<PAGE>
[logo] M F S(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(r)
[graphic omitted]
MFS(R) RESEARCH FUND
ANNUAL REPORT o SEPTEMBER 30, 1998
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TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 13
Financial Statements ...................................................... 18
Notes to Financial Statements ............................................. 26
Independent Auditors' Report .............................................. 32
Trustees and Officers ..................................................... 37
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HIGHLIGHTS
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o FOR THE 12 MONTHS ENDED SEPTEMBER 30, 1998, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF -0.89%, CLASS B SHARES -1.54%,
CLASS C SHARES -1.51%, AND CLASS I SHARES -0.55%. (SEE PERFORMANCE SUMMARY
FOR MORE INFORMATION. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.)
o IN A PERIOD OF MARKET VOLATILITY, WE WILL SEEK TO UPGRADE THE FUND'S
PORTFOLIO BY INCREASING POSITIONS IN COMPANIES IN WHICH WE FEEL MOST
CONFIDENT. OFTEN, WE WILL BE ABLE TO DO SO AT ATTRACTIVE SHARE PRICES
RESULTING FROM BROAD MARKET DECLINES.
o THE RESEARCH COMMITTEE BELIEVES THAT ITS FOCUS ON FUNDAMENTAL ANALYSIS WILL
HELP IT JUDGE GOOD COMPANIES WHOSE PRICES MAY SWING INDISCRIMINATELY, AS
OPPOSED TO COMPANIES THAT MAY BE EXPERIENCING SOME FUNDAMENTAL
DETERIORATION.
o WE HAVE FOUND WHAT WE BELIEVE ARE GOOD COMPANIES THAT CAN MAINTAIN EARNINGS
GROWTH IN A DOWN MARKET IN INDUSTRIES SUCH AS PHARMACEUTICALS, RETAIL, AND
TECHNOLOGY.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
In the coming year, MFS will celebrate its 75th anniversary. In 1924, our
Massachusetts Investors Trust, the nation's first mutual fund, opened to the
public and helped launch a revolution in investing that continues today. In the
75 years since, MFS has grown with its investors not only through bear markets,
economic and political turmoil, wars, and oil shortages, but also through long
periods of growth and prosperity. We are very proud of our record of investment
management and service to shareholders throughout our history.
One of the best ways for us to serve our shareholders is to help them understand
some of the reasons behind developments in the investment markets and, when
necessary, to take a more cautious outlook. This is particularly important
during periods of market volatility such as we are experiencing this year, when
equity prices do not follow a straight course. In light of this volatility, it
is clear that equity valuations have risen to a point at which stock prices have
become vulnerable to changes in the investment environment such as a slowing
economy, earnings disappointments, and global economic and political turmoil.
While we continue to hold a favorable long-term outlook for the equity markets,
we also believe that the recent market correction was overdue but was also a
healthy near-term event that should rid the financial system of excesses that
have developed.
Currently, equity investors seem to be focused on the slowdown in corporate
earnings and, more recently, on the continuing uncertainty overseas,
particularly in Russia and some of the emerging markets. In the second quarter,
for example, average earnings growth for companies in the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock total
return performance, was about 3%, well below what people were expecting a year
ago. As a result of this and continuing concerns about Asia and emerging
markets, the stock markets pulled back from the record-high levels set in
mid-July. Although the U.S. stock market has responded positively to reductions
in interest rates by the Federal Reserve Board, the market's retreat helped
correct some -- but not all -- of the overvaluations that had been building for
some time. Prior to July, equity prices had been rising without a corresponding
increase in corporate earnings. As a result, price-to-earnings (P/E) ratios, or
the amount investors paid for stocks in relation to companies' earnings per
share, also went up. If this year's downturn helps create more reasonable
valuations, we believe it could provide a sounder long-term foundation for the
equity markets. On another positive note, interest rates have begun to decline
as inflation has remained low. In an environment of low interest rates, stocks
become more attractive than most fixed-income investments, while low inflation
helps control companies' costs.
Internationally, the economic turmoil in Asia continues to be a concern to us,
while Russia is facing political and economic uncertainty and Latin American
economies are feeling substantial pressure. We believe the United States has yet
to see the full impact of this crisis. There have been brief periods of
improvement in a few countries and countries such as Japan and Brazil have taken
positive steps toward economic reform but, for the most part, most of these
economies are still very weak. At the same time, the Asian turmoil has had the
beneficial effect of moderating U.S. growth and keeping inflation in check,
which has helped establish a favorable interest-rate environment.
Countering the situation in Asia has been the growing strength of European
economies, although European equity markets have also seen some volatility this
year. But as these countries move toward economic union, they are benefiting
from a convergence of interest rates to lower levels, a rapid expansion of
manufacturing and service businesses, and an increasingly strong consumer
sector. This has helped American exporters offset some of their Asian losses
while providing investment opportunities in developed and emerging European
markets.
Given the uncertainty arising from these conflicting developments, we believe
that it is prudent to remind investors of the need to take a long-term view and
to diversify their investments across a range of asset classes. This includes
portfolios that focus on bond and international investments as well as on the
U.S. stock market. At MFS, we also believe our decades-long commitment to
original, company-by-company research gives us an advantage by helping us find
companies that we think can keep growing or gain market share during periods of
turmoil. To help fulfill this commitment and to provide the broadest possible
coverage of industry sectors and individual companies, MFS continues to increase
its number of full-time research analysts, who thoroughly investigate each
company's earnings potential and position in its industry as well as the overall
prospects for that industry.
We also use active portfolio management on the fixed-income side, using our
extensive research and credit analysis to help reduce the potential for price
declines and enhance the opportunity for appreciation. Every year, both fixed-
income and equity managers meet with thousands of credit issuers and companies.
They also attend many presentations, closely follow sources of industry
research, and keep track of competitors.
As we have for 75 years, we will continue to apply this discipline of thorough,
bottom-up research to both the equity and fixed-income markets because we
believe it offers the best potential for providing favorable long- term
performance for our shareholders -- regardless of changes in the overall market
environment.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
October 14, 1998
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MANAGEMENT REVIEW AND OUTLOOK
[Photo of Kevin R. Parke]
Kevin R. Parke
For the 12 months ended September 30, 1998, Class A shares of the Fund
provided a total return of -0.89%, Class B shares -1.54%, Class C shares
- -1.51%, and Class I shares -0.55%. These returns, which include the
reinvestment of distributions but exclude the effects of any sales charges,
compare to a 9.05% return for the S&P 500 for the same period.
Q. WHAT WERE SOME OF THE MAJOR FACTORS THAT CONTRIBUTED TO THE FUND'S
PERFORMANCE OVER THE PAST 12 MONTHS?
A. The strongest segments of the portfolio were health care, utilities and
communications, and retail. Our investments in pharmaceutical companies and
retail drug store chains such as CVS and Rite Aid benefited from the
continued influence of the managed health care system, which is driving an
increase in prescription volume. In technology, share prices of many
companies have been under pressure; however, we feel that is largely due to
investor psychology and does not indicate fundamental problems in these
companies. In fact, we believe that the technology sector is among the most
vibrant in the U.S. economy and we anticipate healthy earnings performance
from the leading companies in the industry.
Q. WILL THE CURRENT EQUITY MARKET VOLATILITY IMPACT THE WAY YOU MANAGE THE
FUND? IF SO, HOW?
A. No, our research and stock-selection process remains the same in all
markets. At MFS, we view volatility as an opportunity to press our Original
ResearchSM advantage. In the most volatile times, share prices of even good
companies can move indiscriminately. Our research helps us separate high-
quality companies that are trading at attractive values from those that have
experienced some fundamental change that has caused their share prices to
drop. We have used market volatility to add to our positions in stocks in
which we're most confident, such as Tyco International and Pfizer.
Q. WHAT'S YOUR OUTLOOK FOR THE EQUITY MARKET THROUGH THE END OF 1998 AND EARLY
1999?
A. We believe that earnings expectations drive the market, and we expect
earnings to be essentially flat into the first half of 1999. In addition, we
also see significant valuation risk in this type of market because companies
that are producing meaningful earnings growth are being rewarded with very
high valuations. Using Original Research, we attempt to differentiate the
companies producing earnings that can support high valuations and those
whose market valuations may be unsustainable. We also believe that we're
starting to see signs of a credit crunch that will impact more marginal
companies that will be unable to survive in a slowing economy. Though we
feel that these developments are significant and will affect the market for
the next three to four quarters, we also believe that the market as a whole,
as well as our own investment portfolios, will emerge stronger when share
prices begin to rebound.
Q. WHAT ARE SOME OF THE FUND'S BEST IDEAS CURRENTLY?
A. Cisco is one of our best ideas. The company is the leading supplier of
routing and switching equipment to Internet service providers. Its products
are essential to the expansion and smooth operation of the Internet, and its
earnings are growing at more than 30% per year. Pfizer is, we believe, the
leading pharmaceutical company in the world today. It has a strong pipeline
of current and future products, led by Viagra and other widely used drugs.
We expect further earnings momentum from the company when Viagra is
introduced in Europe in late 1998. Additionally, the company is co-marketing
with Monsanto a promising arthritis drug called Celebra, which should be
available in 1999. Guidant is another strong idea, we feel. The company
manufactures medical products used in the treatment of heart ailments and
has taken market share away from some of the industry's biggest companies.
Guidant also recently acquired Intermedics, which we feel could push its
revenue growth to approximately 15% per year. We believe that the company's
long-term earnings growth profile, coupled with its current share price,
makes it an attractive value.
Q. PLEASE DISCUSS SOME OF THE SIGNIFICANT CHANGES TO THE FUND'S HOLDINGS OVER
THE PAST 12 MONTHS.
A. We cut back on our energy and basic materials weightings based on those
industries' poor fundamental near-term outlook. We sharply reduced our
positions in Coca-Cola and Compaq based on their high valuations relative to
their growth prospects. We have also boosted our position in MCI Worldcom.
We feel that it is well positioned to be the world's leading
large-capitalization telecommunications company.
Q. WHAT SORT OF ADDITIONS OR CHANGES HAVE YOU MADE TO THE COMMITTEE OF
ANALYSTS TO ENHANCE YOUR ANALYTICAL REACH AND DEPTH?
A. We have increased our research staff significantly in the past year. By
expanding staff, we have broadened the scope of our overall coverage while
limiting the number of industries individual analysts are expected to cover.
The analysts can now narrow their focus, and MFS is assured of greater depth
of coverage in each industry as a result.
/s/ Kevin R. Parke
Kevin R. Parke
Director of Equity 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.
The opinions expressed in this report are those of the Director of Equity
Research and are only through the end of the period of the report as stated on
the cover. His views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS LONG-TERM GROWTH OF CAPITAL AND FUTURE INCOME.
COMMENCEMENT OF
INVESTMENT OPERATIONS: OCTOBER 13, 1971
CLASS INCEPTION: CLASS A OCTOBER 13, 1971
CLASS B SEPTEMBER 7, 1993
CLASS C JANUARY 3, 1994
CLASS I JANUARY 2, 1997
SIZE: $5.4 BILLION NET ASSETS AS OF SEPTEMBER 30, 1998
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and
reflect the percentage change in net asset value, including reinvestment of
dividends. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. The performance of other share classes will be greater than or less
than the line shown. (See Notes to Performance Summary for more information.)
It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-year period ended September 30, 1998)
MFS Research S&P 500 Consumer Price
Fund - Class A Composite Index Index - U.S.
- ---------------------------------------------------------------
9/93 $ 9,427 $10,000 $10,000
9/94 10,155 10,369 10,296
9/95 12,642 13,453 10,558
9/96 15,997 16,188 10,875
9/97 20,591 22,736 11,110
9/98 20,409 24,792 11,275
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended September 30, 1998)
MFS Research S&P 500 Consumer Price
Fund - Class A Composite Index Index - U.S.
- ---------------------------------------------------------------
9/88 $ 9,427 $10,000 $10,000
9/90 10,713 12,072 11,077
9/92 15,097 17,583 11,795
9/94 20,861 20,602 12,471
9/96 32,863 32,165 13,172
9/98 41,924 49,261 13,656
AVERAGE ANNUAL TOTAL RETURNS THROUGH SEPTEMBER 30, 1998
CLASS A
1 Year 3 Years 5 Years 10 Years/Life
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Average Annual Total Return -0.89% +17.31% +16.71% +16.09%
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SEC Results -6.59% +15.02% +15.33% +15.41%
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CLASS B
1 Year 3 Years 5 Years 10 Years/Life
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Average Annual Total Return -1.54% +16.51% +15.87% +15.68%
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SEC Results -5.31% +15.76% +15.65% +15.68%
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CLASS C
1 Year 3 Years 5 Years 10 Years/Life
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Average Annual Total Return -1.51% +16.54% +15.94% +15.71%
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SEC Results -2.46% +16.54% +15.94% +15.71%
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CLASS I
1 Year 3 Years 5 Years 10 Years/Life
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Average Annual Total Return -0.55% +17.55% +16.85% +16.16%
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COMPARATIVE INDICES
1 Year 3 Years 5 Years 10 Years/Life
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Average growth fund* -1.44% +14.73% +14.35% +14.57%
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Standard & Poor's 500
Composite Index+ +9.05% +22.60% +19.91% +17.29%
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Consumer Price Index+# +1.49% + 2.21% + 2.43% + 3.17%
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* Source: Lipper Analytical Services, Inc.
+ Source: CDA/Wiesenberger.
# The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 5.75% sales charge. Class B
share ("B") SEC results reflect the applicable contingent deferred sales charge
(CDSC), which declines over six years from 4% to 0%. Class C shares ("C") have
no initial sales charge but, like B, have higher annual fees and expenses than
A. C SEC results reflect the 1% CDSC applicable to shares redeemed within 12
months. Class I shares ("I") have no sales charge or Rule 12b-1 fees and are
only available to certain institutional investors.
B and C results include the performance and the operating expenses (e.g., Rule
12b-1 fees) of A for periods prior to the inception of B and C. Because
operating expenses of B and C are higher than those of A, B and C performance
generally would have been lower than A performance. The A performance included
in the B and C SEC performance has been adjusted to reflect the CDSC generally
applicable to B and C rather than the initial sales charge generally applicable
to A.
I results include the performance and the operating expenses (e.g., Rule
12b-1 fees) of A for periods prior to the inception of I. Because operating
expenses of A are greater than those of I, I performance generally would have
been higher than A performance. The A performance included in the
I performance has been adjusted to reflect the fact that I have no initial
sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. 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.
RESULTS OF SHAREHOLDER MEETING
At the special meeting of shareholders of MFS Research Fund (the "Fund") which
was held on Wednesday, October 15, 1998, the following items were voted on by
shareholders (67% of the shares voting on an item must vote "for" in order for
that item to be approved):
ITEM 1. To approve a new investment advisory agreement between Massachusetts
Financial Services Company and MFS Series Trust V on behalf of the
Fund.
SHARES VOTED % OF VOTED
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For 89,710,261.00 68.78%
Against 14,440,422.00 11.07%
Abstain 6,174,043.00 4.73%
Broker Non-Vote 20,111,386.00 15.42%
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TOTAL 130,436,112.00 100.00%
ITEM 2A. To approve the elimination of the restriction concerning investment in
other investment companies.
SHARES VOTED % OF VOTED
-------------- ----------
For 91,593,673.00 70.22%
Against 11,840,315.00 9.08%
Abstain 6,890,736.00 5.28%
Broker Non-Vote 20,111,386.00 15.42%
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TOTAL 130,436,110.00 100.00%
ITEM 2B. To approve the elimination of the restriction concerning investments
in unseasoned issuers.
SHARES VOTED % OF VOTED
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For 86,889,736.00 66.62%
Against 16,046,795.00 12.30%
Abstain 7,388,195.00 5.66%
Broker Non-Vote 20,111,386.00 15.42%
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TOTAL 130,436,112.00 100.00%
ITEM 2C. To approve the elimination of the restriction concerning transactions
with affiliates.
SHARES VOTED % OF VOTED
For 90,486,548.00 69.37%
Against 12,758,098.00 9.78%
Abstain 7,080,079.00 5.43%
Broker Non-Vote 20,111,386.00 15.42%
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TOTAL 130,436,111.00 100.00%
ITEM 2D. To approve the elimination of the restriction concerning purchasing
securities on margin.
SHARES VOTED % OF VOTED
-------------- ----------
For 85,771,237.00 65.76%
Against 17,176,048.00 13.17%
Abstain 7,377,438.00 5.65%
Broker Non-Vote 20,111,387.00 15.42%
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TOTAL 130,436,110.00 100.00%
ITEM 2E. To approve the elimination of the restriction concerning short sales.
SHARES VOTED % OF VOTED
-------------- ----------
For 86,800,208.00 66.55%
Against 16,064,676.00 12.32%
Abstain 7,459,840.00 5.71%
Broker Non-Vote 20,111,386.00 15.42%
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TOTAL 130,436,110.00 100.00%
ITEM 2F. To approve the elimination of the restriction concerning certain types
of options.
SHARES VOTED % OF VOTED
-------------- ----------
For 87,721,544.00 67.25%
Against 14,723,817.00 11.29%
Abstain 7,879,365.00 6.04%
Broker Non-Vote 20,111,385.00 15.42%
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TOTAL 130,436,111.00 100.00%
ITEM 3. Ratification of selection of Deloitte & Touche LLP as independent
public accountants of the Fund.
SHARES VOTED % OF VOTED
-------------- ----------
For 121,651,079.00 93.26%
Against 2,537,522.00 1.95%
Abstain 6,247,511.00 4.79%
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TOTAL 130,436,112.00 100.00%
PORTFOLIO CONCENTRATION AS OF SEPTEMBER 30, 1998
FIVE LARGEST STOCK SECTORS
TECHNOLOGY 23.1%
FINANCIAL SERVICES 18.4%
HEALTH CARE 12.1%
CONSUMER STAPLES 10.3%
RETAILING 8.2%
TOP 10 STOCK HOLDINGS
<TABLE>
<S> <C>
MICROSOFT CORP. 4.8% BRITISH PETROLEUM PLC, ADR 2.5%
Computer software and systems company Oil exploration and production company
PHILIP MORRIS COS., INC. 3.3% AMERICAN HOME PRODUCTS CORP. 2.4%
Tobacco, food, and beverage conglomerate Pharmaceutical and home products company
TYCO INTERNATIONAL LTD. 3.0% HBO & CO. 2.3%
Security systems, packaging, and electronic Health care information systems provider
equipment conglomerate
BMC SOFTWARE, INC. 2.0%
INTEL CORP. 2.6% Computer software company
Semiconductor manufacturer
UNITED TECHNOLOGIES CORP. 1.9%
MCI WORLDCOM, INC. 2.5% Aerospace, defense, and building equipment
Telecommunications company company
</TABLE>
Portfolio information is as of September 30, 1998. The portfolio is actively
managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS -- September 30, 1998
Stocks - 98.3%
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ISSUER SHARES VALUE
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U.S. Stocks - 90.7%
Aerospace - 2.4%
Lockheed-Martin Corp. 281,400 $ 28,368,638
United Technologies Corp. 1,345,500 102,846,656
----------------
$ 131,215,294
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Automotive
Federal-Mogul Corp. 9,100 $ 425,425
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Banks and Credit Companies - 3.2%
BankBoston Corp. 693,740 $ 22,893,420
Chase Manhattan Corp. 1,031,708 44,621,371
Comerica, Inc. 665,000 36,450,312
National City Corp. 750,000 49,453,125
PNC Bank Corp. 500,417 22,518,765
----------------
$ 175,936,993
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Business Machines - 1.9%
Sun Microsystems, Inc.* 1,569,400 $ 78,175,738
Xerox Corp. 263,500 22,331,625
----------------
$ 100,507,363
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Chemicals - 1.0%
Cambrex Corp. 624,100 $ 14,705,356
Cytec Industries, Inc.* 662,200 11,836,825
E.I. du Pont de Nemours & Co. 469,800 26,367,525
----------------
$ 52,909,706
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Computer Hardware - Systems - 0.8%
EMC Corp.* 751,900 $ 42,999,281
----------------
Computer Software - Personal Computers - 5.4%
Electronic Arts, Inc.* 748,700 $ 32,849,212
Microsoft Corp.* 2,344,300 258,019,519
----------------
$ 290,868,731
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Computer Software - Systems - 7.9%
AccuStaff, Inc.* 991,500 $ 14,438,719
BMC Software, Inc.* 1,744,900 104,803,056
Cadence Design Systems, Inc.* 2,420,650 61,877,866
Computer Associates International, Inc. 1,128,175 41,742,475
Compuware Corp.* 1,271,300 74,847,788
Oracle Corp.* 3,467,587 100,993,471
Synopsys, Inc.* 965,300 32,156,556
----------------
$ 430,859,931
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Consumer Goods and Services - 11.8%
Clorox Co. 516,200 $ 42,586,500
Colgate-Palmolive Co. 755,900 51,779,150
Dial Corp. 1,363,300 28,118,062
Gillette Co. 1,744,500 66,727,125
Newell Co. 560,700 25,827,244
Philip Morris Cos., Inc. 3,786,750 174,427,172
Procter & Gamble Co. 964,900 68,447,594
Revlon, Inc., "A"* 687,500 21,871,094
Tyco International Ltd. 2,882,174 159,240,113
----------------
$ 639,024,054
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Containers - 0.5%
Stone Container Corp.* 3,067,600 $ 26,458,050
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Electrical Equipment - 1.9%
Emerson Electric Co. 1,614,100 $ 100,477,725
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Electronics - 2.9%
Analog Devices, Inc.* 975,299 $ 15,665,740
Intel Corp. 1,621,400 139,035,050
----------------
$ 154,700,790
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Entertainment - 2.1%
CBS Corp. 1,433,200 $ 34,755,100
Jacor Communications, Inc.* 648,000 32,805,000
MediaOne Group, Inc.* 804,700 35,758,856
Mirage Resorts, Inc.* 627,100 10,503,925
----------------
$ 113,822,881
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Financial Institutions - 4.8%
American Express Co. 354,600 $ 27,525,825
Associates First Capital Corp., "A" 433,423 28,280,851
CIT Group, Inc., "A" 324,100 8,305,063
Federal Home Loan Mortgage Corp. 1,235,800 61,094,862
Federal National Mortgage Assn 898,800 57,747,900
First Union Corp. 1,050,452 53,770,012
Morgan Stanley Dean Witter & Co. 570,600 24,571,462
----------------
$ 261,295,975
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Food and Beverage Products - 1.3%
Archer-Daniels-Midland Co. 1,676,535 $ 28,081,961
Hershey Foods Corp. 254,100 17,389,969
McCormick & Co., Inc. 498,900 14,499,281
Nabisco Holdings Corp., "A" 248,050 8,914,297
----------------
$ 68,885,508
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Insurance - 7.4%
Allstate Corp. 841,620 $ 35,085,034
American International Group, Inc. 136,500 10,510,500
CIGNA Corp. 855,400 56,563,325
Conseco, Inc. 1,878,757 57,419,511
Equitable Cos., Inc. 685,500 28,362,563
FPIC Insurance Group, Inc.* 181,600 5,039,400
Hartford Financial Services Group, Inc. 1,117,500 53,011,406
Lincoln National Corp. 888,400 73,070,900
Nationwide Financial Services, Inc., "A" 599,100 27,221,606
ReliaStar Financial Corp. 1,044,163 40,722,357
Travelers Group, Inc. 424,600 15,922,500
----------------
$ 402,929,102
- -----------------------------------------------------------------------------
Machinery - 0.5%
Lear Corp.* 630,200 $ 27,571,250
- -----------------------------------------------------------------------------
Manufacturing - 0.2%
Illinois Tool Works, Inc. 225,800 $ 12,306,100
- -----------------------------------------------------------------------------
Medical and Health Products - 5.7%
American Home Products Corp. 2,454,600 $ 128,559,675
Boston Scientific Corp.* 693,540 35,630,618
Bristol-Myers Squibb Co. 483,900 50,265,112
Pfizer, Inc. 894,800 94,792,875
----------------
$ 309,248,280
----------------
Medical and Health Technology and Services - 6.2%
Cardinal Health, Inc. 353,300 $ 36,478,225
Columbia/HCA Healthcare Corp. 1,508,200 30,258,263
Guidant Corp. 640,500 47,557,125
HBO & Co. 4,168,700 120,371,212
HealthSouth Corp.* 2,797,068 29,544,031
United Healthcare Corp. 2,018,700 70,654,500
----------------
$ 334,863,356
- -----------------------------------------------------------------------------
Metals and Minerals - 0.2%
Minerals Technologies, Inc. 261,000 $ 11,500,313
- -----------------------------------------------------------------------------
Oil Services - 0.2%
Cooper Cameron Corp.* 471,100 $ 13,249,688
- -----------------------------------------------------------------------------
Oils - 2.2%
Chevron Corp. 642,600 $ 54,018,562
Exxon Corp. 60,400 4,239,325
Texaco, Inc. 1,000,500 62,718,844
----------------
$ 120,976,731
- -----------------------------------------------------------------------------
Pollution Control - 0.5%
Browning Ferris Industries, Inc. 972,500 $ 29,418,125
- -----------------------------------------------------------------------------
Restaurants and Lodging - 2.5%
Cendant Corp.* 3,422,670 $ 39,788,539
CKE Restaurants, Inc. 1,153,100 34,304,725
McDonalds Corp. 521,700 31,138,969
Outback Steakhouse, Inc.* 939,000 24,766,125
Promus Hotel Corp.* 248,941 6,861,436
----------------
$ 136,859,794
- -----------------------------------------------------------------------------
Special Products and Services - 0.9%
Newport News Shipbuilding, Inc.++ 1,853,700 $ 49,702,331
- -----------------------------------------------------------------------------
Stores - 5.3%
American Stores Co. 592,700 $ 19,077,531
CompUSA, Inc.* 670,500 11,608,031
CVS Corp. 1,559,200 68,312,450
Dayton-Hudson Corp. 746,200 26,676,650
Home Depot, Inc. 970,400 38,330,800
Office Depot, Inc.* 1,181,400 26,507,663
Rite Aid Corp. 2,715,300 96,393,150
----------------
$ 286,906,275
- -----------------------------------------------------------------------------
Supermarkets - 2.8%
Albertsons, Inc. 351,100 $ 19,003,287
Meyer (Fred), Inc.* 1,089,050 42,336,819
Safeway, Inc.* 1,974,000 91,544,250
----------------
$ 152,884,356
- -----------------------------------------------------------------------------
Telecommunications - 6.4%
Aspect Telecommunications Corp.* 2,292,900 $ 55,029,600
Cisco Systems, Inc.* 1,543,725 95,421,502
Intermedia Communications, Inc.* 678,400 16,663,200
MCI Worldcom, Inc.* 2,684,174 131,189,004
Sprint Corp. 676,663 48,719,736
----------------
$ 347,023,042
- -----------------------------------------------------------------------------
Utilities - Electric - 0.5%
CalEnergy Co., Inc.* 1,053,800 $ 27,925,700
- -----------------------------------------------------------------------------
Utilities - Gas - 1.3%
Columbia Energy Group, Inc. 272,050 $ 15,948,931
KN Energy, Inc. 1,074,900 55,088,625
----------------
$ 71,037,556
- -----------------------------------------------------------------------------
Total U.S. Stocks $ 4,924,789,706
- -----------------------------------------------------------------------------
Foreign Stocks - 7.6%
Bermuda - 0.8%
Ace Ltd. (Insurance) 914,700 $ 27,441,000
EXEL Ltd., "A" (Insurance) 258,136 16,262,568
----------------
$ 43,703,568
- -----------------------------------------------------------------------------
France - 0.7%
Alcatel Alsthom Compagnie,
ADR (Telecommunications) 2,048,500 $ 34,824,500
- -----------------------------------------------------------------------------
Italy - 0.7%
Istituto Mobiliare Italiano S.p.A
(Banks and Credit Cos.) 2,824,900 $ 37,351,217
- -----------------------------------------------------------------------------
Japan - 0.8%
Sony Corp. (Electronics) 622,000 $ 43,300,909
----------------
Netherlands - 0.9%
ING Groep N.V. (Financial Services) 1,091,830 $ 49,272,507
----------------
Sweden - 0.2%
Skandia Forsakrings AB (Insurance) 853,311 $ 11,118,059
----------------
United Kingdom - 3.5%
British Aerospace (Aerospace and
Defense)* 4,065,100 $ 24,649,314
British Petroleum PLC, ADR (Oils) 1,510,291 131,772,890
Jarvis Hotels PLC (Restaurants
and Lodging)+ 7,179,295 12,925,670
LucasVarity PLC (Automotive) 6,966,700 21,417,613
----------------
$ 190,765,487
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 410,336,247
- -----------------------------------------------------------------------------
Total Stocks (Identified Cost, $4,816,940,580) $ 5,335,125,953
- -----------------------------------------------------------------------------
Short-Term Obligations - 1.3%
- -----------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -----------------------------------------------------------------------------
Federal Home Loan Bank, due 10/14/98 $ 15,600 $ 15,570,988
Federal Home Loan Mortgage Corp.,
due 10/09/98 - 10/28/98 54,500 54,338,971
Federal National Mortgage Assn.,
due 11/12/98 3,000 2,981,205
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 72,891,164
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $4,889,831,744) $ 5,408,017,117
Other Assets, Less Liabilities - 0.4% 22,474,686
- -----------------------------------------------------------------------------
Net Assets - 100.0% $ 5,430,491,803
- -----------------------------------------------------------------------------
* 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 shares of the issuer.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998
- -----------------------------------------------------------------------------
Assets:
Investments, at value:
Unaffiliated issuers (identified cost,
$4,858,542,933) $5,358,314,786
Affiliated issuers (identified cost, $31,288,811) 49,702,331
--------------
Total investments, at value (identified cost,
$4,889,831,744) $5,408,017,117
--------------
Cash 200,972
Foreign currency (identified cost, $12) 12
Receivable for investments sold 88,470,956
Receivable for Fund shares sold 14,534,144
Dividends receivable 6,702,534
Other assets 31,620
--------------
Total assets $5,517,957,355
--------------
Liabilities:
Payable for investments purchased $ 62,065,858
Payable for Fund shares reaquired 24,498,231
Payable to affiliates -
Management fee 50,955
Shareholder servicing agent fee 17,261
Distribution and service fee 104,835
Administrative fee 1,027
Accrued expenses and other liabilities 727,385
--------------
Total liabilities $ 87,465,552
--------------
Net assets $5,430,491,803
==============
Net assets consist of:
Paid-in capital $4,688,242,497
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 518,187,360
Accumulated undistributed net realized gain on
investments and foreign currency transactions 224,168,427
Accumulated net investment loss (106,481)
--------------
Total $5,430,491,803
==============
Shares of beneficial interest outstanding 256,580,218
===========
Class A shares:
Net asset value per share
(net assets of $2,611,866,296 / 121,774,044 shares of
beneficial interest outstanding) $21.45
======
Offering price per share (100 / 94.25) $22.76
======
Class B shares:
Net asset value and offering price per share
(net assets of $2,237,569,856 / 107,048,695 shares of
beneficial interest outstanding) $20.90
======
Class C shares:
Net asset value and offering price per share
(net assets of $563,504,782 / 26,942,067 shares of
beneficial interest outstanding) $20.92
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $17,550,869 / 815,412 shares of
beneficial interest outstanding) $21.52
======
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
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations
- ------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1998
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends (including $280,520 received from
affiliated issuers) $ 55,323,440
Interest 7,179,981
Foreign taxes withheld (1,008,102)
-------------
Total investment income $ 61,495,319
-------------
Expenses -
Management fee $ 18,088,633
Trustees' compensation 134,456
Shareholder servicing agent fee 6,287,461
Distribution and service fee (Class A) 9,198,981
Distribution and service fee (Class B) 22,103,603
Distribution and service fee (Class C) 5,519,535
Administrative fee 350,786
Custodian fee 1,107,677
Interest 78,670
Printing 210,504
Postage 625,968
Auditing fees 37,064
Legal fees 7,613
Miscellaneous 3,526,098
-------------
Total expenses $ 67,277,049
Fees paid indirectly (248,824)
-------------
Net expenses $ 67,028,225
-------------
Net investment loss $ (5,532,906)
-------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 257,614,285
Foreign currency transactions (323,697)
-------------
Net realized gain on investments and
foreign currency transactions $ 257,290,588
-------------
Change in unrealized appreciation (depreciation) -
Investments $(379,657,296)
Translation of assets and liabilities in
foreign currencies 8,047
-------------
Net unrealized loss on investments $(379,649,249)
-------------
Net realized and unrealized loss on
investments and foreign currency $(122,358,661)
-------------
Decrease in net assets from operations $(127,891,567)
=============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (5,532,906) $ (4,520,781)
Net realized gain on investments and foreign currency
transactions 257,290,588 185,554,597
Net unealized gain (loss) on investments and foreign
currency translation (379,649,249) 623,455,845
-------------- --------------
Increase (decrease) in net assets from operations $ (127,891,567) $ 804,489,661
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ -- $ (394,105)
From net investment income (Class C) -- (6,127)
From net realized gain on investments and foreign
currency transactions (Class A) (104,270,556) (56,495,941)
From net realized gain on investments and foreign
currency transactions (Class B) (78,726,547) (41,918,137)
From net realized gain on investments and foreign
currency transactions (Class C) (19,503,877) (9,190,644)
From net realized gain on investments and foreign
currency transactions (Class I) (848,087) --
In excess of net investment income (Class A) -- (1,113,029)
In excess of net investment income (Class C) -- (17,305)
-------------- --------------
Total distributions declared to shareholders $ (203,349,067) $ (109,135,288)
-------------- --------------
Net increase in net assets from Fund share transactions $1,220,544,995 $2,056,992,568
-------------- --------------
Total increase in net assets $ 889,304,361 $2,752,346,941
Net assets:
At beginning of period 4,541,187,442 1,788,840,501
-------------- --------------
At end of period (including accumulated net investment
loss of $106,481 and $990,511, respectively) $5,430,491,803 $4,541,187,442
============== ==============
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
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 $22.69 $18.53 $15.61 $12.59 $14.47 $12.18
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.05 $ 0.04 $ 0.06 $ 0.08 $ 0.02 $ 0.11
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions (0.30) 5.07 3.88 2.99 1.01 3.15
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.25) $ 5.11 $ 3.94 $ 3.07 $ 1.03 $ 3.26
------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders -
From net investment income $ -- $(0.01) $(0.05) $(0.02) $(0.03) $(0.07)
From net realized gain on
investments and foreign
currency transactions (0.99) (0.92) (0.97) (0.03) (2.87) (0.90)
In excess of net investment
income -- (0.02) -- -- (0.01) --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.99) $(0.95) $(1.02) $(0.05) $(2.91) $(0.97)
------ ------ ------ ------ ------ ------
Net asset value - end of period $21.45 $22.69 $18.53 $15.61 $12.59 $14.47
====== ====== ====== ====== ====== ======
Total return(+) (0.89)% 28.72% 26.54% 24.49% 7.72% 28.87%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.91% 0.96% 0.91% 0.95% 0.91% 0.90%
Net investment income 0.23% 0.18% 0.36% 0.58% 0.14% 0.36%
Portfolio turnover 81% 79% 81% 94% 79% 93%
Net assets at end of period
(000 omitted) $2,611,866 $2,201,849 $972,353 $507,784 $318,170 $294,019
# Per share data for the periods subsequent to September 30, 1993, are 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.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
(S) The distributor did not impose a portion of its distribution fee for the periods indicated. If these fees 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
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.84 $ 9.62 $11.49 $10.20
------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.07 $ 0.27 $ 0.36 $ 0.39
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 1.27 2.21 (1.52) 2.30
------ ------ ------ ------
Total from investment operations $ 1.34 $ 2.48 $(1.16) $ 2.69
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.26) $(0.36) $(0.39)
From net realized gain on investments and
foreign currency transactions (1.00) -- (0.35) (1.01)
From paid in capital -- -- -- +++ --
------ ------ ------ ------
Total distributions declared to shareholders $(1.00) $(0.26) $(0.71) $(1.40)
------ ------ ------ ------
Net asset value - end of period $12.18 $11.84 $ 9.62 $11.49
====== ====== ====== ======
Total return(+) 11.79% 25.87% (12.73)% 26.91%
Ratios (to average net assets)/Supplemental data:
Expenses 0.84% 0.95% 0.83% 0.88%
Net investment income 0.59% 2.48% 3.21% 3.48%
Portfolio turnover 74% 177% 79% 99%
Net assets at end of period (000 omitted) $240,366 $231,316 $202,377 $251,857
+++Per share amount was less than $0.01.
(+)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
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1998 1997 1996 1995 1994 1993*
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning
of period $22.16 $18.19 $15.40 $12.50 $14.47 $13.95
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.10) $(0.10) $(0.06) $(0.03) $(0.08) $(0.04)
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions (0.28) 4.97 3.82 2.96 1.00 0.56
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.38) $ 4.87 $ 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 and foreign
currency transactions (0.88) (0.90) (0.97) (0.03) (2.87) --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.88) $(0.90) $(0.97) $(0.03) $(2.89) $ --
------ ------ ------ ------ ------ ------
Net asset value - end of
period $20.90 $22.16 $18.19 $15.40 $12.50 $14.47
====== ====== ====== ====== ====== ======
Total return (1.54)% 27.88% 25.59% 23.55% 6.91% 3.73%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.56% 1.63% 1.66% 1.78% 1.82% 2.33%+
Net investment loss (0.42)% (0.49)% (0.37)% (0.21)% (0.65)% (0.89)%+
Portfolio turnover 81% 79% 81% 94% 79% 93%
Net assets at end of period
(000 omitted) $2,237,570 $1,860,130 $680,456 $178,117 $25,672 $447
* For the period from the inception of Class B, September 7, 1993, through September 30, 1993.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data for the periods subsequent to September 30, 1993, are 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.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1998 1997 1996 1995 1994**
- ----------------------------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $22.17 $18.22 $15.42 $12.51 $13.18
------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.10) $(0.09) $(0.06) $(0.02) $(0.04)
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (0.27) 4.96 3.83 2.96 0.62
------ ------ ------ ------ ------
Total from investment operations $(0.37) $ 4.87 $ 3.77 $ 2.94 $ 0.58
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- +++ $ -- $ -- $ --
From net realized gain on investments
and foreign currency transactions (0.88) (0.92) (0.97) (0.03) (1.25)
In excess of net investment income -- -- +++ -- +++ -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.88) $(0.92) $(0.97) $(0.03) $(1.25)
------ ------ ------ ------ ------
Net asset value - end of period $20.92 $22.17 $18.22 $15.42 $12.51
====== ====== ====== ====== ======
Total return (1.51)% 27.87% 25.67% 23.58% 4.43%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.56% 1.62% 1.67% 1.71% 1.74%+
Net investment loss (0.42)% (0.47)% (0.38)% (0.15)% (0.54)%+
Portfolio turnover 81% 79% 81% 94% 79%
Net assets at end of period (000
omitted) $563,505 $459,809 $136,032 $25,737 $4,821
**For the period from the inception of Class C, January 3, 1994, through September 30, 1994.
+Annualized.
++Not annualized.
+++Per share amount was less than $0.01.
#Per share data are 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.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1998 1997***
- ------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $22.75 $18.34
------ ------
Income from investment operations# -
Net investment income $ 0.13 $ 0.07
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.31) 4.34
------ ------
Total from investment operations $(0.18) $ 4.41
------ ------
$
Less distributions declared to shareholders from net realized gain
on investments and foreign currency transactions $(1.05) --
------ ------
Net asset value - end of period $21.52 $22.75
====== ======
Total return (0.55)% 24.05%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.56% 0.63%+
Net investment income 0.57% 0.51%+
Portfolio turnover 81% 79%
Net assets at end of period (000 omitted) $17,551 $19,400
*** For the period from the inception of Class I, January 2, 1997, through September 30, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<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 reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value. 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 results 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 discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend payments received in additional securities are
recorded on the ex-dividend date in an amount equal to the value of the security
on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Fund. 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.
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 net realized gains. During
the year ended September 30, 1998, $6,416,936 and $2,666,034, respectively, were
reclassified to accumulated net investment loss and paid-in capital from
accumulated net realized gain on investments and foreign currency transactions
due to differences between book and tax accounting for net investment losses and
foreign 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 multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund 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. Class B shares will convert to Class A
shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. For the
fiscal year ended September 30, 1998 the management fee was computed daily and
paid monthly at the following annual rates:
BASED ON AVERAGE NET ASSETS BASED ON GROSS INCOME
- ---------------------------------------- ------------------------------------
First $100 million 0.40% First $2 million 5.00%
Next $400 million 0.32% Next $8 million 4.00%
In excess of $500 million 0.288% In excess of $10 million 3.60%
Effective November 1, 1998 the gross income component of the management fee
will be eliminated, and the management fee will be computed daily and paid
monthly at the rate of 0.43% of the average daily net assets of the Fund.
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
$39,556 for the year ended September 30, 1998.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee
at the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$1,982,171 for the year ended September 30, 1998, 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 paid 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 and 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. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $358,710 for the year ended September 30,
1998. Fees incurred under the distribution plan during the year ended September
30, 1998, were 0.35% 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 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 $54,893 and $5,073 for Class B and Class C shares, respectively, for
the year ended September 30, 1998. Fees incurred under the distribution plan
during the year ended September 30, 1998, were 1.00% of average daily net assets
attributable to both Class B and Class C shares.
Certain Class A shares and Class C shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months following
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. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended September 30,
1998, were $32,486, $2,772,815, and $136,727 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
0.1125%. Prior to January 1, 1998, the fee was calculated as a percentage of the
average daily net assets at an effective annual rate of 0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$5,299,368,319 and $4,211,521,785, respectively.
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 $4,912,516,016
--------------
Gross unrealized appreciation $ 843,095,282
Gross unrealized depreciation (347,594,181)
--------------
Net unrealized appreciation $ 495,501,101
==============
(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 SEPTEMBER 30, 1998 YEAR ENDED SEPTEMBER 30, 1997
------------------------------------ ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 83,102,457 $1,939,622,831 65,650,680 $1,306,495,417
Shares issued to
shareholders in
reinvestment of
distributions 4,489,534 91,779,609 2,821,097 52,146,730
Shares transferred to Class
I -- -- (807,081) (14,801,865)
Shares reacquired (62,877,919) (1,467,034,354) (23,091,507) (461,271,501)
----------- -------------- ---------- --------------
Net increase 24,714,072 $ 564,368,086 44,573,189 $ 882,568,781
=========== ============== ========== ==============
<CAPTION>
Class B Shares
YEAR ENDED SEPTEMBER 30, 1998 YEAR ENDED SEPTEMBER 30, 1997
------------------------------------ ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 39,061,924 $ 885,791,000 54,545,061 $1,060,979,848
Shares issued to
shareholders in
reinvestment of
distributions 3,258,962 65,159,056 1,931,398 35,055,000
Shares reacquired (19,219,913) (433,712,058) (9,937,744) (194,950,157)
----------- -------------- ---------- --------------
Net increase 23,100,973 $ 517,237,998 46,538,715 $ 901,084,691
=========== ============== ========== ==============
<CAPTION>
Class C Shares
YEAR ENDED SEPTEMBER 30, 1998 YEAR ENDED SEPTEMBER 30, 1997
------------------------------------ ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 11,258,935 $ 255,375,767 15,371,511 $ 299,397,595
Shares issued to
shareholders in
reinvestment of
distributions 630,442 12,602,429 345,098 6,266,936
Shares reacquired (5,685,657) (128,214,722) (2,445,437) (48,012,155)
----------- -------------- ---------- --------------
Net increase 6,203,720 $ 139,763,474 13,271,172 $ 257,652,376
=========== ============== ========== ==============
<CAPTION>
Class I Shares
YEAR ENDED SEPTEMBER 30, 1998 PERIOD ENDED SEPTEMBER 30, 1997*
------------------------------------ -------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 118,387 $ 2,814,464 140,144 $ 2,789,802
Shares transferred from
Class A -- -- 807,081 14,801,865
Shares issued to
shareholders in
reinvestment of
distributions 38,865 793,621 -- --
Shares reacquired (194,599) (4,432,648) (94,466) (1,904,947)
----------- -------------- ---------- --------------
Net increase (decrease) (37,347) $ (824,563) 852,759 $ 15,686,720
=========== ============== ========== ==============
* For the period from the inception of Class I, January 2, 1997, through September 30, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. 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. During the period, the maximum
amount outstanding was $78.6 million, and $0 was outstanding at September 30,
1998. Interest expense incurred on the borrowings amounted to $67,865 for the
year ended September 30, 1998, and the weighted average interest rate on these
borrowings was 8.5%. The commitment fee allocated to the Fund for the year ended
September 30, 1998 was $43,231.
(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
transactions in the securities of these issuers during the year ended September
30, 1998, is set forth below:
<TABLE>
<CAPTION>
ACQUISITION
BEGINNING ------------------- ENDING DIVIDEND ENDING
AFFILIATE SHARES SHARES COST SHARES INCOME VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Newport News Shipbuilding, Inc. 1,683,500 170,200 $4,226,590 1,853,700 $280,520 $49,702,331
</TABLE>
(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 September 30, 1998,
the Fund owned the following restricted securities (constituting 0.24% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933. The Fund does not have the right to demand that such securities be
registered. The value of these securities is determined by valuations furnished
by dealers or by a pricing service, or if not available, are valued at fair
value as determined in good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
DATE OF SHARE
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jarvis Hotels PLC 6/21/96 - 8/17/98 7,179,295 $19,120,401 $12,925,670
</TABLE>
<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, 1998, the related statement
of operations for the year then ended, the statement of changes in net assets
for the years ended September 30, 1998, and 1997, and the financial highlights
for each of the years in the ten-year period ended September 30, 1998. 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, 1998 by correspondence with 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, 1998, 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 6, 1998
<PAGE>
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- -------------------------------------------------------------------------------
IN JANUARY 1999, SHAREHOLDERS WILL BE MAILED A FORM 1099 REPORTING THE FEDERAL
TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR 1998.
THE FUND HAS DESIGNATED $119,559,108 AS A CAPITAL GAIN DIVIDEND.
----------------------------------------
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.
<PAGE>
MFS(R) RESEARCH FUND
<TABLE>
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until
1991), MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Peter G. Harwood - Private Investor
CUSTODIAN
J. Atwood Ives - Chairman and Chief State Street Bank and Trust Company
Executive Officer, Eastern Enterprises
(diversified services company) AUDITORS
Deloitte & Touche LLP
Lawrence T. Perera - Partner, Hemenway
& Barnes (attorneys) INVESTOR INFORMATION For MFS stock and
bond market outlooks, call toll free:
William J. Poorvu - Adjunct Professor, 1-800-637-4458 anytime from a
Harvard University Graduate School of touch-tone telephone.
Business Administration
For information on MFS mutual funds,
Charles W. Schmidt - Private Investor call your financial adviser or, for an
information kit, call toll free:
Arnold D. Scott* - Senior Executive 1-800-637-2929 any business day from 9
Vice President, Director, and a.m. to 5 p.m. Eastern time (or leave a
Secretary, MFS Investment Management message anytime).
Jeffrey L. Shames* - Chairman, Chief INVESTOR SERVICE
Executive Officer, and Director, MFS MFS Service Center, Inc.
Investment Management P.O. Box 2281
Boston, MA 02107-9906
Elaine R. Smith - Independent
Consultant David B. Stone - Chairman For general information, call toll
and Director, North American Management free: 1-800-225-2606 any business day
Corp. (investment advisers) from 8 a.m. to 8 p.m. Eastern time.
INVESTMENT ADVISER For service to speech- or
Massachusetts Financial Services Company hearing-impaired, call toll free:
500 Boylston Street 1-800-637-6576 any business day from 9
Boston, MA 02116-3741 a.m. to 5 p.m. Eastern time. (To use
this service, your phone must be
DISTRIBUTOR equipped with a Telecommunications
MFS Fund Distributors, Inc. Device for the Deaf.)
500 Boylston Street
Boston, MA 02116-3741 For share prices, account balances, and
exchanges, call toll free:
DIRECTOR OF EQUITY RESEARCH 1-800-MFS-TALK (1-800-637-8255) anytime
Kevin R. Parke* from a touch-tone telephone.
TREASURER WORLD WIDE WEB
W. Thomas London* www.mfs.com
Assistant Treasurers
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
----------------
MFS(R) RESEARCH FUND Bulk Rate
U.S. Postage
[Logo]M F S(R) Paid
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) ----------------
500 Boylston Street
Boston, MA 02116-3741
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MFR-2 11/98 484M 14/214/814
