[LOGO] MFS INVESTMENT MANAGEMENT
Semiannual Report
March 31, 1997
MFS(r) Research Fund
[GRAPHIC] MAN AND WOMAN IN WINDOW
Learning financial basics the easy way (see page 27)
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Letter from the Chairman.................. 1
Director of Research's Overview........... 2
Fund Facts................................ 4
Performance Summary....................... 4
Portfolio Concentration................... 6
Portfolio of Investments.................. 7
Financial Statements...................... 12
Notes to Financial Statements............. 20
The ABCs of Investing..................... 27
The MFS Family of Funds(R)................ 28
Trustees and Officers..................... 29
</TABLE>
Highlights
[bullet] For the six months ended March 31, 1997, Class A shares of the Fund
provided a total return at net asset value of 2.11%, Class B shares
1.79%, Class C shares 1.80%, and Class I shares 2.23%.
[bullet] The Fund's allocation to the financial services sector has increased,
as the economic environment of slow growth and low inflation has
allowed select banks and insurance companies to flourish.
[bullet] While the weighting in technology has decreased, mainly due to some
profit taking, several technology stocks contributed to the Fund's
performance, including Microsoft, Compuware, Intel, and Compaq.
[bullet] The Fund has increased its weighting in the basic materials sector, in
which several companies have achieved strong performance through
focused cost savings and the introduction of new, higher-margin
products and services.
<PAGE>
Letter from the Chairman
[GRAPHIC] A. KEITH BRODKIN
Dear Shareholders:
After more than six years of expansion, the U.S. economy is experiencing
another year of moderate growth in 1997, although a few signs point to the
possibility of a modest rise in inflation during the year. On the positive
side, the pattern of moderate growth and inflation set over the past few
years now seems fairly well entrenched in the economy and, short of a major
international or domestic crisis, appears to have enough momentum to remain
on track for some time. Also, gains in such important sectors as housing,
automobiles, industrial production, and exports indicate a fair amount of
underlying strength in the economy. However, some reason for caution can be
seen in the continuing high levels of consumer debt and rising personal
bankruptcies, as well as in the ongoing tightness in the labor market, which
could add some inflationary pressures to the economy. Given these somewhat
conflicting indicators, we expect real (inflation-adjusted) growth to revolve
around 2% in 1997, with more strength occurring earlier in the year.
We continue to urge U.S. equity investors to lower their expectations for
1997. Just as the slowdown in corporate earnings growth and increases in
interest rates in 1996 raised some near-term concerns, further interest rate
increases and the fear of an acceleration of inflation have negatively
affected the stock market in 1997. However, while the U.S. equity market has
enjoyed several years without a major correction, we would like to point out
that such downturns are a natural part of the investment environment and,
when they end, they often result in more attractive valuations for stocks.
Also, as the year progresses, we expect to see some improvement in corporate
earnings and a leveling off of interest rates. As a result, we believe this
year's correction should help provide a more solid foundation for the
long-term viability of the equity market.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
[SIG] A. Keith Brodkin
A. Keith Brodkin
Chairman and President
April 14, 1997
1
<PAGE>
Director of Research's Overview
[GRAPHIC] Kevin R. Parke
Dear Shareholders:
For the six months ended March 31, 1997, Class A shares of the Fund provided a
total return of 2.11%, Class B shares 1.79%, Class C shares 1.80%, and Class I
shares 2.23%. These returns assume the reinvestment of distributions but exclude
the effects of any sales charges and compare to an 11.20% return for the
Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index
of common stock total return performance, for the same period.
The Fund's underperformance versus the S&P 500 during the period can be
attributed to two sectors: technology, and business products and services. Both
computer software and business products and services stocks showed market
weakness during the past six months, primarily reflecting concerns about high
valuations and fear that upcoming earnings announcements would be poor. Computer
networking stocks were also pressured during the period because of a resurfacing
competitive environment. In spite of this, we regard a number of companies in
these sectors, such as Sun Microsystems, Intel, and Microsoft, to be leaders in
their respective industries. They have been included in the Fund because of what
our analysts see as their long-term, sustainable competitive advantage within
their industries, which the analysts believe will translate into successful
long-term stock market performance.
During the past six months, sector weightings in the Fund have shifted based
on the industry analysts' changing best ideas. Most notably, the allocation to
the financial services sector increased by approximately 4.8% as the economic
environment of slow growth and low inflation allowed select banks and insurance
companies to flourish during the latter half of 1996 and the beginning of 1997.
Many of the banking and insurance stocks in the Fund have performed well. For
example, Chase Manhattan continues to provide mid-teen earnings-per-share growth
through both leveraging the expense savings of the Chase-Chemical merger and a
share repurchase plan. These successful moves have translated into positive
returns for the Fund.
The analysts have also increased the Fund's weighting in the basic materials
sector. Several companies within the chemical and specialty chemical industries,
including BetzDearborn, du Pont, Air Products & Chemicals, and Praxair, have
enhanced the Fund's returns. These companies have achieved strong stock
performance through focused cost-savings efforts and
2
<PAGE>
Director of Research's Overview - continued
the introduction of new, higher-margin products and services to complement
existing product lines.
The weighting in technology decreased during the past six months, mainly
due to some profit taking. However, several technology stocks continued to
add to the Fund's performance, including Compuware, Compaq, and Lattice
Semiconductor. These companies have developed solid competitive positions
within their industries that have translated into successful stock
performance. In our view, the earnings outlook for many of the technology
companies in the Fund remains strong.
The Fund continues to be underweighted in the energy, auto and housing,
and utilities and communications sectors. The analysts believe that the
earnings outlook for many of the companies within these sectors remains
bleak. The analysts also reduced the Fund's exposure to the leisure,
transportation, and consumer staples sectors recently, based on what they see
as an uncertain profit picture.
The Fund continues to select investments based on the research analysts'
best ideas within their respective industries. The stocks are selected after
careful, in-depth fundamental analysis of each company's earnings outlook.
Although each analyst incorporates general economic forecasts into his or her
decision-making process, ultimately, stocks selected for the Fund represent
companies that the analysts believe offer the best possibility for capital
appreciation regardless of the economic outlook. These companies typically
demonstrate dominant and/or growing market share, high-quality new and existing
products, superior management teams, and strong financial statements. However,
the analysts revisit weightings regularly to help ensure agreement in the
changing economic landscape.
Respectfully,
[SIG] 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.
3
<PAGE>
Fund Facts
Strategy: The objective of the Fund is long-term growth of capital
and future income.
Commencement of
investment operations: Class A: October 13, 1971
Class B: September 7, 1993
Class C: January 3, 1994
Class I: January 2, 1997
Size: $2.8 billion net assets as of March 31, 1997
Performance Summary
Because mutual funds like MFS(R) Research Fund are designed for investors
with long-term goals, we have provided cumulative results as well as the
average annual total returns for Class A, Class B, Class C, and Class I
shares for the applicable time periods.
Average Annual and Cumulative Total Rates of Return as of March 31, 1997
Class A Investment Results
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +2.11% +12.96% +130.04% +236.76%
- ----------------------------------------------------------------------------
Average Annual Total Return -- +12.96% + 18.13% + 12.91%
- ----------------------------------------------------------------------------
SEC Results -- + 6.48% + 16.74% + 12.25%
- ----------------------------------------------------------------------------
</TABLE>
Class B Investment Results
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +1.79% +12.22% +124.16% +228.21%
- ----------------------------------------------------------------------------
Average Annual Total Return -- +12.22% + 17.52% + 12.62%
- ----------------------------------------------------------------------------
SEC Results -- + 8.22% + 17.31% + 12.62%
- ----------------------------------------------------------------------------
</TABLE>
Class C Investment Results
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +1.80% +12.28% +124.73% +229.09%
- ----------------------------------------------------------------------------
Average Annual Total Return -- +12.28% + 17.58% + 12.65%
- ----------------------------------------------------------------------------
SEC Results -- +11.28% + 17.58% + 12.65%
- ----------------------------------------------------------------------------
</TABLE>
4
<PAGE>
Performance Summary - continued
Class I Investment Results
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years
---------------------------------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Cumulative Total Return +2.23% +13.09% +130.23% +237.06%
---------------------------------------- --------- ----------- -----------
Average Annual Total Return -- +13.09% + 18.15% + 12.92%
---------------------------------------- --------- ----------- -----------
SEC Results -- +13.09% + 18.15% + 12.92%
---------------------------------------- --------- ----------- -----------
</TABLE>
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
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%. Class C
shares have no initial sales charge but, along with Class B shares, have
higher annual fees and expenses than Class A shares. Class C share purchases
are subject to a 1% CDSC if redeemed within 12 months of purchase. Class I
shares, which became available on January 2, 1997, have no sales load or Rule
12b-1 fees and are only available to certain institutional investors.
Class B and Class C share results include the performance and operating
expenses (e.g., Rule 12b-1 fees) of the Fund's Class A shares for periods
prior to the commencement of offering of Class B and Class C shares. Because
operating expenses attributable to Class A shares are lower than those of
Class B and Class C shares, Class B and Class C share performance generally
would have been lower than Class A share performance. The Class A share
performance included in 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 sales charge generally applicable to Class A shares.
Class I share results include the performance and operating expenses
(e.g., Rule 12b-1 fees) of Class A shares for periods prior to the
commencement of offering of Class I shares. Because operating expenses
attributable to Class A shares are greater than those of Class I shares,
Class I share performance generally would have been higher than Class A share
performance. The Class A share performance included in the Class I share SEC
performance has been adjusted to reflect the fact that Class I shares have no
initial sales load.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Current subsidies
and waivers may be discontinued at any time.
5
<PAGE>
Portfolio Concentration as of March 31, 1997
Top 10 Equity Holdings
United Technologies Corp.
Aerospace, defense and building equipment company
Air Products & Chemicals, Inc.
Diversified chemical company
Microsoft Corp.
Computer software and systems company
Intel Corp.
Semiconductor manufacturer
Colgate-Palmolive Co.
Cosmetics and toiletries company
HFS, Inc.
Franchiser of hotels and real estate companies
Oracle Systems Corp.
Developer and manufacturer of database software
CIGNA Corp.
Multi-line insurance company
Kimberly-Clark Corp.
Paper products company
Wisconsin Central Transportation Corp.
Midwestern railroad company
Largest Sectors
[PIE CHART]
Miscellaneous 35.3%
Financial Services 17.0%
Technology 16.4%
Consumer Staples 11.4%
Health Care 11.2%
Industrial Goods & Services 8.7%
For a more complete breakdown, refer to the Portfolio of Investments.
7
<PAGE>
Portfolio of Investments (Unaudited) - March 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 89.4%
Aerospace - 5.0%
General Dynamics Corp. 484,600 $ 32,649,925
Lockheed Martin Corp. 437,800 36,775,200
McDonnell-Douglas Co. 213,300 13,011,300
United Technologies Corp. 748,400 56,317,076
---------------
$138,753,501
- ---------------------------------------------------------------------------------------------
Agricultural Products - 0.8%
Case Corp. 458,300 $ 23,258,725
- ---------------------------------------------------------------------------------------------
Apparel and Textiles - 0.6%
Reebok International Ltd. 391,900 $ 17,586,513
- ---------------------------------------------------------------------------------------------
Banks and Credit Companies - 4.3%
Bank of Boston Corp. 206,420 $ 13,830,140
Chase Manhattan Corp. 441,304 41,317,087
Comerica, Inc. 472,500 26,637,188
Fleet/Norstar Financial Group, Inc. 420,900 24,096,525
Household International, Inc. 144,400 12,436,450
---------------
$118,317,390
- ---------------------------------------------------------------------------------------------
Building - 0.8%
Newport News Shipbuilding 1,528,500 $ 22,163,250
- ---------------------------------------------------------------------------------------------
Business Machines - 0.9%
Sun Microsystems, Inc. 911,200 $ 26,310,900
- ---------------------------------------------------------------------------------------------
Business Services - 2.0%
Accustaff, Inc. 1,243,700 $ 20,831,975
DST Systems, Inc. 513,300 14,629,050
Ikon Office Solution 520,100 17,423,350
Technology Solutions 151,600 4,187,950
---------------
$ 57,072,325
- ---------------------------------------------------------------------------------------------
Chemicals - 4.8%
Air Products & Chemicals, Inc. 780,100 $ 52,949,288
BetzDearborn, Inc. 396,400 25,022,750
du Pont (E. I.) de Nemours & Co. 148,200 15,709,200
Praxair, Inc. 866,400 38,879,700
---------------
$132,560,938
- ---------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 3.3%
Electronic Arts, Inc. 677,900 $ 18,049,088
First Data Corp. 646,300 21,893,413
Microsoft Corp. 570,800 52,335,225
---------------
$ 92,277,726
- ---------------------------------------------------------------------------------------------
Computer Software - Systems - 6.6%
Adobe Systems, Inc. 486,700 $ 19,528,838
BMC Software, Inc.* 483,500 22,301,438
Cadence Design Systems, Inc. 633,075 21,761,953
Compaq Computer Corp. 374,300 28,680,738
Computer Associates International 372,950 14,498,431
Compuware Corp. 214,700 13,472,425
Oracle Systems Corp. 1,203,025 46,391,652
7
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- ---------------------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------------------------
U.S. Stocks - continued
Computer Software - Systems - continued
Sybase, Inc. 405,900 $ 5,682,600
Synopsis, Inc. 427,900 10,697,500
---------------
$183,015,575
- ---------------------------------------------------------------------------------------------
Consumer Goods and Services - 7.6%
Colgate-Palmolive Co. 491,000 $ 48,915,875
Gillette Co. 556,900 40,444,863
Lauder (Estee) Cos., Inc., "A" 281,500 13,617,563
Procter & Gamble Co. 320,600 36,869,000
Revlon, Inc., "A" 411,600 15,692,250
Sherwin Williams Co. 994,000 26,838,000
Tyco International Ltd. 529,200 29,106,000
---------------
$211,483,551
- ---------------------------------------------------------------------------------------------
Defense Electronics - 0.8%
Loral Communications Corp. 1,608,200 $ 22,715,825
- ---------------------------------------------------------------------------------------------
Electronics - 3.0%
Analog Devices, Inc. 518,400 $ 11,663,998
Intel Corp. 352,300 49,013,738
Lattice Semiconductor 503,200 23,021,400
---------------
$ 83,699,136
- ---------------------------------------------------------------------------------------------
Entertainment - 2.0%
Clear Channel Communications Corp. 358,800 $ 15,383,550
ITT Corp. 211,900 12,475,613
Jacor Communications, Inc., A 646,200 17,851,275
Showboat, Inc. 439,500 8,680,125
---------------
$ 54,390,563
- ---------------------------------------------------------------------------------------------
Financial Institutions - 3.4%
Advanta Corp., "B" 587,600 $ 15,204,150
American Express Co. 220,600 13,208,425
Dean Witter Discover & Co., Inc. 223,800 7,805,025
Federal National Mortgage Assn. 516,000 18,640,500
Franklin Resources, Inc. 367,250 18,729,750
Union Planters Corp. 522,937 21,244,316
---------------
$ 94,832,166
- ---------------------------------------------------------------------------------------------
Food and Beverage Products - 3.3%
Coca-Cola Co. 484,000 $ 27,043,500
Earthgrains Co. 288,900 14,445,000
McCormick & Co., Inc. 688,800 16,875,600
PepsiCo, Inc. 480,200 15,666,525
Tyson Foods, Inc., "A" 890,400 17,251,500
---------------
$ 91,282,125
- ---------------------------------------------------------------------------------------------
Forest and Paper Products - 1.6%
Kimberly-Clark Corp. 440,200 $ 43,744,875
- ---------------------------------------------------------------------------------------------
8
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- ---------------------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------------------------
U.S. Stocks - continued
Insurance - 8.0%
Allstate Corp. 386,510 $ 22,949,031
Chubb Corp. 349,500 18,829,313
CIGNA Corp. 305,100 44,582,738
Conseco, Inc. 708,700 25,247,438
Equitable of Iowa Cos. 311,200 15,560,000
ITT Hartford Group, Inc. 359,000 25,892,875
Nationwide Financial Services, "A" 31,300 805,975
Penncorp Financial Group, Inc. 1,020,200 32,646,400
Reliastar Financial Corp. 39,900 2,359,088
Security of Connecticut 274,300 12,377,788
Travelers, Inc. 483,800 23,161,925
---------------
$224,412,571
- ---------------------------------------------------------------------------------------------
Medical and Health Products - 3.3%
Bristol-Myers Squibb Co. 701,000 $ 41,359,000
Mentor Corp. 209,600 4,532,600
Pfizer, Inc. 250,400 21,064,900
Rhone-Poulenc Rorer 191,100 14,141,400
Uromed Corp.+++ 1,351,000 9,963,625
---------------
$ 91,061,525
- ---------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 6.6%
Cardinal Health, Inc. 238,400 $ 12,963,000
HBO & Co. 488,100 23,184,750
Healthsouth Corp. 148,600 2,841,975
Horizon/CMS Healthcare 234,400 3,633,200
Pacificare Health Systems, "A" 242,900 20,069,613
Pacificare Health Systems, "B" 179,000 15,438,750
St. Jude Medical, Inc. 1,059,350 35,355,806
Tenet Healthcare Corp. 553,500 13,629,938
United Healthcare Corp. 868,300 41,352,788
Vivra, Inc. 514,400 13,888,800
---------------
$182,358,620
- ---------------------------------------------------------------------------------------------
Oil Services - 0.4%
Diamond Offshore Drilling Co. 148,000 $ 10,138,000
- ---------------------------------------------------------------------------------------------
Oils - 3.3%
British Petroleum PLC, ADR 228,783 $ 31,400,467
Chevron Corp. 455,100 31,686,338
Mobil Corp. 210,100 27,444,313
Newfield Exploration Co. 19,100 362,900
---------------
$ 90,894,018
- ---------------------------------------------------------------------------------------------
Pollution Control - 1.0%
Browning-Ferris Industries, Inc. 509,400 $ 14,708,925
WMX Technologies, Inc. 411,400 12,599,125
---------------
$ 27,308,050
- ---------------------------------------------------------------------------------------------
Railroad - 2.5%
Burlington Northern SA 379,990 $ 28,119,260
Wisconsin Central Transportation Corp. 1,182,700 41,690,175
---------------
$ 69,809,435
- ---------------------------------------------------------------------------------------------
9
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- ---------------------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------------------------
U.S. Stocks - continued
Restaurants and Lodging - 3.3%
HFS, Inc. 790,700 $ 46,552,463
Host Marriott Corp. 1,873,300 31,846,100
MGM Grand, Inc. 170,100 6,166,125
Promus Hotel Corp. 185,450 6,166,213
---------------
$ 90,730,901
- ---------------------------------------------------------------------------------------------
Stores - 4.1%
Ann Taylor Stores 817,100 $ 16,648,413
Gymboree Corp. 719,400 19,333,875
Hollywood Entertainment Corp. 393,500 9,591,563
Home Depot, Inc. 323,600 17,312,600
Lowes Co. 371,300 13,877,338
Rite-Aid Corp. 634,550 26,651,100
Staples, Inc. 605,550 12,186,694
---------------
$115,601,583
- ---------------------------------------------------------------------------------------------
Supermarkets - 1.4%
Safeway, Inc. 839,100 $ 38,913,263
- ---------------------------------------------------------------------------------------------
Telecommunications - 1.9%
Ascend Communication Corp. 114,400 $ 4,661,800
Glenayre Technologies, Inc. 268,600 2,652,425
Lucent Technologies 400,400 21,121,100
Worldcom, Inc. 1,086,200 23,896,400
---------------
$ 52,331,725
- ---------------------------------------------------------------------------------------------
Utilities - Gas - 1.1%
Coastal Corp. 626,700 $ 30,081,600
- ---------------------------------------------------------------------------------------------
Utilities - Telephone - 1.7%
MCI Communications Corp. 746,600 $ 26,597,625
Sprint Corp. 460,200 20,939,100
---------------
$ 47,536,725
- ---------------------------------------------------------------------------------------------
Total U.S. Stocks $2,484,643,100
- ---------------------------------------------------------------------------------------------
Foreign Stocks - 7.7%
Finland - 0.6%
Huhtamaki Oy Group (Food Products) 335,800 $ 16,419,680
- ---------------------------------------------------------------------------------------------
France - 0.5%
Union des Assurances Federales SA (Insurance) 105,400 $ 13,615,720
- ---------------------------------------------------------------------------------------------
Hong Kong - 0.7%
Giordano International Ltd. (Retail) 5,569,000 $ 3,377,599
Wharf Holdings Ltd. (Real Estate) 4,360,000 16,683,976
---------------
$ 20,061,575
- ---------------------------------------------------------------------------------------------
Italy - 0.4%
Gucci Group NV (Apparel and Textiles) 171,700 $ 12,383,863
Telecom Italia Mobile S.p.A (Telecommunications) 96,000 160,575
---------------
$ 12,544,438
- ---------------------------------------------------------------------------------------------
Japan - 1.6%
Sony Corp. (Electronics) 414,000 $ 28,959,217
TDK Corp. (Chemicals/Electronics) 230,000 15,809,464
---------------
$ 44,768,681
- ---------------------------------------------------------------------------------------------
10
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- ---------------------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------------------------
Foreign Stocks - continued
Philippines - 0.1%
Pilipino Telephone (Telecommunications) 4,086,700 $ 2,443,438
- ---------------------------------------------------------------------------------------------
Singapore - 0.4%
DBS Land Holdings (Real Estate) 2,868,000 $ 9,814,870
- ---------------------------------------------------------------------------------------------
South Korea - 0.1%
Korea Mobile Telecom (Telecommunications)## 311,628 $ 3,194,182
- ---------------------------------------------------------------------------------------------
Sweden - 0.7%
ASTRA AB, "B" (Pharmaceuticals) 147,550 $ 6,929,656
Nobel Biocare AB (Medical and Health Products)## 694,500 11,961,096
---------------
$ 8,890,752
- ---------------------------------------------------------------------------------------------
Switzerland - 1.2%
Novartis AG (Pharmaceuticals)* 27,086 $ 33,577,840
- ---------------------------------------------------------------------------------------------
United Kingdom - 1.4%
Jarvis Hotels PLC (Restaurants and Lodging)*+ 5,532,295 $ 15,992,758
Kwik-Fit Holdings PLC (Banks and Credit Companies) 3,762,500 14,245,201
Storehouse PLC (Retail) 2,020,700 7,799,902
---------------
$ 38,037,861
- ---------------------------------------------------------------------------------------------
Total Foreign Stocks $213,369,037
- ---------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $2,488,896,862) $2,698,012,137
- ---------------------------------------------------------------------------------------------
Preferred Stock - 0.2%
- ---------------------------------------------------------------------------------------------
Germany - 0.2%
Sap AG (Identified Cost, $6,075,529) 37,000 $ 6,308,478
- ---------------------------------------------------------------------------------------------
Short-Term Obligations - 2.3%
- ---------------------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- ---------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 4/02/97- 4/09/97 $ 20,000 $ 19,986,432
Ford Motor Credit Corp., due 4/09/97 20,000 19,974,889
General Electric Co., due 4/01/97 12,600 12,600,000
Tennessee Valley Authority, due 4/10/97 10,500 10,485,825
- ---------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 63,047,146
- ---------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $2,558,019,535) $2,767,367,761
Other Assets, Less Liabilities - 0.4% 9,665,111
- ---------------------------------------------------------------------------------------------
Net Assets - 100.0% $2,777,032,872
- ---------------------------------------------------------------------------------------------
</TABLE>
*Non-income producing security.
+Restricted security.
+++Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer.
##SEC-144A restriction.
See notes to financial statements
11
<PAGE>
Financial Statements
Statement of Assets and Liabilities (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1997
- ---------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value:
Unaffiliated issuers (identified cost, $2,545,563,768) $2,757,404,136
Affiliated issuer (identified cost $12,455,767) 9,963,625
---------------
Total investments, at value (identified cost $2,558,019,535) $2,767,367,761
---------------
Cash 321,457
Receivable for Fund shares sold 27,470,358
Receivable for investments sold 26,393,536
Dividends receivable 2,845,724
Other assets 16,804
---------------
Total assets $2,824,415,640
---------------
Liabilities:
Payable for Fund shares reacquired $ 6,970,085
Payable for investments purchased 39,611,628
Payable to affiliates -
Management fee 97,831
Shareholder servicing agent fee 40,795
Distribution fee 209,177
Accrued expenses and other liabilities 453,252
---------------
Total liabilities $ 47,382,768
---------------
Net assets $2,777,032,872
---------------
Net assets consist of:
Paid-in capital $2,507,985,613
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 209,329,376
Accumulated undistributed net realized gain on investments and foreign
currency transactions 63,923,283
Accumulated net investment loss (4,205,400)
---------------
Total $2,777,032,872
---------------
Shares of beneficial interest outstanding 155,857,338
---------------
Class A shares:
Net asset value per share
(net assets of $1,373,949,310 / 76,333,768 shares of beneficial interest
outstanding) $18.00
---------------
Offering price per share (100 / 94.25) $19.10
---------------
Class B shares:
Net asset value and offering price per share
(net assets of $1,122,966,254 / 63,667,860 shares of beneficial interest
outstanding) $17.64
---------------
Class C shares:
Net asset value and offering price per share
(net assets of $265,308,508 / 15,033,590 shares of beneficial interest
outstanding) $17.65
---------------
Class I shares:
Net asset value per share
(net assets of $14,808,800 / 822,120 shares of beneficial interest
outstanding) $18.01
---------------
</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
12
<PAGE>
Financial Statements - continued
Statement of Operations (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended March 31, 1997
- ---------------------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Dividends $ 10,657,500
Interest 2,087,449
Foreign taxes withheld (62,628)
---------------
Total investment income $ 12,682,321
---------------
Expenses -
Management fee $ 3,979,792
Trustees' compensation 32,441
Shareholder servicing agent fee (Class A) 361,223
Shareholder servicing agent fee (Class B) 414,163
Shareholder servicing agent fee (Class C) 63,488
Shareholder servicing agent fee (Common) 852,083
Distribution and service fee (Class A) 2,063,532
Distribution and service fee (Class B) 4,663,845
Distribution and service fee (Class C) 1,020,989
Postage 230,007
Custodian fee 201,024
Printing 99,848
Administrative fee 32,573
Auditing fees 27,423
Legal fees 9,443
Miscellaneous 1,727,947
---------------
Total expenses $ 15,779,821
Fees paid indirectly (22,435)
---------------
Net expenses $ 15,757,386
---------------
Net investment loss $ (3,075,065)
---------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 63,748,853
Foreign currency transactions (186,834)
---------------
Net realized gain on investment and foreign currency transactions $ 63,562,019
---------------
Change in unrealized depreciation -
Investments $(65,033,170)
Translation of assets and liabilities in foreign currencies (18,218)
---------------
Net unrealized loss on investments and foreign currency translation $(65,051,388)
---------------
Net realized and unrealized loss on investments and foreign currency $ (1,489,369)
---------------
Decrease in net assets from operations $ (4,564,434)
---------------
</TABLE>
See notes to financial statements
13
<PAGE>
Financial Statements - continued
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Six Months Ended
March 31, 1997 Year Ended
(Unaudited) September 30, 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income (loss) $ (3,075,065) $ 888,631
Net realized gain on investments and foreign
currency transactions 63,562,019 109,853,790
Net unrealized gain (loss) on investments and
foreign currency translation (65,051,388) 148,650,510
---------------- --------------------
Increase (decrease) in net assets from
operations $ (4,564,434) $ 259,392,931
---------------- --------------------
Distributions declared to shareholders -
From net investment income (Class A) $ (394,105) $ (1,746,150)
From net investment income (Class C) (6,127) --
From net realized gain on investments and foreign
currency transactions (Class A) (56,493,337) (33,116,571)
From net realized gain on investments and foreign
currency transactions (Class B) (41,918,723) (13,804,424)
From net realized gain on investments and foreign
currency transactions (Class C) (9,190,640) (1,987,076)
In excess of net investment income (Class A) (1,113,030) --
In excess of net investment income (Class C) (17,305) (5,537)
---------------- --------------------
Total distributions declared to shareholders $ (109,133,267) $ (50,659,758)
---------------- --------------------
Fund share (principal) transactions -
Net proceeds from sale of shares $1,310,119,711 $1,101,792,673
Net asset value of shares issued to shareholders
in reinvestment of distributions 92,932,656 43,699,368
Cost of shares reacquired (301,162,295) (277,022,647)
---------------- --------------------
Increase in net assets from Fund share
transactions $1,101,890,072 $ 868,469,394
---------------- --------------------
Total increase in net assets $ 988,192,371 $1,077,202,567
Net assets:
At beginning of period 1,788,840,501 711,637,934
---------------- --------------------
At end of period (including accumulated
undistributed net investment income (loss) of
$(4,205,400) and $400,233, respectively) $2,777,032,872 $1,788,840,501
---------------- --------------------
</TABLE>
See notes to financial statements
14
<PAGE>
Financial Statements - continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------
Six Months
Ended
March 31, Year ended September 30,
1997 ----------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
--------------------------------- ------------- ----------- ----------- ----------- ----------- ----------
Class A
--------------------------------- ------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $ 18.53 $ 15.61 $ 12.59 $ 14.47 $ 12.18 $ 11.84
------------- ----------- ---------------------- ----------- -----------
Income from investment
operations# -
Net investment income $ 0.01 $ 0.06 $ 0.08 $ 0.02 $ 0.11 $ 0.07
Net realized and
unrealized gain on
investments and foreign
currency transactions 0.41 3.88 2.99 1.01 3.15 1.27
------------- ----------- ---------------------- ----------- -----------
Total from investment
operations $ 0.42 $ 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 (0.92) (0.97) (0.03) (2.87) (0.90) (1.00)
In excess of net investment
income (0.03) -- -- (0.01) -- --
------------- ----------- ---------------------- ----------- -----------
Total distributions declared
to shareholders $ (0.95) $ (1.02) $ (0.05) $ (2.91 $ (0.97) $ (1.00)
------------- ----------- ---------------------- ----------- -----------
Net asset value - end of period $ 18.00 $ 18.53 $ 15.61 $ 12.59 $ 14.47 $ 12.18
------------- ----------- ---------------------- ----------- -----------
Total return++ 2.11%+++ 26.54% 24.49% 7.72% 28.87% 11.79%
Ratios (to average net assets)/Supplemental dataS.:
Expenses## 1.01%+ 0.91% 0.95% 0.91% 0.90% 0.84%
Net investment income 0.06%+ 0.36% 0.58% 0.14% 0.36% 0.59%
Portfolio turnover 46% 81% 94% 79% 93% 74%
Average commission rate### $ 0.0315 $ 0.0269 -- -- -- --
Net assets at end of period (000
omitted) $1,373,949 $972,353 $507,784 $318,170 $294,019 $240,366
</TABLE>
++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.
+Annualized.
+++Not annualized.
#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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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
15
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30, 1991 1990 1989 1988 1987
-------------------------------- ---------------------- ----------- ----------- -----------
Class A
-------------------------------- ----------- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
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 -- -- * (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
*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.
</TABLE>
See notes to financial statements
16
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
March 31, Year ended September 30,
1997 ---------------------------------------------
(Unaudited) 1996 1995 1994 1993**
- ---------------------------------------------------- ------------- ----------- ----------- --------------------
Class B
- ---------------------------------------------------- ------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 18.19 $ 15.40 $ 12.50 $14.47 $ 13.95
------------- ----------- ----------- --------------------
Income from investment operations# -
Net investment loss $ (0.06) $ (0.06) $ (0.03) $(0.08) $ (0.04)
Net realized and unrealized gain
on investments and foreign currency transactions 0.41 3.82 2.96 1.00 0.56
------------- ----------- ----------- --------------------
Total from investment operations $ 0.35 $ 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 (0.90) (0.97) (0.03) (2.87) --
------------- ----------- ----------- --------------------
Total distributions declared to shareholders
$ (0.90) $ (0.97) $ (0.03) $ 2.89) $ --
------------- ----------- ----------- --------------------
Net asset value - end of period $ 17.64 $ 18.19 $ 15.40 $12.50 $ 14.47
------------- ----------- ----------- --------------------
Total return 1.79%+++ 25.59% 23.55% 6.91% 3.73 %
Ratios (to average net assets)/Supplemental data:
Expenses## 1.74%+ 1.66% 1.78% 1.82% 2.33%+
Net investment loss (0.65)%+ (0.37)% (0.21)% (0.65)% (0.89)%+
Portfolio turnover 46% 81% 94% 79% 93%
Average commission rate## $ 0.0315 $ 0.0269 -- -- --
Net assets at end of period (000 omitted) $1,122,966 $680,456 $178,117 $25,672 $447
</TABLE>
**For the period from the commencement of offering of Class B shares,
September 7, 1993, to September 30, 1993.
+Annualized.
+++Not annualized.
++For the year ended September 30, 1995, the per share distribution from net
investment income was $0.00003.
#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.
See notes to financial statements
17
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
March 31, Year Ended September 30,
1997 ---------------------------------
(Unaudited) 1996 1995 1994***
- ---------------------------------------------------- ------------ ----------- --------------------
Class C
- ---------------------------------------------------- ------------ ---------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 18.22 $ 15.42 $ 12.51 $ 13.18
------------ ----------- --------------------
Income from investment operations# -
Net investment loss $ (0.06) $ (0.06) $ (0.02) $ (0.04)
Net realized and unrealized gain on investments
and foreign currency transactions 0.41 3.83 2.96 0.62
------------ ----------- --------------------
Total from investment operations $ 0.35 $ 3.77 $ 2.94 $ 0.58
------------ ----------- --------------------
Less distributions declared to shareholders -
In excess of net investment income $ -- $ -- $ --++ $ --
From net realized gain on investments (0.92) 0.97) (0.03) (1.25)
------------ ----------- --------------------
Total distributions declared to shareholders $ (0.92) $ (0.97) $ (0.03) $ (1.25)
------------ ----------- --------------------
Net asset value - end of period $ 17.65 $ 18.22 15.42 $ 12.51
------------ ----------- --------------------
Total return 1.80%+++ 25.67% 23.58% 4.43%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.71% + 1.67% 1.71% 1.74%+
Net investment loss (0.63)%+ (0.38)% (0.15)% (0.54)%+
Portfolio turnover 46% 81% 94% 79%
Average commission rate## $ 0.0315 $ 0.0269 -- --
Net assets at end of period (000 omitted) $265,309 $136,032 $25,737 $ 4,821
</TABLE>
***For the period from the commencement of offering of Class C shares,
January 3, 1994, to September 30, 1994.
+Annualized.
+++Not annualized.
++For the six months ended March 31, 1997, and the year ended September 30,
1996, per share distributions in excess of net investment income were
$0.00235 and $0.0027, respectively.
#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.
See notes to financial statements
18
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1997*
(Unaudited)
- ---------------------------------------------------------------- ----------------
Class I
---------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $18.34
------------
Income from investment operations# -
Net investment income $ 0.01
Net realized and unrealized loss on investments and foreign
currency transactions (0.34)
------------
Total from investment operations $(0.33)
------------
Net asset value - end of period $18.01
------------
Total return (1.74)%+++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.81%+
Net investment income 0.23%+
Portfolio turnover 46%
Average commission rate### $ 0.0315
Net assets at end of period (000 omitted) $14,809
</TABLE>
*For the period from the commencement of offering of Class I shares,
January 2, 1997, to March 31, 1997.
+Annualized.
+++Not annualized.
#Per share data 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.
See notes to financial statements
19
<PAGE>
Notes to Financial Statements (Unaudited)
(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 realized and unrealized gains and
losses on investments that
20
<PAGE>
Notes to Financial Statements (Unaudited) - continued
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 Funds'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.
21
<PAGE>
Notes to Financial Statements (Unaudited) - continued
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B, Class C, and Class I shares. The four classes of shares differ in
their respective distribution and service fees. All shareholders bear the
common expenses of the Fund pro rata based on 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 daily and paid monthly at an effective annual rate
of 0.36% of average daily net assets and 4.07% 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 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 of its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of
$7,186 for the period ended March 31, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$1,184,971 for the period ended March 31, 1997, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class
C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Fund's distribution plan provides that the Fund will pay MFD 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 that 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 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 $246,846 for the period ended March 31, 1997. Fees incurred
under the
22
<PAGE>
Notes to Financial Statements (Unaudited) - continued
distribution plan during the period ended March 31, 1997, were 0.34% of
average daily net assets attributable to Class A shares on an annualized
basis.
The Fund's distribution plan provides 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 that 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 $41,731
and $42,357 for Class B and Class C shares, respectively, for the six months
ended March 31, 1997. Fees incurred under the distribution plan during the
period ended March 31, 1997, 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 period ended March 31, 1997, were
$22,279, $525,029 and $38,082 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 fund's average daily net assets at an effective annual
rate of 0.13%. Prior to January 1, 1997, the fee was 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
$1,984,846,039 and $1,043,840,395, respectively.
23
<PAGE>
Notes to Financial Statements (Unaudited) - 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:
<TABLE>
<CAPTION>
<S> <C>
Aggregate cost $2,558,019,535
---------------
Gross unrealized appreciation $ 308,000,502
Gross unrealized depreciation (98,652,276)
---------------
Net unrealized appreciation $ 209,348,226
---------------
</TABLE>
(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:
Class A Shares
<TABLE>
<CAPTION>
Period Ended March 31, 1997 Year Ended September 30, 1996
------------------------------- --------------------------------
Shares Amount Shares Amount
- ----------------------- -------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 31,696,243 $ 605,695,659 28,748,439 $ 487,826,641
Shares issued to
shareholders in
reinvestment of
distributions 2,791,623 51,617,097 1,940,972 30,104,947
Shares transferred to
Class I (807,081) (14,801,865) -- --
Shares reacquired (9,833,800) (187,442,746) (10,737,215) (180,437,578)
-------------- ---------------- --------------- ----------------
Net increase 23,846,985 $ 455,068,145 19,952,196 $ 337,494,010
-------------- ---------------- --------------- ----------------
Class B Shares
Period Ended March 31, 1997 Year Ended September 30, 1996
------------------------------- --------------------------------
Shares Amount Shares Amount
- ----------------------- -------------- ---------------- --------------- ----------------
Shares sold 28,608,263 $ 535,202,325 29,925,009 $ 502,583,896
Shares issued to
shareholders in
reinvestment of
distributions 1,931,180 35,050,939 788,392 12,070,744
Shares reacquired (4,280,590) (80,033,213) (4,869,789) (81,458,430)
-------------- ---------------- --------------- ----------------
Net increase 26,258,853 $ 490,220,051 25,843,612 $ 433,196,210
-------------- ---------------- --------------- ----------------
Class C Shares
Period Ended March 31, 1997 Year Ended September 30, 1996
------------------------------- --------------------------------
Shares Amount Shares Amount
- ----------------------- -------------- ---------------- --------------- ----------------
Shares sold 8,201,337 $ 153,577,441 6,609,234 $ 111,382,136
Shares issued to
shareholders in
reinvestment of
distributions 344,968 6,264,620 99,391 1,523,677
Shares reacquired (979,890) (18,310,729) (910,720) (15,126,639)
-------------- ---------------- --------------- ----------------
Net increase 7,566,415 $ 141,531,332 5,797,905 $ 97,779,174
-------------- ---------------- --------------- ----------------
</TABLE>
24
<PAGE>
Notes to Financial Statements (Unaudited) - continued
Class I Shares
<TABLE>
<CAPTION>
Period Ended March 31,
1997*
-------------------------
Shares Amount
- ------------------------- ----------- -------------
<S> <C> <C>
Shares sold 44,933 $ 842,421
Shares issued to
shareholders in
reinvestment of
distributions -- --
Shares transferred from
Class A 807,081 14,801,865
Shares reacquired (29,894) (573,742)
----------- -------------
Net increase 822,120 $15,070,544
----------- -------------
</TABLE>
* For the period from the commencement of offering of Class I shares, January
2, 1997 to March 31, 1997.
(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 $400 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to
each 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 funds at the end of
each quarter. The commitment fee allocated to the Fund for the six months
ended March 31, 1997, was $15,369.
[7] Transactions in Securities of Affiliated Issuers
Affiliated issuers, as defined under the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
investments in such securities of these issuers during the period ended March
31, 1997, is set forth below. The Fund had no acquisitions or dispositions of
the security and the security paid no distributions during the period ended
March 31, 1997.
<TABLE>
<CAPTION>
Description Shares Value
--------------------------- ------------
<S> <C> <C>
Uromed Corp. 1,351,000 $9,963,625
------------
</TABLE>
25
<PAGE>
Notes to Financial Statements (Unaudited) - continued
(8) 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 March 31,
1997, the Fund owned the following restricted securities (constituting 0.58%
of net assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1933 Act). The Fund does not have the right to
demand that such securities be registered. The value of these securities 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.
<TABLE>
<CAPTION>
Share
Description Date of Acquisition Amount Cost Value
------------------ -------------------------------- -------------- -------------
<S> <C> <C> <C> <C>
Jarvis Hotels PLC 6/21/96-3/17/97 5,532,295 $15,102,001 $15,992,758
-------------
</TABLE>
----------------------------------------------
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.
26
<PAGE>
Introducing a quick and easy way to learn some financial basics:
The ABC's of Investing
part of MFS(R) Heritage Planning(SM)
[GRAPHIC]MAN AND WOMAN JUGGLING BLOCKS
This series of brief messages provides an overview of investment topics,
including:
o Dollar-cost Averaging: a simple method of investing that could work for anyone
o Interest Rate Changes: what every fixed-income investor should know
o Lump-sum Rollovers: how to handle a windfall
o Professional Financial Advisers: why even smart investors may need one
o Straw into Gold: tips for weaving small lifestyle changes into dollars to
invest
o Weathering Market Downturns: how to maintain perspective
o Basic Steps Smart Investors Take Automatically
The series will include messages on other topics as they become available.
You can read through each topic quickly -- in five minutes at most. Of course,
these materials are not designed to turn you into an expert. Your financial
adviser can provide more information on any of the ABC subjects. A conversation
with your adviser might also provide an opportune occasion to review your
portfolio and to assess your present and future financial needs.
To request your free copy of The ABCs of Investing series, call MFS at
1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time.
As part of MFS Heritage Planning, your adviser has access to a wide range of MFS
materials he or she would be happy to share with you on topics related to the
intergenerational concerns of people today. These include financing college
tuition and a secure retirement, eldercare, tax-smart gifting strategies, estate
and health care planning, and other issues.
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 1-800-225-2606
any business day from 8 a.m. to 8 p.m. Eastern time. 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) Research Growth and Income Fund
MFS(R) Strategic Growth Fund
MFS(R) Value Fund
Stock and Bond
- --------------------------------------------------------------
MFS(R) Total Return Fund
MFS(R) Utilities Fund Bond
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 and Income Fund
MFS(R)/Foreign & Colonial International Growth Fund
MFS(R) World Asset Allocation Fund(SM)
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.*
Custodian
Investors Bank & Trust Company
*Affiliated with the Investment Adviser
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 general information, 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.
World Wide Web www.mfs.com
[GRAPHIC] DALBAR LOGO
For the third year in a row, MFS earned a #1 ranking in the 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."
29
<PAGE>
MFS(R)
Research
Fund
500 Boylston Street
Boston, MA 02116-3741
[GRAPHIC]MFS LOGO
(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
[LOGO]DALBAR LOGO]
Bulk Rate
U.S. Postage
P A I D
Permit #55638
Boston, MA
MFR-3 5/97 335M 14/214/314
