- --------------------------------------------------------------------------------
[MFS(SM) Annual Report
INVESTMENT MANAGEMENT LOGO] for Year Ended
September 30, 1996
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MFS(R) Research Fund
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[PHOTO OF CIRCUIT BOARD]
<PAGE>
Table of Contents
Letter from the Chairman 1
A Discussion with the Director of Research 3
Portfolio Concentration 6
Fund Facts 6
Performance Summary 7
Portfolio of Investments 9
Financial Statements 14
Notes to Financial Statements 21
Independent Auditors' Report 27
Trustees and Officers 29
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Highlights
o For the past 12 months, the net asset value of Class A shares of the Fund
provided a total return of 26.54%, Class B shares 25.59%, and Class C shares
25.67%, while the S&P 500 returned 20.32%.
o Strategic overweightings in technology, retail, and leisure enhanced
performance, while companies in the consumer staples, industrial goods and
services, and financial services sectors provided strong earnings growth and
price appreciation.
o The Fund has been overweighted in technology for the past two years,
reflecting our belief that many of these companies consistently offer superior
growth at reasonable valuations.
o The Fund also remains overweighted in the health care sector based on our
confidence in the long-term prospects for companies such as Pfizer,
Rhone-Poulenc Rorer, Pacificare, and United Healthcare.
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<PAGE>
Letter from the Chairman
[PHOTO OF Dear Shareholders:
A. KEITH
BRODKIN] As we enter the last quarter of 1996, the U.S. economy
appears to have settled into a pattern of moderate growth
and inflation -- two factors that we think can be important
contributors to a favorable long-term investment climate.
During the first quarter of 1996, real (inflation-adjusted)
economic growth was 2.3% on an annualized basis, followed by
a rate of 4.7% in the second quarter. Real growth in gross
domestic product has surpassed our expectations this year,
and we now expect that growth for all of 1996 could exceed 2.5%. Although the
individual consumer appears to be carrying an excessive debt load, the consumer
sector itself, which represents two-thirds of the economy, continues to be
impressive in its support of the automobile and housing markets. Consumer
spending has also been positively impacted by widespread job growth and, more
recently, increasing wages. The latest statistics appear to show signs of slower
consumer spending, especially in overall retail sales, which have been flat for
several months. Furthermore, the European and Japanese economies continue to be
in the doldrums, weakening U.S. export markets while subduing the capital
spending plans of American corporations. Economic growth should continue, but we
expect it could slacken toward the end of the year.
While we do not anticipate this year's U.S. stock market to match the
extraordinary performance of 1995, we continue to be positive about the equity
market for the remainder of 1996. We believe the equity market currently
represents fair value. However, the expected slowdown in corporate earnings
growth and interest rate increases earlier in the year have raised some
near-term concerns, as was seen in July's stock market correction. Further
increases in interest rates, and an acceleration of inflation coupled with an
additional slowdown in corporate earnings growth, could have a negative effect
on the stock market in the near term. To the extent that some earnings
disappointments are taken as a sign that the economy is not overheating, this
may prove beneficial for the longer-term health of the equity market. We believe
that many of the technology-driven productivity gains U.S. companies have made
in recent years will continue to enhance corporate America's competitiveness and
profitability. Therefore, while we have some near-term concerns, we continue to
advance on the long-term viability of the equity market.
Finally, this report to shareholders incorporates several changes which we
hope you will find informative and useful. Following the discussion with
1
<PAGE>
Letter from the Chairman - continued
the Director of Research, we have added new information on the Fund's
holdings, including a chart illustrating the portfolio's concentration in the
investments that meet its criteria. Near the back of the report, telephone
numbers and addresses are listed if you would like to contact MFS.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
October 15, 1996
2
<PAGE>
A Discussion with the Director of Research
[PHOTO OF For the 12 months ended September 30, 1996, the Fund
KEVIN R. significantly outperformed the overall stock market as
PARKE] measured by the Standard & Poor's 500 Composite Index (the
S&P 500). For the same period the S&P 500, a popular,
unmanaged index of common stock performance, returned
20.32%. Class A shares of the Fund provided a total return
of 26.54%, Class B shares 25.59%, and Class C shares 25.67%.
All of these returns assume the reinvestment of distributions but exclude the
effects of any sales charges.
Q. Why do you think the Fund performed so well this year, Kevin?
A. The Fund's favorable performance can be attributed to four factors.
Primarily, strategic overweightings in technology, retail, and leisure
enhanced the portfolio's performance. Secondly, within the consumer staples,
industrial goods and services, and financial services sectors, the analysts
uncovered companies which provided strong earnings growth and price
appreciation given the market environment. Thirdly, exposure to the utilities
and communications, autos and housing, and basic materials sectors was low as
a result of what we considered to be dismal earnings prospects for many of
these companies. Finally, the stock market's rally, as well as the strong
business and economic environment over the past year, continued to be
positive factors for the Fund.
Q. Can you briefly describe the process the committee of research analysts
goes through in selecting stocks for the Fund?
A. The Fund is most accurately described as a "best ideas" portfolio, based
on a bottom-up, fundamental research process. The Fund is managed by a
committee of experienced industry analysts, each of whom includes in the
portfolio those securities within his or her industry that he or she believes
offer the highest probability of capital appreciation. Each analyst conducts
rigorous fundamental analysis, including on-site visits and meetings with
company management, to select companies with strong balance sheets, dynamic
management, and a competitive advantage within their respective industries.
Once an analyst selects a company for inclusion in the Fund, he or she can
finance it by selling an existing holding in his or her industry. Otherwise,
the analyst must ask for an additional weighting in that industry and present
the idea to the entire group, which considers the analyst's presentation and
analyzes the company before voting on the new idea.
3
<PAGE>
A Discussion with the Director of Research - continued
Q. We noticed that technology is the Fund's largest sector. What do the
analysts like about this sector, and are any segments of technology favored
more than others?
A. The Fund has been overweighted in technology for the past two years. It is
our belief that many companies which shape the technology sector consistently
offer superior growth at reasonable valuations compared to other sectors of
the economy. Our emphasis continues to be on computer software companies such
as Oracle Corporation, Microsoft, and BMC Software. We believe the current
levels of earnings growth for these companies are sustainable given their
current management structure, industry positioning, new product development,
and established pipeline.
Q. What other sectors do the analysts like?
A. We remain confident about the leisure sector. HFS, Inc., MGM Grand, and
Jacor Communications have made notable gains over the past 12 months. HFS,
Inc., one of the top positions in the Fund, continues to make strategic
acquisitions which the committee believes will help enhance the company's
earnings growth over the next 12 to 18 months.
The Fund remains overweighted in the health care sector based on our
confidence in the long-term growth prospects of select companies within the
group. Pharmaceutical companies such as Pfizer, Inc. exceeded analysts'
earnings expectations this past year through concentrated cost-cutting
efforts, strong sales momentum, and strategic positioning in the marketplace.
We also believe well-managed companies such as Pacificare and United
Healthcare offer substantial long-term growth potential within the health
maintenance organization (HMO) industry.
Q. What sectors are the analysts avoiding or de-emphasizing now, and why?
A. We are currently underweighted in the utilities, communications, energy,
basic materials, and automotive sectors due to the cyclical commodity nature
of many companies in these groups.
Q. Can you name some stocks or sectors that performed as well as or better
than expected, and tell us why you think they did well?
A. Nike, Inc. led the charge in earnings growth within the retail sector over
the past year. Its consistent dominance in the domestic U.S. market as well
as its continued penetration abroad allowed it to remain the world's leading
footwear maker. Within the financial services sector, consolidations such as
Chase Manhattan and, more recently, BankBoston have performed well as a
result of the market's acceptance of their mergers and their ability to cut
costs and increase revenues. Union Planters' recent acquisition of Leader
Financial was
4
<PAGE>
A Discussion with the Director of Research - continued
also well received by Wall Street. We believe Union Planters' fundamental
improvements and low valuation make it an attractive stock with strong
fundamentals.
Q. Now how about some stocks or sectors that did not perform as well as
expected?
A. While we continue to believe that select stocks within the health care
sector offer tremendous future growth potential, their marketplace value has
yet to be realized. As a result, some of the health care stocks within the
Fund underperformed during the year.
Q. As you look ahead, what changes do you see in the overall market or
economic environment as it relates to the Fund, and how are you positioning
the Fund to try and take advantage of those changes?
A. While recent economic data suggest some possible easing of economic growth
and labor supply shortages, we expect more volatility is likely for the rest
of the year. Many economists on Wall Street are also anticipating an interest
rate hike by the Federal Reserve Board. We will continue to focus on
well-positioned and attractively valued stocks that we believe will strongly
perform regardless of the economic backdrop. Within the technology, health
care, consumer staples, industrial goods and services, and financial services
sectors, we have identified companies that we think can grow earnings in the
current market environment. Through close examination of long-term company
fundamentals, we will seek to provide robust relative performance in what
could be a more challenging environment for the U.S. equity market in the
months ahead.
/s/ Kevin R. Parke
Kevin R. Parke
Director of Research
The Committee of MFS Research Analysts is responsible for the day-to-day
management of the Fund under the general supervision of Mr. Parke.
- --------------------------------------------------------------------------------
Tax Form Summary
In January 1997, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1996. For
the year ended September 30, 1996, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to
14.14%.
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5
<PAGE>
Portfolio Concentration as of September 30, 1996
Ten Largest Holdings
Philip Morris Companies, Inc.
Tobacco, food, and beverage
conglomerate
Praxair Inc.
Manufactures industrial gas
supplies
Oracle Corporation
Develops and manufactures
database software
McDonnell Douglas
Commercial and defense aircraft manufacturer
Kimberly Clark
Paper products company
HFS, Inc.
Franchiser of hotels and real estate companies
United Technologies
Aerospace, defense, and building equipment conglomerate
Colgate-Palmolive
Cosmetics and toiletries company
Penncorp Financial Group
Underwrites and markets life and health insurance
St. Jude Medical
Manufactures medical instruments
Largest Holdings
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[DESCRIPTION OF PIE CHART]
Other 39.80%
Industrial Goods
and Services 8.40%
Health Care 10.60%
Consumer Staples 11.80%
Financial Services 12.20%
Technology 17.20%
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- --------------------------------------------------------------------------------
Fund Facts
Strategy: The Fund's investment objective is to provide
long-term growth of capital and future income.
Commencement of
investment operations: October 13, 1971
Size: $1.8 billion as of September 30, 1996
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6
<PAGE>
Performance Summary
The information below and on the following page illustrates the historical
performance of MFS Research Fund Class A shares in comparison to various
market indicators. Benchmark comparisons are unmanaged and do not reflect any
fees or expenses. You cannot invest in an index. All results reflect the
reinvestment of all dividends and capital gains.
Class B shares were offered effective September 7, 1993. Information on Class
B share performance appears on the next page. Class C shares were offered
effective January 3, 1994. Information on Class C share performance appears
on the next page.
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[DESCRIPTION OF LINE CHART]
Growth of a Hypothetical $10,000 Investment
(For the 5-Year Period Ended September 30, 1996)
9/91 9427 10000 10000
9/92 10538 10299 11099
9/93 13517 10576 12542
9/94 14561 10889 13000
9/95 18128 11166 16850
9/96 22939 11486 20260
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- --------------------------------------------------------------------------------
[DESCRIPTION OF LINE CHART]
Growth of a Hypothetical $10,000 Investment
(For the 10-Year Period Ended September 30, 1996)
9/30/86 9421 10000 10000
9/30/87 13631 10430 14335
9/30/88 11514 10866 12555
9/29/89 14612 11337 16684
9/28/90 13085 12036 15139
9/30/91 16494 12444 19849
9/30/92 18439 12815 22030
9/30/93 23651 13160 24893
9/30/94 25478 13550 25803
9/29/95 31718 13895 33445
9/30/96 40137 14293 40213
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7
<PAGE>
Performance Summary - continued
<TABLE>
<CAPTION>
Average Annual Total Returns 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Research Fund (Class A) including 5.75%
sales charge +19.28% +16.96% +18.06% +14.91%
- ---------------------------------------------------------------------------------------------
MFS Research Fund (Class A) at net asset value +26.54% +19.28% +19.46% +15.60%
- ---------------------------------------------------------------------------------------------
MFS Research Fund (Class B) without CDSC +25.59% +18.38% +18.92% +15.34%
- ---------------------------------------------------------------------------------------------
MFS Research Fund (Class B) with CDSC +21.59% +17.66% +18.72% +15.34%
- ---------------------------------------------------------------------------------------------
MFS Research Fund (Class C) without CDSC +25.67% +18.49% +18.99% +15.37%
- ---------------------------------------------------------------------------------------------
MFS Research Fund (Class C) with CDSC +24.67% +18.49% +18.99% +15.37%
VAverage growth fund +15.89% +14.11% +13.69% +13.28%
- ---------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index +20.32% +17.34% +15.17% +14.93%
- ---------------------------------------------------------------------------------------------
Consumer Price Index* +2.85% +2.79% +2.81% +3.64%
- ---------------------------------------------------------------------------------------------
</TABLE>
*The Consumer Price Index is a popular measure of change in prices.
Class A SEC results include the maximum 5.75% sales charge. Class B SEC
results reflect the applicable contingent deferred sales charge (CDSC), which
declines over six years as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%. See the
prospectus for details. Class C shares along with Class B shares, have higher
annual fees and expenses than Class A shares. Class C share purchases made on
or after April 1, 1996 will be subject to a 1% CDSC if redeemed within 12
months of purchase.
Class B and Class C share performance includes the performance of the Fund's
Class A shares for periods prior to the commencement of offering of Class B
shares on September 7, 1993 and of Class C shares on January 3, 1994. Sales
charges and operating expenses for Class A, Class B, and Class C shares
differ. The Class A share performance, which is included within the Class B
and Class C share SEC performance, has been adjusted to reflect the CDSC
generally applicable to Class B and Class C shares rather than the initial
sales charge generally applicable to Class A shares. Class B and Class C
share performance has not been adjusted, however, to reflect differences in
operating expenses (e.g., Rule 12b-1 fees), which generally are lower for
Class A shares.
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual
fund will vary with changes in market conditions, and shares, when redeemed,
may be worth more or less than their original cost.
8
<PAGE>
Portfolio of Investments - September 30, 1996
<TABLE>
<CAPTION>
Common Stocks - 96.3%
=========================================================================================
Issuer Shares Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 84.8%
Aerospace - 5.6%
General Dynamics Corp. 204,600 $14,091,825
Lockheed Martin Corp. 279,100 25,153,887
McDonnell Douglas Corp. 611,500 32,103,750
United Technologies Corp. 238,500 28,649,812
---------------
$99,999,274
- -----------------------------------------------------------------------------------------
Agricultural Products - 1.4%
Case Corp. 511,600 $24,940,500
- -----------------------------------------------------------------------------------------
Apparel and Textiles - 0.7%
Nike, Inc., "B" 100,000 $12,150,000
- -----------------------------------------------------------------------------------------
Automotive - 0.5%
Goodrich (B.F.) Co. 205,300 $ 9,264,163
- -----------------------------------------------------------------------------------------
Banks and Credit Companies - 4.1%
Bank of Boston Corp. 375,120 $21,710,070
Chase Manhattan Corp. 279,604 22,403,271
Crestar Financial Corp. 76,100 4,489,900
Fleet Financial Group, Inc. 219,900 9,785,550
Leader Financial Corp. 287,500 15,525,000
---------------
$73,913,791
- -----------------------------------------------------------------------------------------
Biotechnology - 0.4%
Guidant Corp.* 144,500 $ 7,983,625
- -----------------------------------------------------------------------------------------
Business Machines - 2.3%
Affiliated Computer Services Co.* 165,400 $ 9,717,250
Digital Equipment Corp.* 259,500 9,277,125
Sun Microsystems, Inc.* 366,700 22,781,238
---------------
$41,775,613
- -----------------------------------------------------------------------------------------
Business Services - 2.4%
Alco Standard Corp. 339,000 $16,907,625
DST Systems, Inc.* 407,500 13,040,000
Technology Solutions Co.* 367,550 12,818,306
---------------
$42,765,931
- -----------------------------------------------------------------------------------------
Chemicals - 3.4%
Air Products & Chemicals, Inc. 444,300 $25,880,475
Polymer Group, Inc.* 81,200 1,136,800
Praxair, Inc. 805,500 34,636,500
---------------
$61,653,775
- -----------------------------------------------------------------------------------------
Computer Software - Personal Computers - 3.3%
Electronic Arts, Inc.* 422,400 $15,787,200
First Data Corp. 197,100 16,088,288
Microsoft Corp.* 201,400 26,559,625
---------------
$58,435,113
- -----------------------------------------------------------------------------------------
Computer Software - Systems - 6.7%
Adobe Systems, Inc. 307,900 $11,469,275
BMC Software, Inc.* 220,200 17,505,900
Cadence Design Systems, Inc.* 607,675 21,724,381
</TABLE>
9
<PAGE>
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Common Stocks - continued
=========================================================================================
Issuer Shares Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Computer Software - Systems - continued
Computer Associates International, Inc. 234,350 $ 14,002,412
Compuware Corp.* 124,400 5,691,300
Oracle Corp.* 778,325 33,127,457
Sybase, Inc.* 253,900 3,776,762
Synopsys, Inc.* 266,700 12,301,537
---------------
$119,599,024
- -----------------------------------------------------------------------------------------
Consumer Goods and Services - 9.6%
Colgate-Palmolive Co. 321,800 $ 27,956,375
Estee Lauder Cos., "A" 186,400 8,364,700
Gillette Co. 355,700 25,654,863
Philip Morris Cos., Inc. 390,200 35,020,450
Procter & Gamble Co. 270,400 26,364,000
Revlon, Inc.* 270,100 8,373,100
Sherwin-Williams Co. 279,800 12,975,725
Tyco International Ltd. 477,100 20,574,938
UST, Inc. 239,900 7,107,038
---------------
$172,391,189
- -----------------------------------------------------------------------------------------
Defense Electronics - 0.6%
Loral Space & Communications* 694,700 $ 10,941,525
- -----------------------------------------------------------------------------------------
Electronics - 1.4%
Analog Devices, Inc.* 254,200 $ 6,895,175
LSI Logic Corp.* 130,800 3,041,100
Xilinx, Inc.* 441,400 15,007,600
---------------
$ 24,943,875
- -----------------------------------------------------------------------------------------
Entertainment - 2.4%
Cox Radio, Inc., "A"* 28,900 $ 630,006
Harrah's Entertainment, Inc.* 322,600 6,008,425
Jacor Communications, Inc., "A"* 316,200 10,908,900
Showboat, Inc. 439,500 9,669,000
Viacom, Inc.* 419,000 14,874,500
---------------
$ 42,090,831
- -----------------------------------------------------------------------------------------
Financial Institutions - 0.9%
Advanta Corp., "B" 367,800 $ 15,723,450
- -----------------------------------------------------------------------------------------
Food and Beverage Products - 1.4%
Earthgrains Co. 9,100 $ 350,350
McCormick & Co. Inc. 439,700 10,277,988
Tyson Foods, Inc. 520,700 13,896,181
---------------
$ 24,524,519
- -----------------------------------------------------------------------------------------
Forest and Paper Products - 1.7%
Kimberly Clark Corp. 335,800 $ 29,592,375
- -----------------------------------------------------------------------------------------
Insurance - 5.2%
Allstate Corp. 179,010 $ 8,816,243
Amerin Corp.* 186,200 4,189,500
CIGNA Corp. 213,200 25,557,350
Chartwell Re Corp. 196,600 4,988,725
</TABLE>
10
<PAGE>
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Common Stocks - continued
=========================================================================================
Issuer Shares Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Insurance - continued
Equitable of Iowa Cos. 211,600 $ 8,781,400
Everest Re Holdings, Inc. 292,300 7,234,425
ITT Hartford Group, Inc. 40,000 2,360,000
LaSalle Re Holdings Ltd. 202,100 4,749,350
Penncorp Financial Group, Inc. 834,200 26,902,950
---------------
$93,579,943
- -----------------------------------------------------------------------------------------
Medical and Health Products - 3.7%
Pfizer, Inc. 158,000 $12,501,750
Pharmacia & Upjohn, Inc. 306,100 12,626,625
Rhone-Poulenc Rorer, Inc. 133,800 9,851,025
Uromed Corp.* 1,351,000 14,861,000
Ventritex, Inc.* 786,500 13,763,750
Zoll Medical Corp.* 176,000 2,728,000
---------------
$66,332,150
- -----------------------------------------------------------------------------------------
Medical and Health Technology and Services - 4.4%
Coventry Corp.* 483,700 $ 5,774,168
Healthsource, Inc.* 83,200 1,227,200
Living Centers of America* 192,400 4,810,000
Mariner Health Group, Inc.* 46,300 711,862
Pacificare Health Systems, Inc., "A"* 91,800 7,596,450
Pacificare Health Systems, Inc., "B"* 158,800 13,736,200
St. Jude Medical, Inc.* 662,650 26,754,493
United Healthcare Corp. 432,300 17,994,487
---------------
$78,604,860
- -----------------------------------------------------------------------------------------
Oils - 2.5%
Barrett Resources Corp.* 398,700 $14,054,175
Exxon Corp. 89,200 7,425,900
Mobil Corp. 118,400 13,704,800
Newfield Exploration Co.* 219,400 9,873,000
---------------
$45,057,875
- -----------------------------------------------------------------------------------------
Railroads - 3.3%
Burlington Northern Santa Fe 186,400 $15,727,500
CSX Corp. 337,700 17,053,850
Wisconsin Central Transportation Corp.* 707,600 25,385,150
---------------
$58,166,500
- -----------------------------------------------------------------------------------------
Restaurants and Lodging - 3.8%
HFS, Inc.* 438,400 $29,318,000
Host Marriott Corp.* 1,205,100 17,473,950
MGM Grand, Inc.* 374,600 15,826,850
Promus Hotel Corp.* 182,650 5,159,863
---------------
$67,778,663
- -----------------------------------------------------------------------------------------
Special Products and Services - 1.1%
Sphere Drake Holdings Ltd. 263,400 $ 2,370,600
Stanley Works 605,900 17,040,938
---------------
$19,411,538
- -----------------------------------------------------------------------------------------
Stores - 4.7%
CompUSA, Inc.* 463,800 $25,045,200
</TABLE>
11
<PAGE>
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Common Stocks - continued
=========================================================================================
Issuer Shares Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Stores - continued
Gymboree Corp.* 483,500 $ 14,686,312
Hollywood Entertainment Corp.* 393,500 8,066,750
Home Depot, Inc. 207,800 11,818,625
Lowe's Cos., Inc. 240,800 9,842,700
Micro Warehouse, Inc.* 255,200 6,571,400
Staples, Inc.* 397,850 8,827,297
---------------
$ 84,858,284
- ------------------------------------------------------------------------------------------
Supermarkets - 1.3%
Safeway, Inc.* 524,600 $ 22,361,075
- ------------------------------------------------------------------------------------------
Telecommunications - 3.4%
Ascend Communications, Inc.* 44,675 $ 2,954,134
Cabletron Systems, Inc.* 179,300 12,259,638
Cisco Systems, Inc.* 269,200 16,707,225
Glenayre Technologies, Inc.* 389,200 8,951,600
Lucent Technologies, Inc. 256,300 11,757,763
U.S. Robotics Corp.* 135,700 8,769,613
---------------
$ 61,399,973
- ------------------------------------------------------------------------------------------
Utilities - Gas - 1.7%
Coastal Corp. 404,300 $ 16,677,375
PanEnergy Corp. 416,400 14,417,850
---------------
$ 31,095,225
- ------------------------------------------------------------------------------------------
Utilities - Telephone - 0.9%
MCI Communications Corp. 641,600 $ 16,441,000
- ------------------------------------------------------------------------------------------
Total U.S. Stocks (Identified Cost, $1,254,965,267) $1,517,775,659
- ------------------------------------------------------------------------------------------
Foreign Stocks - 11.5%
Denmark - 0.7%
ISS International Service System (Commercial
Services) 507,400 $ 12,999,131
- ------------------------------------------------------------------------------------------
Finland - 0.7%
Huhtamaki Free Shares, "I" (Food Processing) 259,300 $ 9,769,024
TT Tieto OY (Computer Software) 64,300 3,549,212
---------------
$ 13,318,236
- ------------------------------------------------------------------------------------------
France - 0.5%
Union des Assurances Federal (Insurance) 68,800 $ 8,047,089
- ------------------------------------------------------------------------------------------
Germany - 0.2%
SAP AG (Computer Software) 17,800 $ 2,984,934
- ------------------------------------------------------------------------------------------
Greece - 0.3%
Hellenic Telephone (Telecommunications) 301,100 $ 5,063,900
- ------------------------------------------------------------------------------------------
Hong Kong - 2.1%
Dah Sing Financial Group (Banking) 592,000 $ 2,082,301
Giordano Holdings Ltd. (Retail - Apparel) 11,691,000 10,279,896
Wharf Holdings (Diversified Holdings) 4,877,000 20,182,001
Wing Hang Bank Ltd. (Banking) 1,160,000 4,350,232
---------------
$ 36,894,430
- ------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Common Stocks - continued
=========================================================================================
Issuer Shares Value
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks - continued
Italy - 0.7%
Olivetti S.p.A. (Office Automation and Furnishings)* 17,644,400 $ 6,463,144
Telecom Italia Mobile S.p.A. (Telecommunications) 4,639,800 5,757,064
---------------
$ 12,220,208
- ------------------------------------------------------------------------------------------
Malaysia - 0.4%
New Straits Times Press Holdings Ltd. (Publishing) 1,398,000 $ 7,363,685
- ------------------------------------------------------------------------------------------
Philippines - 0.8%
Pilipino Telephone Corp. (Telecommunications)* 9,949,700 $ 13,670,888
- ------------------------------------------------------------------------------------------
South Korea - 0.4%
Korea Mobile Telecommunications
(Telecommunications)* 506,150 $ 7,655,519
- ------------------------------------------------------------------------------------------
Sweden - 1.9%
Astra AB, Free Shares, "B" (Medical and Health Products) 514,260 $ 21,149,354
Enator AB (Computer Services)* 187,400 4,129,246
Nobel Biocare (Medical Products) 488,000 9,206,120
---------------
$ 34,484,720
- ------------------------------------------------------------------------------------------
United Kingdom - 2.8%
British Petroleum PLC, ADR (Oils) 158,000 $ 19,750,000
Jarvis Hotels PLC (Lodging)*+ 4,938,595 12,127,397
Kwik-Fit Holdings PLC (Automotive Services) 2,341,200 8,331,160
Lloyds TSB Group PLC (Banking) 1,782,000 10,536,431
---------------
$ 50,744,988
- ------------------------------------------------------------------------------------------
Total Foreign Stocks (Identified Cost, $193,876,724) $ 205,447,728
- ------------------------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $1,448,841,991) $1,723,223,387
- ------------------------------------------------------------------------------------------
Short-Term Obligations - 1.9%
- ------------------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- ------------------------------------------------------------------------------------------
Federal Farm Credit, due 10/01/96 $ 2,720 $ 2,720,000
Federal Home Loan Bank, due 10/18/96 180 179,553
Federal Home Loan Mortgage Corp., due
10/18/96 1,000 997,516
H. J. Heinz Co., due 10/29/96 12,700 12,647,450
Transamerica Corp., due 10/15/96 6,300 6,286,967
Transamerica Corp., due 10/23/96 10,700 10,665,017
- ------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost and Value $ 33,496,503
- ------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,482,338,494) $1,756,719,890
Other Assets, Less Liabilities - 1.8% 32,120,611
- ------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,788,840,501
- ------------------------------------------------------------------------------------------
</TABLE>
*Non-income producing security.
+Restricted security.
See notes to financial statements
13
<PAGE>
Financial Statements
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
September 30, 1996
- -----------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $1,482,338,494) $1,756,719,890
Cash 34,740
Receivable for Fund shares sold 19,832,153
Receivable for investments sold 28,993,229
Interest and dividends receivable 1,811,779
Other assets 8,971
---------------
Total assets $1,807,400,762
---------------
Liabilities:
Payable for Fund shares reacquired $ 3,677,900
Payable for investments purchased 14,571,079
Payable to affiliates -
Management fee 49,416
Shareholder servicing agent fee 23,514
Distribution fee 48,559
Accrued expenses and other liabilities 189,793
---------------
Total liabilities $ 18,560,261
---------------
Net assets $1,788,840,501
---------------
Net assets consist of:
Paid-in capital $1,406,095,540
Unrealized appreciation on investments and translation of assets and liabilities in
foreign currencies 274,380,764
Accumulated undistributed net realized gain on investments and foreign currency
transactions 107,963,964
Accumulated undistributed net investment income 400,233
---------------
Total $1,788,840,501
---------------
Shares of beneficial interest outstanding 97,362,965
---------------
Class A shares:
Net asset value and redemption price per share (net assets of $972,352,732 /
52,486,783 shares of beneficial interest outstanding) $18.53
---------------
Offering price per share (100/94.25) $19.66
---------------
Class B shares:
Net asset value and offering price per share (net assets of $680,456,245 /
37,409,007 shares of beneficial interest outstanding) $18.19
---------------
Class C shares:
Net asset value and offering price per share (net assets of $136,031,524 /
7,467,175 shares of beneficial interest outstanding) $18.22
---------------
</TABLE>
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
14
<PAGE>
Financial Statements - continued
<TABLE>
<CAPTION>
Statement of Operations
- -----------------------------------------------------------------------------------------
Year Ended September 30, 1996
- -----------------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Dividends $ 12,285,153
Interest 2,454,776
Foreign taxes withheld (295,476)
---------------
Total investment income $ 14,444,453
---------------
Expenses -
Management fee $ 4,277,357
Trustees' compensation 12,774
Shareholder servicing agent fee (Class A) 982,983
Shareholder servicing agent fee (Class B) 807,550
Shareholder servicing agent fee (Class C) 97,859
Distribution and service fee (Class A) 2,271,075
Distribution and service fee (Class B) 3,722,595
Distribution and service fee (Class C) 653,213
Custodian fee 228,370
Postage 117,571
Printing 34,446
Auditing fees 11,132
Legal fees 5,469
Miscellaneous 370,523
---------------
Total expenses $ 13,592,917
Fees paid indirectly (37,095)
---------------
Net expenses $ 13,555,822
---------------
Net investment income $ 888,631
---------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $110,009,030
Foreign currency transactions (155,240)
---------------
Net realized gain on investments and foreign currency transactions $109,853,790
---------------
Change in unrealized appreciation (depreciation) -
Investments $148,651,932
Translation of assets and liabilities in foreign currencies (1,422)
---------------
Net unrealized gain on investments $148,650,510
---------------
Net realized and unrealized gain on investments and foreign
currency $258,504,300
---------------
Increase in net assets from operations $259,392,931
---------------
</TABLE>
See notes to financial statements
15
<PAGE>
Financial Statements - continued
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Year Ended September 30, 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment income $ 888,631 $ 2,005,330
Net realized gain on investments and foreign
currency transactions 109,853,790 47,454,687
Net unrealized gain on investments and foreign
currency translation 148,650,510 68,894,341
--------------- ----------------
Increase in net assets from operations $ 259,392,931 $ 118,354,358
--------------- ----------------
Distributions declared to shareholders -
From net investment income (Class A) $ (1,746,150) $ (481,316)
From net investment income (Class B) -- (14,893)
From net realized loss on investments and
foreign currency transactions (Class A) (33,116,571) (820,736)
From net realized loss on investments and
foreign currency transactions (Class B) (13,804,424) (118,230)
From net realized loss on investments and
foreign currency transactions (Class C) (1,987,076) (16,120)
In excess of net investment income (Class C) (5,537) --
--------------- ----------------
Total distributions declared to shareholders $ (50,659,758) $ (1,451,295)
--------------- ----------------
Fund share (principal) transactions -
Net proceeds from sale of shares $1,101,792,673 $ 353,872,982
Net asset value of shares issued to
shareholders in reinvestment of distributions 43,699,368 1,571,633
Cost of shares reacquired (277,022,647) (109,372,045)
--------------- ----------------
Increase in net assets from Fund share
transactions $ 868,469,394 $ 246,072,570
--------------- ----------------
Total increase in net assets $1,077,202,567 $ 362,975,633
Net assets:
At beginning of period 711,637,934 348,662,301
--------------- ----------------
At end of period (including accumulated
undistributed net investment income of
$400,233 and $1,418,529, respectively) $1,788,840,501 $ 711,637,934
--------------- ----------------
</TABLE>
See notes to financial statements
16
<PAGE>
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights
======================================================================================================
Year Ended September 30, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 15.61 $ 12.59 $ 14.47 $ 12.18 $ 11.84
-------- -------- -------- -------- --------
Income from investment operations# -
Net investment incomeS. $ 0.06 $ 0.08 $ 0.02 $ 0.11 $ 0.07
Net realized and unrealized gain
on investments and foreign
currency transactions 3.88 2.99 1.01 3.15 1.27
-------- -------- -------- -------- --------
Total from investment operations $ 3.94 $ 3.07 $ 1.03 $ 3.26 $ 1.34
-------- -------- -------- -------- --------
Less distributions declared to
shareholders -
From net investment income $ --
$ (0.05) $ (0.02) $ (0.03) $ (0.07)
From net realized gain on investments (0.97) (0.03) (2.87) (0.90) (1.00)
In excess of net investment income -- -- (0.01) -- --
-------- -------- -------- -------- --------
Total distributions declared to
shareholders $ (1.02) $ (0.05) $ (2.91) $ (0.97) $ (1.00)
-------- -------- -------- -------- --------
Net asset value - end of period $ 18.53 $ 15.61 $ 12.59 $ 14.47 $ 12.18
-------- -------- -------- -------- --------
Total return++ 26.54% 24.49% 7.72% 28.87% 11.79%
Ratios (to average net assets)/Supplemental dataS.:
Expenses## 0.91% 0.95% 0.91% 0.90% 0.84%
Net investment income 0.36% 0.58% 0.14% 0.36% 0.59%
Portfolio turnover 81% 94% 79% 93% 74%
Average commission rate### $ 0.0269 -- -- -- --
Net assets at end of period (000 omitted) $972,353 $507,784 $318,170 $294,019 $240,366
++Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends
prior to October 1, 1989). If the charge had been included, the results would have been lower.
#Per share data for the periods subsequent to September 30, 1993 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees
paid indirectly.
###Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
S.The distributor did not impose a portion of its distribution fee for the periods indicated. If this fee had been
incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income# -- $ 0.07 $ 0.01 -- --
Ratios (to average net assets):
Expenses## -- 1.05% 1.01% -- --
Net investment income -- 0.48% 0.04% -- --
</TABLE>
See notes to financial statements
17
<PAGE>
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
=======================================================================================================
Year Ended September 30, 1991 1990 1989 1988 1987
- -------------------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 9.62 $ 11.49 $ 10.20 $ 12.54 $ 10.42
-------- -------- -------- -------- --------
Income from investment operations -
Net investment income $ 0.27 $ 0.36 $ 0.39 $ 0.23 $ 0.19
Net realized and unrealized gain
(loss) on investments and foreign currency
transactions 2.21 (1.52) 2.30 (2.19) 4.43
-------- -------- -------- -------- --------
Total from investment operations $ 2.48 $ (1.16) $ 2.69 $ (1.96) $ 4.62
-------- -------- -------- -------- --------
Less distributions declared to
shareholders -
From net investment income $ (0.26) $ (0.36) $ (0.39) $ (0.24) $ (0.19)
From net realized gain on investments -- (0.35)* (1.01) (0.14) (2.31)
-------- -------- -------- -------- --------
Total distributions declared to
shareholders $ (0.26) $ (0.71) $ (1.40) $ (0.38) $ (2.50)
-------- -------- -------- -------- --------
Net asset value - end of period $ 11.84 $ 9.62 $ 11.49 $ 10.20 $ 12.54
-------- -------- -------- -------- --------
Total return++ 25.87% (12.73)% 26.91% (15.60)% 44.80%
Ratios (to average net assets)/Supplemental data:
Expenses 0.95% 0.83% 0.88% 0.86% 0.73%
Net investment income 2.48% 3.21% 3.48% 2.36% 1.51%
Portfolio turnover 177% 79% 99% 116% 101%
Net assets at end of period (000 omitted) $231,316 $202,377 $251,857 $239,616 $321,050
</TABLE>
*For the year ended September 30, 1990, the per share distribution from paid-in
capital was $0.0009.
++Total returns for Class A shares do not include the applicable sales charge
(except for reinvested dividends prior to October 1, 1989). If the charge had
been included, the results would have been lower.
See notes to financial statements
18
<PAGE>
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
======================================================================================================
Year Ended September 30, 1996 1995 1994 1993**
- ------------------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $ 15.40 $ 12.50 $ 14.47 $ 13.95
-------- -------- -------- --------
Income from investment operations# -
Net investment loss $ (0.06) $ (0.03) $ (0.08) $ (0.04)
Net realized and unrealized gain on
investments and foreign currency transactions 3.82 2.96 1.00 0.56
-------- -------- -------- --------
Total from investment operations $ 3.76 $ 2.93 $ 0.92 $ 0.52
-------- -------- -------- --------
Less distributions declared to shareholders -
From net investment income $ -- $ -- +++ $ (0.02) $ --
From net realized gain on investments (0.97) (0.03) (2.87) --
-------- -------- -------- --------
Total distributions declared to shareholders $ (0.97) $ (0.03) $ (2.89) $ --
-------- -------- -------- --------
Net asset value - end of period $ 18.19 $ 15.40 $ 12.50 $ 14.47
-------- -------- -------- --------
Total return 25.59% 23.55% 6.91% 3.73%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.66% 1.78% 1.82% 2.33%+
Net investment loss (0.37)% (0.21)% (0.65)% (0.89)%+
Portfolio turnover 81% 94% 79% 93%
Average commission rate### $ 0.0269 -- -- --
Net assets at end of period (000 omitted) $680,456 $178,117 $ 25,672 $ 447
</TABLE>
#Per share data for the periods subsequent to September 30, 1993 is based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
+Annualized.
+++For the year ended September 30, 1995, the per share distribution from net
investment income was $0.00003.
**For the period from the commencement of offering of Class B shares,
September 7, 1993 to September 30, 1993.
See notes to financial statements
19
<PAGE>
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
=========================================================================================
Year Ended September 30, 1996 1995 1994***
- -----------------------------------------------------------------------------------------
Class C
- -----------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $ 15.42 $ 12.51 $ 13.18
-------- -------- --------
Income from investment operations# -
Net investment loss $ (0.06) $ (0.02) $ (0.04)
Net realized and unrealized gain on
investments and foreign currency transactions 3.83 2.96 0.62
-------- -------- --------
Total from investment operations $ 3.77 $ 2.94 $ 0.58
-------- -------- --------
Less distributions declared to shareholders+++
In excess of net investment income $ -- +++ $ -- $ --
from net realized gain on investments (0.97) (0.03) (1.25)
-------- -------- --------
Total distributions declared to shareholders $ (0.97) $ (0.03) $ (1.25)
-------- -------- --------
Net asset value - end of period $ 18.22 $ 15.42 $ 12.51
-------- -------- --------
Total return 25.67% 23.58% 4.43%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.67% 1.71% 1.74%+
Net investment loss (0.38)% (0.15)% (0.54)%+
Portfolio turnover 81% 94% 79%
Average commission rate### $ 0.0269 -- --
Net assets at end of period (000 omitted) $136,032 $ 25,737 $ 4,821
</TABLE>
#Per share data for the periods subsequent to September 30, 1993 is based
on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses
are calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
+Annualized.
***For the period from the commencement of offering of Class C shares,
January 3, 1994 to September 30, 1994.
+++For the year ended September 30, 1996, the per share distribution in
excess of net investment income was $0.0027.
See notes to financial statements
20
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Research Fund (the Fund) is a diversified series of MFS Series Trust V
(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
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. 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 listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are
not available are valued at last quoted bid prices. Debt securities (other
than short-term obligations which mature in 60 days or less), including
listed issues and forward contracts, are valued on the basis of valuations
furnished by dealers or by a pricing service with consideration to factors
such as institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and
other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. Non-U.S.
dollar denominated short-term obligations are valued at amortized cost as
calculated in the base currency and translated into U.S. dollars at the
closing daily exchange rate. Securities for which there are no such
quotations or valuations are valued at fair value as determined in good faith
by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. 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
21
<PAGE>
Notes to Financial Statements - continued
realized and unrealized gains and losses on investments that result from
fluctuations in foreign currency exchange rates is not separately disclosed.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. 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.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. This fee is reduced according to an
expense offset arrangement with State Street Bank, the dividend disbursing
agent, which provides for partial reimbursement of custody fees based on a
formula developed to measure the value of cash deposited by the Fund with the
custodian and with the dividend disbursing agent. This amount is shown as a
reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Fund's tax return
and, consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on
Form 1099-DIV.
Foreign taxes have been provided for on interest and dividend income earned
on foreign investments in accordance with the applicable country's tax rates
and to the extent unrecoverable are recorded as a reduction of investment
income. Distributions to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return
of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains. During the year ended September 30, 1996, $155,240 was
reclassified
22
<PAGE>
Notes to Financial Statements - continued
to accumulated undistributed net investment income from accumulated net
realized gain on investments due to differences between book and tax
accounting for currency transactions. This change had no effect on the net
assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B, and Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, and distribution and service fees.
All shareholders bear the common expenses of the Fund pro rata based on the
average daily net assets of each class, without distinction between share
classes. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed and paid monthly at an effective annual rate of
0.31% of average daily net assets and 4.03% of investment income.
The Fund pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain of the officers
and Trustees of the Fund are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Fund has
an unfunded defined benefit plan for all its independent Trustees and Mr.
Bailey. Included in Trustees' compensation is a net periodic pension expense
of $16,939 for the year ended September 30, 1996.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$1,332,269 for the year ended September 30, 1996, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted separate distribution plans for Class A, Class B
and Class C shares pursuant to Rule 12b-1 of the Investment Company Act of
1940 as follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service
fee to each securities dealer who enters into a sales agreement with MFD of
up to 0.25% per annum of the Fund's average daily net assets attributable to
Class A shares which are attributable to that securities dealer, a
distribution fee to MFD of up to 0.10% per annum of the Fund's average daily
net assets attributable to Class A shares, commissions to dealers and
payments to MFD
23
<PAGE>
Notes to Financial Statements - continued
wholesalers for sales at or above a certain dollar level, and other such
distribution-related expenses that are approved by the Fund. MFD retains the
service fee for accounts not attributable to a securities dealer which
amounted to $324,818 for the year ended September 30, 1996. Fees incurred
under the distribution plan during the year ended September 30, 1996 were
0.25% of average daily net assets attributable to Class A shares on an
annualized basis.
The Class B and Class C distribution plans provide that the Fund will pay MFD
a distribution fee of 0.75% per annum, and a service fee of up to 0.25% per
annum, of the Fund's average daily net assets attributable to Class B and
Class C shares. MFD will pay to securities dealers who enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class
B and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended
to be additional consideration for services rendered by the dealer with
respect to Class B and Class C shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $28,216
and $29,789 for Class B and Class C shares, respectively, for the year ended
September 30, 1996. Fees incurred under the distribution plans during the
year ended September 30, 1996 were 1.00% of average daily net assets
attributable to Class B and Class C shares on an annualized basis.
Purchases over $1 million of Class A shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within 12
months following such purchase. A contingent deferred sales charge is imposed
on shareholder redemptions of Class B shares in the event of a shareholder
redemption within six years of purchase. A contingent deferred sales charge
is imposed on shareholder redemptions of Class C shares in the event of a
shareholder redemption within 12 months of purchases made on or after April
1, 1996. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended September 30, 1996 were
$3,234, $407,275, and $6,647 for Class A, Class B, and Class C shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15%, up to 0.22%, and up to 0.15%
attributable to Class A, Class B, and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions and short-term obligations, aggregated
$1,666,170,520 and $889,942,490, respectively.
24
<PAGE>
Notes to Financial Statements - continued
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $1,484,842,215
--------------
Gross unrealized appreciation $ 310,134,357
Gross unrealized depreciation (38,256,682)
--------------
Net unrealized appreciation $ 271,877,675
--------------
(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 (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares Year Ended Year Ended
September 30, 1996 September 30, 1995
------------------------------ ----------------------------
Shares Amount Shares Amount
=================================================================================================
<S> <C> <C> <C> <C>
Shares sold 28,748,439 $ 487,826,641 12,798,218 $172,943,634
Shares issued to shareholders in
reinvestment of distributions 1,940,972 30,104,947 119,182 1,423,980
Shares reacquired (10,737,215) (180,437,578) (5,659,542) (74,912,826)
----------- ------------- --------- ------------
Net increase 19,952,196 $ 337,494,010 7,257,858 $ 99,454,788
----------- ------------- --------- ------------
Class B Shares Year Ended Year Ended
September 30, 1996 September 30, 1995
------------------------------ ----------------------------
Shares Amount Shares Amount
=================================================================================================
Shares sold 29,925,009 $ 502,583,896 11,678,569 $158,403,133
Shares issued to shareholders in
reinvestment of distributions 788,392 12,070,744 11,368 135,681
Shares reacquired (4,869,789) (81,458,430) (2,178,275) (29,569,820)
----------- ------------- --------- ------------
Net increase 25,843,612 $ 433,196,210 9,511,662 $128,968,994
----------- ------------- --------- ------------
Class C Shares Year Ended Year Ended
September 30, 1996 September 30, 1995
------------------------------ ----------------------------
Shares Amount Shares Amount
=================================================================================================
Shares sold 6,609,234 $ 111,382,136 1,642,158 $ 22,526,215
Shares issued to shareholders in
reinvestment of distributions 99,391 1,523,677 1,007 11,972
Shares reacquired (910,720) (15,126,639) (359,369) (4,889,399)
----------- ------------- --------- ------------
Net increase 5,797,905 $ 97,779,174 1,283,796 $ 17,648,788
----------- ------------- --------- ------------
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to the
25
<PAGE>
Notes to Financial Statements - continued
Fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating classes at the end of
each quarter. The commitment fee allocated to the Fund for the year ended
September 30, 1996 was $12,970.
(7) Restricted Securities
The Fund may invest not more than 10% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At September 30,
1996, the Fund owned the following restricted security (constituting 0.68% of
net assets) which may not be publicly sold without registration under the
Securities Act of 1933. The Fund does not have the right to demand that such
security be registered. The value of this security is determined by
valuations supplied by a pricing service or brokers or, if not available, in
good faith by or at the direction of the Trustees.
Date of Share
Description Acquisition Amount Cost Value
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Jarvis Hotels PLC 6/21/96-9/26/96 4,938,595 $13,369,991 $12,127,397
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26
<PAGE>
Independent Auditors' Report
To the Trustees of MFS Series Trust V and Shareholders of MFS Research Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Research Fund (one of the
series constituting MFS Series Trust V) as of September 30, 1996, the related
statement of operations for the year then ended, the statement of changes in
net assets for the years ended September 30, 1996 and 1995, and the financial
highlights for each of the years in the ten-year period ended September 30,
1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned at September 30, 1996 by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Research Fund
at September 30, 1996, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE llp
Boston, Massachusetts
November 1, 1996
--------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
27
<PAGE>
The MFS Family of Funds(R)
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-637-2929
any business day from 9 a.m. to 5 p.m. Eastern time (or leave a message
anytime). This material should be read carefully before investing or sending
money.
Stock
- -----------------------------------------------------
Massachusetts Investors Trust
Massachusetts Investors Growth Stock Fund
MFS(R) Capital Growth Fund
MFS(R) Emerging Growth Fund
MFS(R) Gold & Natural Resources Fund
MFS(R) Growth Opportunities Fund
MFS(R) Managed Sectors Fund
MFS(R) OTC Fund
MFS(R) Research Fund
MFS(R) Value Fund
Stock and Bond
- -----------------------------------------------------
MFS(R) Total Return Fund
MFS(R) Utilities Fund
Bond
- -----------------------------------------------------
MFS(R) Bond Fund
MFS(R) Government Mortgage Fund
MFS(R) Government Securities Fund
MFS(R) High Income Fund
MFS(R) Intermediate Income Fund
MFS(R) Strategic Income Fund
Limited Maturity Bond
- -----------------------------------------------------
MFS(R) Government Limited Maturity Fund
MFS(R) Limited Maturity Fund
MFS(R) Municipal Limited Maturity Fund
World
- -----------------------------------------------------
MFS(R)/Foreign & Colonial Emerging Markets Equity Fund
MFS(R)/Foreign & Colonial International Growth Fund
MFS(R)/Foreign & Colonial International Growth and Income Fund
MFS(R) World Asset Allocation FundSM
MFS(R) World Equity Fund
MFS(R) World Governments Fund
MFS(R) World Growth Fund
MFS(R) World Total Return Fund
National Tax-Free Bond
- -----------------------------------------------------
MFS(R) Municipal Bond Fund
MFS(R) Municipal High Income Fund
MFS(R) Municipal Income Fund
State Tax-Free Bond
- -----------------------------------------------------
Alabama, Arkansas, California, Florida, Georgia,
Maryland, Massachusetts, Mississippi, New York, North
Carolina, Pennsylvania, South Carolina, Tennessee,
Virginia, West Virginia
Money Market
- -----------------------------------------------------
MFS(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
28
<PAGE>
MFS(R) Research Fund
Trustees
A. Keith Brodkin* - Chairman and President
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991),
Massachusetts Financial Services Company;
Director, Cambridge Bancorp; Director,
Cambridge Trust Company
Peter G. Harwood - Private Investor
J. Atwood Ives - Chairman and Chief Executive
Officer, Eastern Enterprises
Lawrence T. Perera - Partner,
Hemenway & Barnes
William J. Poorvu - Adjunct Professor,
Harvard University Graduate School of
Business Administration
Charles W. Schmidt - Private Investor
Arnold D. Scott* - Senior Executive
Vice President, Director and Secretary,
Massachusetts Financial Services Company
Jeffrey L. Shames* - President and Director,
Massachusetts Financial Services Company
Elaine R. Smith - Independent Consultant
David B. Stone - Chairman, North American
Management Corp. (investment advisers)
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
Director of Research
Kevin R. Parke*
Treasurer
W. Thomas London*
Assistant Treasurer
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
Auditors
Deloitte & Touche LLP
*Affiliated with the Investment Adviser
Custodian
State Street Bank and Trust Company
Investor Information
For MFS stock and bond market outlooks,
call toll free: 1-800-637-4458 anytime
from a touch-tone telephone.
For information on MFS mutual funds, call
your financial adviser or, for an information
kit, call toll free: 1-800-637-2929 any
business day from 9 a.m. to 5 p.m. Eastern
time (or leave a message anytime).
Investor Service
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For current account service, call toll free:
1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time.
(To use this service, your phone must be
equipped with a Telecommunications Device
for the Deaf.)
For share prices, account balances, and
exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone
telephone.
Web Site
http://www.mfs.com
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[DALBAR For the third year in a row, MFS earned a #1 ranking in the
LOGO] DALBAR, Inc. Broker/Dealer Survey, Main Office Operations
Service Quality Category. The firm achieved a 3.48 overall
score on a scale of 1 to 4 in the 1996 survey. A total of
110 firms responded, offering input on the quality of
service they received from 29 mutual fund companies
nationwide. The survey contained questions about service
quality in 15 categories, including "knowledge of phone
service contacts," "accuracy of transaction processing," and
"overall ease of doing business with the firm."
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29
<PAGE>
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-------------
MFS(R) [DALBAR Bulk Rate
Research LOGO] U.S. Postage
Fund P A I D
Permit #55638
500 Boylston Street Boston, MA
Boston, MA 02116 -------------
[MFS INVESTMENT MANAGEMENT LOGO]
(C)1996 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116
MFR-2-11/96 170.5M 14/214/314
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