5.45%, due 12/21/07 18,189,000 17,883,349
------------
$ 35,579,068
- --------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.1%
- --------------------------------------------------------------------------------------------------------------------------------
General Electric Co., 5.3%, due 11/15/07 $ 4,923,000 $ 4,868,642
- --------------------------------------------------------------------------------------------------------------------------------
Financial Institutions - 20.9%
- --------------------------------------------------------------------------------------------------------------------------------
American Express Credit Corp., 5.18%, due 9/04/07 $ 156,000 $ 155,933
American Express Credit Corp., 5.25%, due 9/25/07 15,110,000 15,057,115
American Express Credit Corp., 5.3%, due 10/26/07 2,425,000 2,405,364
American General Finance Corp., 5.28%, due 11/13/07 17,050,000 16,867,451
Cargill, Inc., 5.5%, due 10/15/07 (t) 1,020,000 1,013,143
Cargill, Inc., 5.4%, due 11/15/07 (t) 17,061,000 16,869,064
Edison Asset Securitization LLC, 5.25%, due 10/09/07 (t) 15,970,000 15,881,500
General Electric Capital Corp., 5.15%, due 9/04/07 714,000 713,694
General Electric Capital Corp., 5.17%, due 1/23/08 (t) 11,480,000 11,242,594
Govco LLC, 5.25%, due 10/09/07 (t) 600,000 596,675
Govco LLC, 5.31%, due 11/07/07 (t) 1,100,000 1,089,129
Kitty Hawk Funding Corp., 5.25%, due 9/20/07 (t) 5,777,000 5,760,993
Ranger Funding Co. LLC, 5.25%, due 9/18/07 (t) 5,425,000 5,411,551
------------
$ 93,064,206
- --------------------------------------------------------------------------------------------------------------------------------
Food & Beverages - 4.7%
- --------------------------------------------------------------------------------------------------------------------------------
Archer Daniels Midland Co., 5.3%, due 9/04/07 (t) $ 9,804,000 $ 9,799,670
Coca-Cola Co., 5.24%, due 11/30/07 (t) 11,155,000 11,008,870
------------
$ 20,808,540
- --------------------------------------------------------------------------------------------------------------------------------
Insurance - 3.9%
- --------------------------------------------------------------------------------------------------------------------------------
MetLife Funding, Inc., 5.24%, due 9/04/07 $ 7,140,000 $ 7,136,882
MetLife, Inc., 5.25%, due 9/25/07 (t) 10,380,000 10,343,670
------------
$ 17,480,552
- --------------------------------------------------------------------------------------------------------------------------------
Major Banks - 19.9%
- --------------------------------------------------------------------------------------------------------------------------------
Abbey National North America LLC, 5.313%, due 9/04/07 $ 1,985,000 $ 1,984,121
Abbey National North America LLC, 5.21%, due 12/06/07 15,855,000 15,634,721
Barclays U.S. Funding Corp., 5.255%, due 10/17/07 14,809,000 14,709,562
HBOS Treasury Services PLC, 5.245%, due 10/25/07 10,660,000 10,576,132
Natexis Banques Populaires, 5.5%, due 10/05/07 17,912,000 17,818,957
Societe Generale North America, 5.255%, due 9/27/07 15,316,000 15,257,872
Wells Fargo & Co., 5.33%, due 9/27/07 12,644,000 12,595,328
------------
$ 88,576,693
- --------------------------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 21.5%
- --------------------------------------------------------------------------------------------------------------------------------
Citigroup Funding, Inc., 5.25%, due 9/04/07 $ 713,000 $ 712,688
Citigroup Funding, Inc., 5.265%, due 9/20/07 15,251,000 15,208,621
Citigroup Funding, Inc., 5.3%, due 11/16/07 1,716,000 1,696,800
DEPFA Bank PLC, 5.425%, due 10/19/07 (t) 11,004,000 10,924,404
DEPFA Bank PLC, 4.98%, due 12/21/07 (t) 7,000,000 6,892,515
Dexia Delaware LLC, 5.46%, due 10/10/07 17,813,000 17,707,636
ING America Insurance Holdings, Inc., 5.35%, due 11/13/07 17,053,000 16,867,999
Svenska Handelsbanken, Inc., 5.24%, due 10/22/07 10,300,000 10,223,540
UBS Finance Delaware LLC, 5.2%, due 9/04/07 5,985,000 5,982,407
UBS Finance Delaware LLC, 5.43%, due 10/22/07 1,300,000 1,290,000
UBS Finance Delaware LLC, 5.225%, due 11/09/07 8,380,000 8,296,076
------------
$ 95,802,686
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER, AT AMORTIZED COST AND VALUE $375,432,970
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Government Agency Obligations - 1.0% (y)
- --------------------------------------------------------------------------------------------------------------------------------
Farmer Mac, 4.2%, due 9/04/07, at Amortized Cost and Value $ 4,400,000 $ 4,398,460
- --------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements - 9.9%
- --------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch, 5.3%, dated 8/31/07, due 9/04/07, total to be
received $44,066,935 (secured by various U.S. Treasury and
Federal Agency obligations and Mortgage Backed securities in a
jointly traded account), at Cost $44,041,000 $ 44,041,000
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE $443,090,430
- --------------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.4% 1,792,920
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $444,883,350
- --------------------------------------------------------------------------------------------------------------------------------
(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 8/31/07
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 $443,090,430
Cash 14
Receivable for fund shares sold 4,526,840
Interest receivable 227,083
Other assets 1,751
- ------------------------------------------------------------------------------------------------------
Total assets $447,846,118
- ------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------
Distributions payable $46,218
Payable for fund shares reacquired 2,524,653
Payable to affiliates
Management fee 3,622
Shareholder servicing costs 261,611
Distribution and service fees 13,793
Administrative services fee 428
Program manager fees 50
Retirement plan administration and services fees 840
Payable for independent trustees' compensation 27,740
Accrued expenses and other liabilities 83,813
- ------------------------------------------------------------------------------------------------------
Total liabilities $2,962,768
- ------------------------------------------------------------------------------------------------------
Net assets $444,883,350
- ------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- ------------------------------------------------------------------------------------------------------
Paid-in capital $444,907,595
Accumulated net realized gain (loss) on investments (24,245)
- ------------------------------------------------------------------------------------------------------
Net assets $444,883,350
- ------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 444,907,610
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- ------------------------------------------------------------------------------------------------------
Net assets $136,204,393
Shares outstanding 136,211,559
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class B shares
- ------------------------------------------------------------------------------------------------------
Net assets $154,175,511
Shares outstanding 154,179,867
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class C shares
- ------------------------------------------------------------------------------------------------------
Net assets $60,390,451
Shares outstanding 60,393,503
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class R1 shares
- ------------------------------------------------------------------------------------------------------
Net assets $8,538,161
Shares outstanding 8,539,157
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class R2 shares
- ------------------------------------------------------------------------------------------------------
Net assets $9,596,070
Shares outstanding 9,596,729
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class R3 shares
- ------------------------------------------------------------------------------------------------------
Net assets $36,026,584
Shares outstanding 36,030,447
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class R4 shares
- ------------------------------------------------------------------------------------------------------
Net assets $32,544,809
Shares outstanding 32,548,327
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class R5 shares
- ------------------------------------------------------------------------------------------------------
Net assets $3,716,913
Shares outstanding 3,717,361
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $1.00
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class 529A shares
- ------------------------------------------------------------------------------------------------------
Net assets $2,547,734
Shares outstanding 2,547,876
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $1.00
- ------------------------------------------------------------------------------------------------------
Class 529B shares
- ------------------------------------------------------------------------------------------------------
Net assets $328,429
Shares outstanding 328,448
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price price per share $1.00
- ------------------------------------------------------------------------------------------------------
Class 529C shares
- ------------------------------------------------------------------------------------------------------
Net assets $814,295
Shares outstanding 814,336
- ------------------------------------------------------------------------------------------------------
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 8/31/07
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 $20,199,757
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $2,069,426
Distribution and service fees 2,399,276
Program manager fees 8,281
Shareholder servicing costs 687,692
Administrative services fee 73,956
Retirement plan administration and services fees 78,950
Independent trustees' compensation 14,747
Custodian fee 92,709
Shareholder communications 27,813
Auditing fees 28,962
Legal fees 41,109
Miscellaneous 103,715
- ------------------------------------------------------------------------------------------------------
Total expenses $5,626,636
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (8,587)
Reduction of expenses by investment adviser and distributor (1,524,542)
- ------------------------------------------------------------------------------------------------------
Net expenses $4,093,507
- ------------------------------------------------------------------------------------------------------
Net investment income $16,106,250
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions $(22,989)
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $16,083,261
- ------------------------------------------------------------------------------------------------------
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
-------------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income $16,106,250 $13,405,250
Net realized gain (loss) on investments (22,989) (811)
- ---------------------------------------------------------------------------------------------
Change in net assets from operations $16,083,261 $13,404,439
- ---------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------
From net investment income
Class A $(5,611,214) $(4,153,465)
Class B (7,009,719) (7,438,988)
Class C (1,743,169) (1,500,901)
Class R1 (175,656) (22,701)
Class R2 (147,919) (30,414)
Class R3 (711,011) (102,446)
Class R4 (575,671) (9,619)
Class R5 (33,784) (2,066)
Class 529A (109,027) (70,775)
Class 529B (11,220) (9,881)
Class 529C (25,406) (16,893)
- ---------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(16,153,796) $(13,358,149)
- ---------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $40,254,200 $(18,098,331)
- ---------------------------------------------------------------------------------------------
Total change in net assets $40,183,665 $(18,052,041)
- ---------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------
At beginning of period 404,699,685 422,751,726
At end of period (including undistributed net investment
income of $0 and $47,546, respectively) $444,883,350 $404,699,685
- ---------------------------------------------------------------------------------------------
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.
CLASS A YEARS ENDED 8/31
-----------------------------------------------------------------
2007 2006 2005 2004 2003
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) $0.05 $0.04 $0.02 $0.01 $0.01
Net realized and unrealized gain (loss)
on investments (0.00)(w) (0.00)(w) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.05 $0.04 $0.02 $0.01 $0.01
- ------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------
From net investment income $(0.05) $(0.04) $(0.02) $(0.01) $(0.01)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------
Total return (%) (r) 5.06 4.19 2.11 0.58 0.69
- ------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.83 0.89 0.90 0.79 0.81
Expenses after expense reductions (f) 0.43 0.49 0.50 0.55 0.71
Net investment income 4.94 4.14 2.10 0.58 0.70
Net assets at end of period (000 Omitted) $136,204 $114,481 $91,165 $101,287 $214,275
- ------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 8/31
--------------------------------------------------------------------
2007 2006 2005 2004 2003
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 $0.03 $0.01 $0.00(w) $0.00(w)
Net realized and unrealized gain (loss)
on investments (0.00)(w) (0.00)(w) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.04 $0.03 $0.01 $0.00(w) $0.00(w)
- ---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------
From net investment income $(0.04) $(0.03) $(0.01) $(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) 4.02 3.16 1.10 0.06 0.06
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.83 1.89 1.89 1.80 1.81
Expenses after expense reductions (f) 1.43 1.49 1.49 1.07 1.35
Net investment income 3.94 3.09 1.03 0.06 0.06
Net assets at end of period (000 Omitted) $154,176 $222,661 $280,361 $429,844 $647,269
- ---------------------------------------------------------------------------------------------------------------------
CLASS C YEARS ENDED 8/31
-------------------------------------------------------------------
2007 2006 2005 2004 2003
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 $0.03 $0.01 $0.00(w) $0.00(w)
Net realized and unrealized gain (loss)
on investments (0.00)(w) (0.00)(w) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.04 $0.03 $0.01 $0.00(w) $0.00(w)
- ---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------
From net investment income $(0.04) $(0.03) $(0.01) $(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) 4.02 3.15 1.10 0.06 0.06
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.83 1.89 1.89 1.79 1.81
Expenses after expense reductions (f) 1.43 1.49 1.49 1.07 1.36
Net investment income 3.94 3.14 1.03 0.06 0.06
Net assets at end of period (000 Omitted) $60,390 $56,456 $46,483 $80,482 $159,715
- ---------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 8/31
--------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income (d) $0.04 $0.03 $0.01
Net realized and unrealized gain (loss)
on investments (0.00)(w) (0.00)(w) --
- ----------------------------------------------------------------------------------------
Total from investment operations $0.04 $0.03 $0.01
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------
From net investment income $(0.04) $(0.03) $(0.01)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------
Total return (%) (r) 3.91 3.04 0.59(n)
- ----------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.97 2.09 2.24(a)
Expenses after expense reductions (f) 1.53 1.59 1.84(a)
Net investment income 3.82 3.15 1.52(a)
Net assets at end of period (000 Omitted) $8,538 $898 $258
- ----------------------------------------------------------------------------------------
CLASS R2 YEARS ENDED 8/31
-------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income (d) $0.04 $0.03 $0.01
Net realized and unrealized gain (loss)
on investments (0.00)(w) (0.00)(w) --
- ----------------------------------------------------------------------------------------
Total from investment operations $0.04 $0.03 $0.01
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------
From net investment income $(0.04) $(0.03) $(0.01)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------
Total return (%) (r) 4.28 3.40 0.72(n)
- ----------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.64 1.79 1.93(a)
Expenses after expense reductions (f) 1.18 1.25 1.53(a)
Net investment income 4.17 3.40 1.97(a)
Net assets at end of period (000 Omitted) $9,596 $1,101 $604
- ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 8/31
--------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income (d) $0.04 $0.04 $0.01
Net realized and unrealized gain (loss)
on investments (0.00)(w) (0.01) --
- ----------------------------------------------------------------------------------------
Total from investment operations $0.04 $0.03 $0.01
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------
From net investment income $(0.04) $(0.03) $(0.01)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------
Total return (%) (r) 4.38 3.51 0.78(n)
- ----------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.52 1.63 1.83(a)
Expenses after expense reductions (f) 1.09 1.13 1.43(a)
Net investment income 4.28 3.73 2.10(a)
Net assets at end of period (000 Omitted) $36,027 $4,909 $1,179
- ----------------------------------------------------------------------------------------
CLASS R4 YEARS ENDED 8/31
--------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income (d) $0.05 $0.04 $0.01
Net realized and unrealized gain (loss)
on investments (0.00)(w) (0.00)(w) --
- ----------------------------------------------------------------------------------------
Total from investment operations $0.05 $0.04 $0.01
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------
From net investment income $(0.05) $(0.04) $(0.01)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------
Total return (%) (r) 4.63 3.77 0.93(n)
- ----------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.23 1.28 1.38(a)
Expenses after expense reductions (f) 0.83 0.88 0.98(a)
Net investment income 4.53 4.06 2.21(a)
Net assets at end of period (000 Omitted) $32,545 $1,019 $51
- ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 8/31
-------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income (d) $0.05 $0.04 $0.01
Net realized and unrealized gain (loss)
on investments (0.00)(w) (0.00)(w) --
- ----------------------------------------------------------------------------------------
Total from investment operations $0.05 $0.04 $0.01
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------
From net investment income $(0.05) $(0.04) $(0.01)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------
Total return (%) (r) 4.96 4.09 1.06(n)
- ----------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.93 0.99 1.08(a)
Expenses after expense reductions (f) 0.53 0.59 0.68(a)
Net investment income 4.80 4.03 2.51(a)
Net assets at end of period (000 Omitted) $3,717 $53 $51
- ----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529A YEARS ENDED 8/31
------------------------------------------------------------------
2007 2006 2005 2004 2003
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) $0.05 $0.04 $0.02 $0.00(w) $0.00(w)
Net realized and unrealized gain (loss)
on investments (0.00)(w) (0.00)(w) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.05 $0.04 $0.02 $0.00(w) $0.00(w)
- ---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------
From net investment income $(0.05) $(0.04) $(0.02) $(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) 4.80 3.93 1.86 0.33 0.45
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.44 1.49 1.50 1.39 1.41
Expenses after expense reductions (f) 0.68 0.74 0.75 0.80 0.96
Net investment income 4.69 3.92 1.93 0.34 0.33
Net assets at end of period (000 Omitted) $2,548 $2,135 $1,650 $1,140 $1,164
- ---------------------------------------------------------------------------------------------------------------------
CLASS 529B YEARS ENDED 8/31
------------------------------------------------------------------
2007 2006 2005 2004 2003
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 $0.03 $0.01 $0.00(w) $0.00(w)
Net realized and unrealized gain (loss)
on investments (0.00)(w) (0.00)(w) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.04 $0.03 $0.01 $0.00(w) $0.00(w)
- ---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------
From net investment income $(0.04) $(0.03) $(0.01) $(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) 3.77 2.90 0.87 0.06 0.07
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.09 2.14 2.13 2.03 2.06
Expenses after expense reductions (f) 1.69 1.74 1.73 1.08 1.25
Net investment income 3.69 2.88 0.87 0.07 0.06
Net assets at end of period (000 Omitted) $328 $297 $340 $339 $253
- ---------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C YEARS ENDED 8/31
------------------------------------------------------------------
2007 2006 2005 2004 2003
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 $0.03 $0.01 $0.00(w) $0.00(w)
Net realized and unrealized gain (loss)
on investments (0.00)(w) (0.00)(w) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.04 $0.03 $0.01 $0.00(w) $0.00(w)
- ---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------
From net investment income $(0.04) $(0.03) $(0.01) $(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) 3.76 2.90 0.87 0.06 0.07
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.09 2.14 2.13 2.03 2.06
Expenses after expense reductions (f) 1.68 1.74 1.73 1.08 1.22
Net investment income 3.69 2.89 0.85 0.06 0.05
Net assets at end of period (000 Omitted) $814 $688 $611 $640 $512
- ---------------------------------------------------------------------------------------------------------------------
(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, 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.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the fund, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the fund's financial statements.
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 and other funds managed by
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
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, 2007, 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 U.S. 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, 2007, there were no significant adjustments
due to differences between book and tax accounting.
The tax character of distributions declared to shareholders is as follows:
8/31/07 8/31/06
Ordinary income (including
any short-term capital gains) $16,153,796 $13,358,149
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/07
Cost of investments $443,090,430
-------------------------------------------------------------
Undistributed ordinary income $77,688
Capital loss carryforwards (1,256)
Post-October capital loss deferral (22,989)
Other temporary differences (77,688)
As of August 31, 2007, 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)
8/31/15 (811)
-------------------------------------------------------------
$(1,256)
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. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. 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 evaluated the application of the Interpretation to the fund, and has
determined that there is no impact 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, 2007, this waiver
amounted to $1,505,037 and is reflected as a reduction of total expenses in the
Statement of Operations.
The management fee incurred for the year ended August 31, 2007 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% 1,773,564
Class C 0.75% 0.25% 1.00% 1.00% 441,253
Class R1 0.50% 0.25% 0.75% 0.75% 34,362
Class R2 0.25% 0.25% 0.50% 0.50% 17,632
Class R3 0.25% 0.25% 0.50% 0.50% 82,750
Class R4 -- 0.25% 0.25% 0.25% 31,685
Class 529A 0.25% 0.25% 0.50% 0.00% 8,127
Class 529B 0.75% 0.25% 1.00% 1.00% 3,031
Class 529C 0.75% 0.25% 1.00% 1.00% 6,872
- --------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $2,399,276
(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, 2007 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 December
31, 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,
2007, this waiver amounted to $2,322 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 December 31, 2007. For the year ended August 31, 2007, this waiver
amounted to $5,805 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, 2007, were as follows:
AMOUNT
Class A $356
Class B $427,210
Class C $15,000
Class 529B $1,099
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, 2007, were as follows:
AMOUNT
Class 529A $5,805
Class 529B 758
Class 529C 1,718
-------------------------------------------
Total Program Manager Fees $8,281
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 daily net assets of
the fund as determined periodically under the supervision of the fund's Board
of Trustees. For the year ended August 31, 2007, the fee was $233,565, which
equated to 0.0621% annually of the fund's average daily net assets. MFSC also
receives payment from the fund for out-of-pocket expenses, sub-accounting and
other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the year ended August 31, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $390,447. The fund may also pay shareholder servicing related costs
directly 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 average daily net assets. The fund's annual fixed
amount is $17,500.
The administrative services fee incurred for the year ended August 31, 2007 was
equivalent to an annual effective rate of 0.0197% 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, 2007,
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:
BEGINNING
OF PERIOD ANNUAL
THROUGH EFFECTIVE EFFECTIVE TOTAL
3/31/07 4/1/07 RATE(g) AMOUNT
Class R1 0.45% 0.35% 0.35% $17,596
Class R2 0.40% 0.25% 0.25% 10,983
Class R3 0.25% 0.15% 0.15% 30,661
Class R4 0.15% 0.15% 0.15% 19,012
Class R5 0.10% 0.10% 0.10% 698
- -------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $78,950
(g) Prior to April 1, 2007, MFS had agreed in writing to waive a portion of the
retirement plan administration and services fee equal to 0.10% for Class
R1, 0.15% for Class R2, and 0.10% for Class R3 shares. This agreement was
discontinued on March 31, 2007. On April 1, 2007, the annual retirement
plan administration and services fee for Class R1, Class R2, and Class R3
shares was lowered to 0.35%, 0.25%, and 0.15%, respectively. For the year
ended August 31, 2007, the waiver amounted to $9,538 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
$2,980. This amount is included in independent trustees' compensation for the
year ended August 31, 2007. The liability for deferred retirement benefits
payable to certain retired independent trustees amounted to $27,560 at August
31, 2007, 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, 2007, the fee paid to Tarantino LLC
was $2,345. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $1,840, 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 securities, exclusive of securities subject
to repurchase agreements, aggregated $6,014,373,244 and $6,017,627,620,
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
8/31/07 8/31/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 109,927,782 $109,927,782 117,033,867 $117,033,876
Class B 112,273,280 112,273,280 172,309,994 172,309,994
Class C 60,361,403 60,361,403 66,947,131 66,947,131
Class R1 61,618,688 61,618,688 1,313,341 1,313,341
Class R2 54,718,434 54,718,434 861,517 861,516
Class R3 151,186,527 151,186,527 6,796,745 6,796,746
Class R4 104,892,406 104,892,406 1,072,464 1,072,464
Class R5 17,149,069 17,149,069 -- --
Class 529A 1,188,482 1,188,482 886,031 886,031
Class 529B 101,520 101,520 243,462 243,463
Class 529C 497,316 497,316 366,108 366,108
- -------------------------------------------------------------------------------------------------------
673,914,907 $673,914,907 367,830,660 $367,830,670
Shares issued to shareholders
in reinvestment of distributions
Class A 5,246,094 $5,246,094 3,783,600 $3,783,600
Class B 6,563,810 6,563,810 6,929,081 6,929,081
Class C 1,624,513 1,624,513 1,374,977 1,374,977
Class R1 149,283 149,283 22,173 22,174
Class R2 119,311 119,311 29,955 29,955
Class R3 643,871 643,871 99,631 99,631
Class R4 539,714 539,714 9,521 9,521
Class R5 28,877 28,877 2,066 2,066
Class 529A 108,508 108,508 70,755 70,755
Class 529B 11,154 11,154 9,850 9,850
Class 529C 25,156 25,156 16,827 16,827
- -------------------------------------------------------------------------------------------------------
15,060,291 $15,060,291 12,348,436 $12,348,437
Shares reacquired
Class A (93,431,093) $(93,431,093) (97,513,708) $(97,513,708)
Class B (187,291,191) (187,291,191) (236,966,151) (236,966,174)
Class C (58,042,860) (58,042,860) (58,354,458) (58,354,459)
Class R1 (54,127,011) (54,127,011) (695,487) (695,487)
Class R2 (46,341,559) (46,341,559) (394,730) (394,730)
Class R3 (120,708,753) (120,708,753) (3,166,655) (3,166,655)
Class R4 (73,903,225) (73,903,225) (113,123) (113,123)
Class R5 (13,513,179) (13,513,179) -- --
Class 529A (884,377) (884,377) (471,603) (471,603)
Class 529B (81,516) (81,516) (296,083) (296,084)
Class 529C (396,234) (396,234) (305,414) (305,415)
- -------------------------------------------------------------------------------------------------------
(648,720,998) $(648,720,998) (398,277,412) $(398,277,438)
Net change
Class A 21,742,783 $21,742,783 23,303,759 $23,303,768
Class B (68,454,101) (68,454,101) (57,727,076) (57,727,099)
Class C 3,943,056 3,943,056 9,967,650 9,967,649
Class R1 7,640,960 7,640,960 640,027 640,028
Class R2 8,496,186 8,496,186 496,742 496,741
Class R3 31,121,645 31,121,645 3,729,721 3,729,722
Class R4 31,528,895 31,528,895 968,862 968,862
Class R5 3,664,767 3,664,767 2,066 2,066
Class 529A 412,613 412,613 485,183 485,183
Class 529B 31,158 31,158 (42,771) (42,771)
Class 529C 126,238 126,238 77,521 77,520
- -------------------------------------------------------------------------------------------------------
40,254,200 $40,254,200 (18,098,316) $(18,098,331)
(6) LINE OF CREDIT
The fund and other funds managed by MFS 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 funds managed by MFS 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 0.30%. 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, 2007, the fund's commitment fee and interest expense were $1,844 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, 2007, 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, 2007, 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, 2007, 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 16, 2007
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of October 1, 2007, 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); MIT Sloan School
(education), Senior Lecturer
(since 2006); 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 (until 2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Retired; Cleveland-Cliffs Inc.
(born 5/30/42) (mining products and service
provider), Vice Chairman/Director
(until May 2007); Portman Limited
(mining), Director (since 2005);
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;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
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 New Profit, Inc. (venture
(born 8/05/57) philanthropy), Partner (since
2006); Private investor; Prism
Venture Partners (venture
capital), Co-founder and General
Partner (until June 2004); The
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) Chief
Compliance Officer (since December
2006); 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)
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 share- holders 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, Gutow, 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, 2007, the Trustees served as board members of 97 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
500 Boylston Street, Boston, MA 02116-3741 200 Berkeley Street, Boston, MA 02116
PORTFOLIO MANAGER
Edward O'Dette
Terri 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, 2007 ("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 that included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2006 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 in 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, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's Class A shares was in the 1st 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, 2006 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 daily 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 (which takes into account
the advisory fee reduction), the Fund's effective advisory fee rate and total
expense ratio were each lower than the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the
Fund in comparison to institutional accounts, the higher demands placed on MFS'
investment personnel and trading infrastructure as a result of the daily cash
in-flows and out-flows of the Fund, and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
not currently subject to any breakpoints. 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 that 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, 2007.
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, 2007
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 2007 income
tax forms in January 2008.
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 02205-5824
1-800-637-8255
24 hours a day OVERNIGHT MAIL
MFS Service Center, Inc.
ACCOUNT SERVICE AND 500 Boylston Street
LITERATURE 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(R) 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(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) 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.
A copy of the Code of Ethics is filed as an exhibit to 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, 2007 and 2006, audit fees billed to the
Funds by Deloitte and E&Y were as follows:
Audit Fees
FEES BILLED BY DELOITTE: 2007 2006
---- ----
MFS Cash Reserve Fund 28,640 25,360
AUDIT FEES
FEES BILLED BY E&Y: 2007 2006
---- ----
MFS Core Equity Fund 38,645 35,580
MFS Core Growth Fund 39,185 35,580
MFS New Discovery Fund 38,645 35,580
MFS Research International Fund 41,550 37,780
MFS Strategic Growth Fund+ 0 35,580
MFS Technology Fund 38,645 35,580
MFS Value Fund 39,185 35,580
------ ------
TOTAL BILLED BY E&Y 235,855 251,260
For the fiscal years ended August 31, 2007 and 2006, 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: 2007 2006 2007 2006 2007 2006
---- ---- ---- ---- ---- ----
To MFS Cash Reserve 0 0 3,266 5,800 0 558
Fund
To MFS and MFS Related 905,470 1,035,850 0 0 543,753 454,481
Entities of MFS Cash
Reserve Fund*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2007 2006
---- ----
To MFS Cash Reserve Fund, 1,600,067 1,614,579
MFS and MFS Related
Entities#
Audit-Related Fees(2) Tax Fees(2) All Other Fees(4)
FEES BILLED BY E&Y: 2007 2006 2007 2006 2007 2006
---- ---- ---- ---- ---- ----
To MFS Core Equity Fund 0 0 7,940 10,192 0 144
To MFS Core Growth 0 0 7,940 10,192 0 144
Fund
To MFS New Discovery 0 0 7,940 10,192 0 144
Fund
To MFS Research 0 0 8,317 10,522 0 144
International Fund
To MFS Strategic 0 0 0 10,192 0 144
Growth Fund+
To MFS Technology Fund 0 0 7,940 10,192 0 144
To MFS Value Fund 0 0 7,940 10,192 0 144
0 0 48,017 71,674 0 1,008
TOTAL FEES BILLED BY E&Y
TO ABOVE FUNDS:
To MFS and MFS Related 0 0 0 15,500 0 97,480
Entities of MFS Core
Equity Fund*
To MFS and MFS Related 0 0 0 15,500 0 97,480
Entities of MFS Core
Growth Fund*
To MFS and MFS Related 0 0 0 15,500 0 97,480
Entities of MFS New
Discovery Fund*
To MFS and MFS Related 0 0 0 15,500 0 97,480
Entities of MFS Research
International Fund*
To MFS and MFS Related 0 0 0 15,500 0 97,480
Entities of MFS Strategic
Growth Fund+*
To MFS and MFS Related 0 0 0 15,500 0 97,480
Entities of MFS
Technology Fund*
To MFS and MFS Related 0 0 0 15,500 0 97,480
Entities of MFS Value
Fund*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2007 2006
---- ----
To MFS Core Equity Fund, 181,424 200,333
MFS and MFS Related
Entities#
To MFS Core Growth 181,424 200,333
Fund, MFS and MFS
Related Entities#
To MFS New Discovery 181,424 200,333
Fund, MFS and MFS
Related Entities#
To MFS Research 181,801 200,663
International Fund,
MFS and MFS Related
Entities#
To MFS Strategic Growth 173,484 200,333
Fund, MFS and MFS Related
Entities+#
To MFS Technology Fund, MFS 181,424 200,333
and MFS Related Entities#
To MFS Value Fund, MFS and 181,424 200,333
MFS Related Entities#
+ The MFS Strategic Growth Fund was reorganized into the MFS Core Growth Fund as of June 22, 2007. See note above.
* This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to the
operations and financial reporting of the Funds (portions of which services also related to the operations and
financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by Deloitte or E&Y, 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.
(3) 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 407(c)(2)(iv) of Regulation S-K (as required by Item
22(b)(15) 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 report on 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, as amended, 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 16, 2007
----------------
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 16, 2007
----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: October 16, 2007
----------------
* Print name and title of each signing officer under his or her signature.