<PAGE>
[Logo] MFS(SM)
INVESTMENT MANAGEMENT
WE INVENTED THE MUTUAL FUND[SM]
MFS(R) RESEARCH FUND
SEMIANNUAL REPORT O MARCH 31, 1998
NOW TWO MFS IRA CHOICES (see page 32)
<PAGE>
IN MEMORIAM
A. KEITH BRODKIN
1935 - 1998
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MFS INVESTMENT MANAGEMENT(SM)
[Photo of A. Keith Brodkin] On February 2, 1998, Keith Brodkin, a friend and
leader to everyone at MFS, died unexpectedly at
age 62. His thoughtful letters to shareholders on
the markets and economy have been an integral
part of MFS shareholder reports like this one for
many years.
Keith joined MFS in 1970 as the firm's first
fixed-income manager, managing the bond portion
of MFS(R) Total Return Fund. He went on to manage our first pure bond fund,
MFS(R) Bond Fund, when it was introduced in 1974, and he was considered a
pioneer in the art of active bond management.
Keith was named President and Chief Investment Officer of MFS in 1987 and
four years later became Chairman and Chief Executive Officer. During his
stewardship, MFS has achieved significant growth in total assets under
management, rising from some $25 billion in 1991 to the over $80 billion
today entrusted to us by three million individual and institutional investors
worldwide. Under Keith's leadership, MFS has carefully but steadily built its
domestic and international investment capabilities through the introduction
of a range of new products and a still-growing staff that now numbers over
100 equity and fixed-income professionals.
Throughout his career, Keith was very active in a wide range of charitable
endeavors. He is survived by his wife and three children.
His leadership, friendship, and wise counsel will be sorely missed.
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 2
A Discussion with the Director of Research ................................ 4
Fund Facts ................................................................ 7
Performance Summary ....................................................... 7
Portfolio Concentration ................................................... 9
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 24
MFS Investment Opportunities .............................................. 30
The MFS Family of Funds(R) ................................................ 31
The MFS(R) Roth IRA ....................................................... 32
Trustees and Officers ..................................................... 33
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HIGHLIGHTS
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o FOR THE SIX MONTHS ENDED MARCH 31, 1998, CLASS A SHARES OF THE FUND PROVIDED
A TOTAL RETURN AT NET ASSET VALUE OF 13.90%, CLASS B SHARES 13.49%, CLASS C
SHARES 13.56%, AND CLASS I SHARES 14.10%. (SEE PERFORMANCE SUMMARY FOR MORE
INFORMATION.)
o WHILE THE FUND'S PERFORMANCE WAS HINDERED IN THE FOURTH QUARTER OF 1997, IN
PART BY CONCERNS ABOUT POSSIBLE EFFECTS OF THE ASIAN TURMOIL, ITS PERFORMANCE
WAS HELPED IN THE FIRST QUARTER OF 1998 BY A REBOUND IN ITS U.S. HOLDINGS,
PARTICULARLY IN TECHNOLOGY STOCKS.
o THE FUND'S LARGEST SECTOR IS FINANCIAL SERVICES, AN INDUSTRY THAT CONTINUES
TO BENEFIT FROM CONSOLIDATION AND RESTRUCTURING AND MANY STOCKS OF WHICH ARE
SELLING AT DISCOUNTS TO THE OVERALL MARKET.
o THERE ARE NOW 32 ANALYSTS SELECTING STOCKS FOR THE FUND, INCLUDING ONE IN
SINGAPORE AND THREE IN LONDON. THIS MEANS THAT EVEN THOUGH THE PORTFOLIO IS
PRIMARILY MADE UP OF U.S. STOCKS, OUR OVERSEAS ANALYSTS CAN HELP US
UNDERSTAND EACH COMPANY'S GLOBAL POSITION.
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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:
As investment managers we take a long-term view of the world's economies, as
well as of the stock and bond markets, and try to avoid getting caught up in
short-term fluctuations. However, it is hard to ignore unexpected events such as
the Asian economic turmoil or closely watched companies that miss their
quarterly earnings estimates. Given the potential for these events and their
possible impact on major market indices, we think it's important to offer some
perspective about recent market behavior and to let you know what MFS is doing
in an effort to provide you with favorable long-term investment performance.
The most notable recent event affecting investment markets has been the Asian
turmoil, which began in the summer of 1997 as a result of slowing growth rates
in the region and excess speculation in real estate markets. Since then, most
countries in the region have begun to implement the economic and regulatory
restructuring needed to put themselves on a stronger financial foundation. While
it may be a few years before some of these countries return to solid economic
footing, and while there will probably be a relatively short-term impact on the
U.S. economy, we believe the long-term outlook for the region is quite positive.
The Asian situation has brought home the lesson that major events can quickly
impact investment markets around the world, including those of the United
States. Although U.S. equities have enjoyed a bull market lasting more than 15
years and have continued to set records in the first few months of 1998, there
have been brief bouts of volatility associated with the Asian turmoil, as well
as with perceived downturns for certain industries such as technology.
While we believe the long-term outlook for the equity markets is favorable, we
also believe we are overdue for a market correction in which prices will remain
relatively flat or decline, possibly for an extended period of time. Since no
one can predict market cycles, that makes it that much more important to find
companies that can keep growing in the face of the occasional downturn and even
gain market share. For us, this means using original, bottom-up research to
examine each company's earnings potential and position as well as the overall
prospects for its industry. To that end, MFS continues to increase the research
support available to portfolio managers of MFS funds.
On the fixed-income side, MFS uses active portfolio management based on
extensive research and credit analysis to reduce the potential for price
declines and enhance the opportunity for price appreciation. For both equity and
fixed-income managers, this means visiting and meeting with thousands of
companies and issuers of credit every year, as well as attending many
presentations and closely following sources of industry research.
We believe this approach, based on thorough research, teamwork, innovative
thinking, and the free exchange of ideas, is the best way to get the most
performance for shareholders in MFS funds -- in any market environment.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management
April 14, 1998
JEFFREY L. SHAMES, A GRADUATE OF WESLEYAN UNIVERSITY AND THE MASSACHUSETTS
INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT, JOINED MFS IN 1983. AFTER
FOUR YEARS AS AN INDUSTRY ANALYST AND PORTFOLIO MANAGER, HE WAS NAMED CHIEF
EQUITY OFFICER IN 1987 AND PRESIDENT AND A MEMBER OF THE BOARD OF DIRECTORS IN
1993. MR. SHAMES WAS APPOINTED CHAIRMAN AND CHIEF EXECUTIVE OFFICER IN FEBRUARY
1998.
<PAGE>
A DISCUSSION WITH THE DIRECTOR OF RESEARCH
[Photo of Kevin R. Parke]
Kevin R. Parke
For the six months ended March 31, 1998, Class A shares of the Fund provided a
total return of 13.90%, Class B shares 13.49%, Class C shares 13.56%, and Class
I shares 14.10%. These returns include the reinvestment of distributions but
exclude the effects of any sales charges and compare to a 17.22% 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.
Q. WHAT DO YOU SEE AS SOME REASONS FOR THE FUND'S RECENT UNDERPERFORMANCE?
A. We had a tough fourth quarter in 1997 but a good first quarter in 1998. In
the fourth quarter, the Asian crisis started to erupt and affected people's
confidence in earnings estimates. The S&P 500 was up less than 3% in that
quarter, but the average utility stock was up about 19%, which showed a real
flight to safety, to companies with steady earnings. Also, technology was
weak; the average technology stock was down 13% in the fourth quarter, which
obviously affected the Fund. Plus, Oracle, one of the Fund's major holdings,
announced in December that it was going to miss its earnings estimates.
Finally, while the S&P 500 was up over 17% in the past six months, the
average pharmaceutical stock was up 32%, but we had been, and continue to
be, underweighted in pharmaceuticals.
Q. WHY?
A. Mostly it's because we believe their valuations are too high. We think they
are good companies with decent growth rates, but some of the largest
pharmaceutical stocks are now trading at 40 times earnings, so we've been
cautious about their valuations.
Q. AND WHAT HAPPENED TO MAKE A BETTER FIRST QUARTER IN 1998?
A. The big boost here came from technology. While the S&P 500 rose almost 14%
in the first quarter, the average technology stock was up 21%, so the Fund's
overweighting in technology helped performance. We also benefited from the
strong performance of some of our other holdings, such as Tyco, a
conglomerate that we've owned for a while.
Q. HOW WOULD YOU DESCRIBE THE ECONOMIC AND INVESTMENT ENVIRONMENT OF THE PAST
SIX MONTHS?
A. We don't think the financial environment has changed much, but people seem
to have gone from being panicked about currency problems and Asia to
understanding that the Asian turmoil, while hurting commodity- oriented
companies, could help other companies because of lower inflation and costs.
Now, the markets are trying to differentiate between the haves and
have-nots. The have-nots are companies that sell commodities such as energy,
chemicals, and paper, because demand for all of these products is down.
Meanwhile, the value-added companies, whether in technology, financial
services, or consumer nondurables, have had pretty steady demand despite
Asia's problems.
Q. YOU MENTIONED FINANCIAL SERVICES, WHICH IS THE FUND'S LARGEST SECTOR. WHY DO
THE ANALYSTS LIKE IT?
A. It is still probably the most fragmented business in the United States. Even
with all the mergers that have been announced recently, we still think there
is a lot of restructuring yet to come. Meanwhile, these stocks are still
selling at discounts to the S&P 500. We think they have good upside
potential, and they're very shareholder-friendly. Particularly in the
insurance industry, a sector in which we're most overweighted, we see a
great deal of restructuring, consolidation, and share buybacks.
Q. AS YOU SAID, TECHNOLOGY HAS DONE WELL. WHAT'S GOING ON THERE?
A. In spite of temporary blips for some companies, growth in demand for
technology is as strong as ever, particularly in the software and systems
companies, as opposed to the commodity-type companies. Our top technology
holdings include Microsoft, Oracle, Compuware, and Cadence Design Systems.
All of these companies have proprietary products and global opportunities.
Q. THE THIRD LARGEST SECTOR IS CONSUMER STAPLES. WHAT MAKES THIS SECTOR
ATTRACTIVE?
A. Here, we're emphasizing companies that have global opportunities. Many
people think that being global is a negative because of what's going on in
Asia, but it's almost always a positive because there's very little volume
growth in the United States for most of these companies. Top holdings here
include Gillette, Colgate, Procter & Gamble, and Kimberly Clark.
Q. AND HEALTH CARE?
A. As I said, we remain underweighted in pharmaceuticals because of our
valuation concerns. Our top two stocks there are Bristol-Myers Squibb and
American Home Products. But we also see good opportunities in medical
services and health care, in hospitals such as HealthSouth and in health
maintenance organizations such as United Healthcare.
Q. COULD YOU TALK ABOUT ANY HOLDINGS THAT HAVE PERFORMED BETTER THAN EXPECTED?
A. Tyco has performed very well over the past six months. This is an industrial
conglomerate that continues to make good acquisitions, buying companies such
as Kendall Health Care Products and ADT. The company also has a strong
management team, and its base business is growing at double-digit annual
rates.
Q. NOW, WHAT ABOUT SOME STOCKS THAT HAVEN'T PERFORMED AS WELL AS YOU WOULD HAVE
LIKED?
A. Browning-Ferris continues to be weaker than expected, while our energy
stocks have underperformed due to lower oil prices. Philip Morris has
continued to disappoint; it's really mired in political issues right now.
Q. HOW MANY ANALYSTS ARE SELECTING STOCKS FOR THE FUND NOW?
A. We have 32 analysts. We've opened an office in Singapore, and we now have an
analyst there as well as three people in London. So our research
capabilities, both international and domestic, continue to grow, which means
we can look at all industries on a global basis. Even though this is
basically a U.S. portfolio, having analysts overseas lets us see how each
company is positioned globally.
Q. LOOKING AHEAD, WHAT KIND OF MARKET OR ECONOMIC ENVIRONMENT DO YOU SEE, AND
HOW MIGHT THIS AFFECT SOME OF THE ANALYSTS' INVESTMENTS?
A. We think there's a possibility of a slowdown in the second half of the year.
We have a stronger dollar, and that, combined with the weaker economies in
Asia, has to affect the U.S. economy at some point. The valuation levels are
quite high for the overall market, so this is a time to be really picky
about what you own because the market's not cheap.
/s/ Kevin R. Parke
Kevin R. Parke
Director of Research
The committee of MFS research analysts is responsible for the day-to-day
management of the Fund under the general supervision of Mr. Parke.
The opinions expressed in this report are those of the Director of 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.
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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: $5.8 BILLION NET ASSETS AS OF MARCH 31, 1998
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, 1998
CLASS A INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +13.90% +43.57% +123.27% +182.33% +430.07%
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Average Annual Total Return -- +43.57% + 30.70% + 23.07% + 18.15%
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SEC Results -- +35.32% + 28.15% + 21.62% + 17.45%
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CLASS B INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +13.49% +42.57% +118.64% +173.27% +413.27%
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Average Annual Total Return -- +42.57% + 29.79% + 22.27% + 17.77%
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SEC Results -- +38.57% + 29.19% + 22.07% + 17.77%
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CLASS C INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +13.56% +42.64% +118.99% +174.17% +414.58%
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Average Annual Total Return -- +42.64% + 29.86% + 22.35% + 17.80%
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SEC Results -- +41.64% + 29.86% + 22.35% + 17.80%
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CLASS I INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +14.10% +44.05% +124.29% +183.60% +432.32%
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Average Annual Total Return -- +44.05% + 30.90% + 23.18% + 18.20%
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</TABLE>
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.
Peformance 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.
PORTFOLIO CONCENTRATION AS OF MARCH 31, 1998
LARGEST STOCK SECTORS
Retailing 7.0%
Health Care 11.0%
Consumer Staples 12.7%
Technology 18.7%
Financial Services 21.2%
Other Sectors 29.4%
For a more complete breakdown, refer to the Portfolio of Investments.
TOP 10 STOCK HOLDINGS
MICROSOFT CORP. 3.4% UNITED TECHNOLOGIES CORP. 2.0%
Computer software and systems company Aerospace, defense, and building
equipment company
BRISTOL-MYERS SQUIBB CO. 2.7%
Pharmaceutical products company GILLETTE CO. 1.9%
Personal care and office
TYCO INTERNATIONAL LTD. 2.5% products manufacturer
Fire protection, packaging, and electronic
equipment manufacturer CONSECO, INC 1.9%
Diversified insurance company
CENDANT CORP. 2.2%
Hotel, real estate, and consumer services COLGATE PALMOLIVE CO. 1.9%
companies franchiser Cosmetics and toiletries company
UNITED HEALTHCARE 2.1% BRITISH PETROLEUM PLC 1.8%
Health maintenance organization Oil exploration and production
company
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - March 31, 1998
Stocks - 98.2%
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ISSUER SHARES VALUE
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U.S. Stocks - 90.5%
Aerospace - 2.8%
Lockheed-Martin Corp. 431,900 $ 48,588,750
United Technologies Corp. 1,226,000 113,175,125
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$ 161,763,875
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Airlines - 0.6%
AMR Corp.* 122,600 $ 17,554,787
US Airways Group Inc.* 236,600 17,537,975
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$ 35,092,762
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Automotive - 0.6%
Ford Motor Co. 502,600 $ 32,574,763
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Banks and Credit Companies - 6.7%
BankBoston Corp. 341,120 $ 37,608,480
Chase Manhattan Corp. 496,604 66,979,464
Comerica, Inc. 575,600 60,905,675
Corestates Financial Corp. 590,600 53,006,350
Fleet Financial Group, Inc. 694,600 59,084,413
National City Corp. 681,300 49,947,806
PNC Bank Corp. 617,500 37,011,406
Wells Fargo & Co. 68,300 22,624,375
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$ 387,167,969
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Building - 0.5%
American Standard Cos., Inc.* 662,400 $ 30,387,600
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Business Machines - 1.0%
Sun Microsystems, Inc.* 1,428,700 $ 59,603,578
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Business Services - 0.5%
AccuStaff, Inc.* 905,700 $ 31,246,650
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Chemicals - 2.2%
Air Products & Chemicals, Inc. 527,600 $ 43,724,850
Cambrex Corp. 230,400 11,606,400
Cytec Industries, Inc.* 1,025,200 56,450,075
Sigma-Aldrich Corp. 466,400 17,373,400
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$ 129,154,725
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Computer Hardware - Systems - 0.3%
EMC Corp.* 534,200 $ 20,199,438
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Computer Software - Personal Computers - 4.2%
Electronic Arts, Inc.* 1,119,100 $ 52,527,756
Microsoft Corp.* 2,147,400 192,192,300
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$ 244,720,056
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Computer Software - Systems - 6.8%
Adobe Systems, Inc. 513,000 $ 23,181,188
BMC Software, Inc.* 796,100 66,723,131
Cadence Design Systems, Inc.* 2,012,950 69,698,394
Computer Associates International, Inc. 943,075 54,462,581
Compuware Corp.* 1,389,000 68,581,875
Oracle Corp.* 2,652,587 83,722,277
Synopsys, Inc.* 811,600 26,579,900
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$ 392,949,346
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Consumer Goods and Services - 12.4%
Black & Decker Corp. 573,000 $ 30,404,813
Clorox Co. 470,700 40,333,106
Colgate-Palmolive Co. 1,230,400 106,583,400
Dial Corp. 475,100 11,372,706
Gillette Co. 921,300 109,346,794
Kimberly-Clark Corp. 1,451,400 72,751,425
Philip Morris Cos., Inc. 2,297,900 95,793,706
Procter & Gamble Co. 926,000 78,131,250
Revlon, Inc., "A"* 641,800 31,929,550
Tyco International Ltd. 2,626,874 143,492,992
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$ 720,139,742
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Containers - 0.6%
Stone Container Corp.* 2,775,000 $ 34,687,500
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Electrical Equipment - 0.5%
Cooper Industries, Inc. 472,900 $ 28,107,994
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Electronics - 1.2%
Analog Devices, Inc.* 698,399 $ 23,221,767
Teradyne, Inc.* 1,207,000 48,355,437
--------------
$ 71,577,204
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Entertainment - 1.2%
Chancellor Media Corp.* 158,900 $ 7,289,538
Clear Channel Communications, Inc.* 283,800 27,812,400
Harrah's Entertainment, Inc.* 202,100 4,964,081
Jacor Communications, Inc.* 514,300 30,343,700
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$ 70,409,719
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Financial Institutions - 2.7%
Associates First Capital Corp., "A" 265,500 $ 20,974,500
CIT Group, Inc., "A"* 303,300 9,895,162
Federal National Mortgage Assn. 819,700 51,846,025
Merrill Lynch & Co., Inc. 242,300 20,110,900
Morgan Stanley, Dean Witter, Discover & Co. 382,600 27,881,975
Union Planters Corp. 444,037 27,613,551
--------------
$ 158,322,113
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Food and Beverage Products - 2.4%
Coca-Cola Co. 740,500 $ 57,342,469
Corn Products International, Inc.* 818,500 29,363,687
Earthgrains Co. 468,500 20,701,844
McCormick & Co., Inc. 1,036,500 33,427,125
--------------
$ 140,835,125
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Insurance - 9.4%
Allstate Corp. 444,410 $ 40,857,944
Chubb Corp. 492,400 38,591,850
CIGNA Corp. 278,100 57,010,500
Conseco, Inc. 1,929,400 109,252,275
FPIC Insurance Group, Inc.* 162,800 5,250,300
Hartford Financial Services Group, Inc. 509,000 55,226,500
Life Re Corp. 150,400 11,092,000
Lincoln National Corp. 801,200 68,001,850
Nationwide Financial Services, Inc., "A" 377,800 16,387,075
PennCorp Financial Group, Inc. 155,715 4,496,271
Reliastar Financial Corp. 952,663 43,882,039
Torchmark Corp. 134,200 6,148,038
Transamerica Corp. 49,400 5,755,100
Travelers Group, Inc. 1,391,700 83,502,000
--------------
$ 545,453,742
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Medical and Health Products - 5.4%
American Home Products Corp. 893,400 $ 85,208,025
Boston Scientific Corp.* 1,076,540 72,666,450
Bristol-Myers Squibb Co. 1,477,100 154,079,994
--------------
$ 311,954,469
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Medical and Health Technology and Services - 5.5%
Cardinal Health, Inc. 410,800 $ 36,227,425
HBO & Co. 1,348,200 81,397,575
HealthSouth Corp.* 2,095,668 58,809,683
Tenet Healthcare Corp.* 623,630 22,645,565
United Healthcare Corp. 1,828,500 118,395,375
--------------
$ 317,475,623
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Metals and Minerals - 0.4%
Minerals Technologies, Inc. 421,300 $ 21,222,988
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Oil Services - 0.6%
Diamond Offshore Drilling, Inc. 583,800 $ 26,489,925
Noble Drilling Corp.* 301,700 9,220,706
--------------
$ 35,710,631
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Oils - 3.4%
Atlantic Richfield Co. 355,100 $ 27,919,738
Mobil Corp. 533,800 40,902,425
Texaco, Inc. 711,700 42,879,925
USX-Marathon Group 2,212,655 83,251,144
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$ 194,953,232
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Pollution Control - 0.7%
Browning Ferris Industries, Inc. 890,200 $ 29,042,775
Waste Management, Inc. 450,400 13,877,950
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$ 42,920,725
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Railroads - 0.7%
Wisconsin Central Transportation Corp.* 1,433,700 $ 40,367,616
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Restaurants and Lodging - 2.7%
Cendant Corp.* 3,193,216 $ 126,531,184
Hilton Hotels Corp. 721,200 22,988,250
Promus Hotel Corp.* 195,041 9,313,208
--------------
$ 158,832,642
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Special Products and Services - 0.8%
Newport News Shipbuilding, Inc.++ 1,767,000 $ 47,156,812
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Stores - 5.1%
AutoZone, Inc.* 405,000 $ 13,719,375
CVS Corp. 851,100 64,258,050
Gymboree Corp.* 277,450 7,179,019
Home Depot, Inc. 966,200 65,158,112
Nordstrom, Inc. 509,500 32,512,469
Office Depot, Inc.* 1,312,400 40,848,450
Rite Aid Corp. 2,115,100 72,442,175
--------------
$ 296,117,650
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Supermarkets - 1.8%
Meyer (Fred), Inc.* 612,000 $ 28,266,750
Safeway, Inc.* 1,996,800 73,756,800
--------------
$ 102,023,550
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Telecommunications - 5.4%
Aspect Telecommunications Corp.* 2,292,900 $ 61,478,381
Cisco Systems, Inc.* 938,750 64,187,031
Intermedia Communications, Inc.* 309,300 24,628,013
MCI Communications Corp. 671,700 33,249,150
Sprint Corp. 880,963 59,630,183
WorldCom, Inc.* 1,611,740 69,405,554
--------------
$ 312,578,312
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Utilities - Electric - 0.5%
CalEnergy Co., Inc.* 952,300 $ 26,902,475
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Utilities - Gas - 0.9%
Columbia Gas System, Inc. 265,400 $ 20,634,850
KN Energy, Inc. 529,000 31,244,062
--------------
$ 51,878,912
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Total U.S. Stocks $5,254,489,538
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Foreign Stocks - 7.7%
Bermuda - 0.1%
Exel Ltd., (Insurance) 74,800 $ 5,797,000
- --------------------------------------------------------------------------------
Brazil - 0.5%
Companhia Cervejaria Brahma, ADR (Beverages) 1,913,700 $ 29,662,350
- --------------------------------------------------------------------------------
France - 1.3%
Alcatel Alsthom Compagnie, ADR
(Telecommunications) 1,973,600 $ 74,996,800
- --------------------------------------------------------------------------------
Germany - 0.1%
Henkel KGaA (Chemicals) 120,500 $ 8,762,214
- --------------------------------------------------------------------------------
Hong Kong - 0.3%
Hutchison Whampoa Ltd. (Conglomerate) 2,629,000 $ 18,492,099
- --------------------------------------------------------------------------------
Japan - 1.3%
Canon, Inc. (Office Equipment) 1,109,000 $ 25,023,164
Sony Corp. (Electronics) 566,600 47,995,352
--------------
$ 73,018,516
- --------------------------------------------------------------------------------
Netherlands - 1.0%
ING Groep N.V. (Financial Services)* 987,040 $ 56,038,216
- --------------------------------------------------------------------------------
Sweden - 1.0%
Skandia Forsakrings AB (Insurance) 865,900 $ 56,321,336
- --------------------------------------------------------------------------------
United Kingdom - 2.1%
British Petroleum PLC, ADR (Oils) 1,163,287 $ 100,115,388
Jarvis Hotels PLC (Restaurants and Lodging)+ 7,234,295 20,364,603
--------------
$ 120,479,991
- --------------------------------------------------------------------------------
Total Foreign Stocks $ 443,568,522
- --------------------------------------------------------------------------------
Total Stocks (Identified Cost, $4,274,017,272) $5,698,058,060
- --------------------------------------------------------------------------------
Short-Term Obligations - 1.8%
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- -------------------------------------------------------------------------------
Federal Home Loan Bank, due 4/03/98 - 4/08/98 $17,100 $ 17,085,774
Federal Home Loan Mortgage Corp., due 4/02/98
- 4/30/98 82,430 82,239,576
Federal National Mortgage Assn., due 4/27/98 330 328,718
General Electric Co., due 4/01/98 7,100 7,100,000
- -------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 106,754,068
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $4,380,771,340) $5,804,812,128
Other Assets, Less Liabilities 658,147
- -------------------------------------------------------------------------------
Net Assets - 100.0% $5,805,470,275
- -------------------------------------------------------------------------------
* 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.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
MARCH 31, 1998
- ------------------------------------------------------------------------------
Assets:
Investments, at value:
Unaffiliated issuers (identified cost, $4,351,716,863) $5,757,655,316
Affiliated issuers (identified cost, $29,054,477) 47,156,812
--------------
Total investments, at value
(identified cost, $4,380,771,340) $5,804,812,128
Cash 1,294
Receivable for investments sold 20,706,875
Receivable for Fund shares sold 24,937,842
Dividends and interest receivable 4,973,645
Other assets 20,392
--------------
Total assets $5,855,452,176
--------------
Liabilities:
Payable for investments purchased $ 42,452,170
Payable for Fund shares reacquired 6,182,344
Payable to affiliates -
Management fee 150,242
Shareholder servicing agent fee 53,037
Distribution and service fee 321,561
Administrative fee 3,065
Accrued expenses and other liabilities 819,482
--------------
Total liabilities $ 49,981,901
--------------
Net assets $5,805,470,275
==============
Net assets consist of:
Paid-in capital $4,238,234,268
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 1,424,023,999
Accumulated undistributed net realized gain on
investments and foreign currency transactions 149,550,636
Accumulated net investment loss (6,338,628)
--------------
Total $5,805,470,275
==============
Shares of beneficial interest outstanding 238,308,434
===========
Class A shares:
Net asset value per share
(net assets of $2,808,859,507 / 113,974,178 shares of
beneficial interest outstanding) $24.64
======
Offering price per share (100 / 94.25) $26.14
======
Class B shares:
Net asset value and offering price per share
(net assets of $2,384,677,059 / 98,972,384 shares of
beneficial interest outstanding) $24.09
======
Class C shares:
Net asset value and offering price per share
(net assets of $591,839,255 / 24,547,919 shares of
beneficial interest outstanding) $24.11
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $20,094,454 / 813,953 shares of
beneficial interest outstanding) $24.69
======
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 (Unaudited)
- --------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------
Net investment income (loss):
Income -
Dividends $ 22,171,325
Interest 3,560,509
Foreign taxes withheld (241,673)
------------
Total investment income $ 25,490,161
------------
Expenses -
Management fee $ 8,096,808
Trustees' compensation 64,946
Shareholder servicing agent fee 2,954,135
Distribution and service fee (Class A) 4,177,292
Distribution and service fee (Class B) 9,968,948
Distribution and service fee (Class C) 2,472,132
Administrative fee 163,792
Custodian fee 563,264
Printing 110,977
Postage 336,707
Auditing fees 16,664
Legal fees 277
Miscellaneous 2,004,752
------------
Total expenses $ 30,930,694
Fees paid indirectly (92,416)
------------
Net expenses $ 30,838,278
------------
Net investment loss $ (5,348,117)
------------
Realized and unrealized gain on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $173,728,505
Foreign currency transactions (138,678)
------------
Net realized gain on investments and foriegn
currency transactions $173,589,827
------------
Change in unrealized appreciation (depreciation) -
Investments $526,198,119
Translation of assets and liabilities in foreign
currencies (10,729)
------------
Net unrealized gain on investments $526,187,390
------------
Net realized and unrealized gain on investments
and foreign currency $699,777,217
------------
Increase in net assets from operations $694,429,100
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
(UNAUDITED)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (5,348,117) $ (4,520,781)
Net realized gain on investments and
foreign currency transactions 173,589,827 185,554,597
Net unrealized gain on investments and foreign
currency translation 526,187,390 623,455,845
-------------- --------------
Increase in net assets from operations $ 694,429,100 $ 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 $ 773,202,800 $2,056,992,568
-------------- --------------
Total increase in net assets $1,264,282,833 $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 $6,338,628 and $990,511,
respectively) $5,805,470,275 $4,541,187,442
============== ==============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ---------------------------------------------------------------------------
MARCH 31, 1998 1997 1996 1995 1994 1993
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
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) $ 0.01 $ 0.04 $ 0.06 $ 0.08 $ 0.02 $ 0.11
Net realized and
unrealized gain on
investments and foreign
currency transactions 2.93 5.07 3.88 2.99 1.01 3.15
------ ------ ------ ------ ------ ------
Total from investment
operations $ 2.94 $ 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 $24.64 $22.69 $18.53 $15.61 $12.59 $14.47
====== ====== ====== ====== ====== ======
Total return(+) 13.90%++ 28.72% 26.54% 24.49% 7.72% 28.87%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.93%+ 0.96% 0.91% 0.95% 0.91% 0.90%
Net investment income 0.11%+ 0.18% 0.36% 0.58% 0.14% 0.36%
Portfolio turnover 40% 79% 81% 94% 79% 93%
Average commission rate### $ 0.0559 $ 0.0388 $ 0.0269 -- -- --
Net assets at end of period
(000 omitted) $2,808,860 $2,201,849 $972,353 $507,784 $318,170 $294,019
+ Annualized.
++ Not annualized.
# 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.
### Average commission rate is calculated for fiscal years beginning on or after September 1, 1995.
(+) Total return 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 1988
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $12.54
------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.07 $ 0.27 $ 0.36 $ 0.39 $ 0.23
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 1.27 2.21 (1.52) 2.30 (2.19)
------ ------ ------ ------ ------
Total from investment operations $ 1.34 $ 2.48 $(1.16) $ 2.69 $(1.96)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.26) $(0.36) $(0.39) $(0.24)
From net realized gain on investments and
foreign currency transactions (1.00) -- (0.35) (1.01) (0.14)
From paid in capital -- -- 0.00+++ -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.00) $(0.26) $(0.71) $(1.40) $(0.38)
------ ------ ------ ------ ------
Net asset value - end of period $12.18 $11.84 $ 9.62 $11.49 $10.20
====== ====== ====== ====== ======
Total return(+) 11.79% 25.87% (12.73)% 26.91% (15.60)%
Ratios (to average net assets)/
Supplemental data:
Expenses 0.84% 0.95% 0.83% 0.88% 0.86%
Net investment income 0.59% 2.48% 3.21% 3.48% 2.36%
Portfolio turnover 74% 177% 79% 99% 116%
Net assets at end of period
(000 omitted) $240,366 $231,316 $202,377 $251,857 $239,616
+++ The per share amount was less than $0.01.
(+) Total return 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,
SIX MONTHS ENDED --------------------------------------------------------------------------
MARCH 31, 1998 1997 1996 1995 1994 1993**
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
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 $(0.06) $(0.10) $(0.06) $(0.03) $(0.08) $(0.04)
Net realized and unrealized
gain on investments and
foreign currency
transactions 2.87 4.97 3.82 2.96 1.00 0.56
------ ------ ------ ------ ------ ------
Total from investment
operations $ 2.81 $ 4.87 $ 3.76 $ 2.93 $ 0.92 $ 0.52
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $ -- $ -- $ -- $ 0.00+++ $(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 $24.09 $22.16 $18.19 $15.40 $12.50 $14.47
====== ====== ====== ====== ====== ======
Total return 13.49%++ 27.88% 25.59% 23.55% 6.91% 3.73%++
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.58%+ 1.63% 1.66% 1.78% 1.82% 2.33%+
Net investment loss (0.54)%+ (0.49)% (0.37)% (0.21)% (0.65)% (0.89)%+
Portfolio turnover 40% 79% 81% 94% 79% 93%
Average commission rate### $ 0.0559 $ 0.0388 $ 0.0269 $ -- $ -- $ --
Net assets at end of period
(000 omitted) $2,384,677 $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.
### Average commission rate is calculated for fiscal years beginning on or after September 1, 1995.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED -----------------------------------------------------------
MARCH 31, 1998 1997 1996 1995 1994***
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $22.17 $18.22 $15.42 $12.51 $13.18
------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.06) $(0.09) $(0.06) $(0.02) $(0.04)
Net realized and unrealized gain on
investments and foreign currency
transactions 2.88 4.96 3.83 2.96 0.62
------ ------ ------ ------ ------
Total from investment operations $ 2.82 $ 4.87 $ 3.77 $ 2.94 $ 0.58
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ 0.00+++ $ -- $ -- $ --
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 -- 0.00+++ 0.00+++ -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.88) $(0.92) $(0.97) $(0.03) $(1.25)
------ ------ ------ ------ ------
Net asset value - end of period $24.11 $22.17 $18.22 $15.42 $12.51
====== ====== ====== ====== ======
Total return 13.56%++ 27.87% 25.67% 23.58% 4.43%++
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.58%+ 1.62% 1.67% 1.71% 1.74%+
Net investment loss (0.54)%+ (0.47)% (0.38)% (0.15)% (0.54)%+
Portfolio turnover 40% 79% 81% 94% 79%
Average commission rate### $ 0.0559 $ 0.0388 $ 0.0269 $ -- $ --
Net assets at end of period (000 omitted) $591,839 $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.
### Average commission rate is calculated for fiscal years beginning on or after September 1, 1995.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997****
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------
CLASS I
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $22.75 $18.34
------ ------
Income from investment operations# -
Net investment income $ 0.05 $ 0.07
Net realized and unrealized gain on investments and foreign
currency transactions 2.94 4.34
------ ------
Total from investment operations $ 2.99 $ 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 $24.69 $22.75
====== ======
Total return 14.10%++ 24.05%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.58%+ 0.63%+
Net investment income 0.46%+ 0.51%+
Portfolio turnover 40% 79%
Average commission rate $0.0559 $0.0388
Net assets at end of period (000 omitted) $20,094 $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 (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 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 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
discount is amortized or 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 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 custody fee is calculated as a percentage of
the Fund's average daily 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 net 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.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares. The classes of shares 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.
(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 the following annual rates:
BASED ON AVERAGE NET ASSETS BASED ON GROSS INCOME
- -------------------------------------- ----------------------------------
First $100 million 0.40% First $2 million 5.0%
Next $400 million 0.32% Next $8 million 4.0%
In excess of $500 million 0.288% In excess of $10 million 3.6%
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%
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 $16,880 for the six months
ended March 31, 1998.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$990,334 for the six months ended March 31, 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 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 $407,070 for the six months ended March 31,
1998. Fees incurred under the distribution plan during the six months ended
March 31, 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 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 $198,918 and $274,203 for Class B and Class C shares,
respectively, for the six months ended March 31, 1998. Fees incurred under the
distribution plan during the six months ended March 31, 1998, were 1.00% of
average daily net assets attributable to Class B and Class C shares on an
annualized basis.
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
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. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the six months ended March 31,
1998, were $25,343, $1,254,686, and $72,686 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 up to 0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$2,522,779,496 and $1,907,067,836, 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 $4,380,771,340
--------------
Gross unrealized appreciation $1,455,127,707
Gross unrealized depreciation (31,086,919)
--------------
Net unrealized appreciation $1,424,040,788
==============
(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
SIX MONTHS ENDED MARCH 31, 1998 YEAR ENDED SEPTEMBER 30, 1997
----------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 35,183,266 $ 786,334,969 65,650,680 $1,306,495,417
Shares issued to
shareholders in
reinvestment of
distributions 4,444,793 90,718,286 2,821,097 52,146,730
Shares transferred to Class I -- -- (807,081) (14,801,865)
Shares reacquired (22,713,853) (507,585,335) (23,091,507) (461,271,501)
---------- -------------- ---------- --------------
Net increase 16,914,206 $ 369,467,920 44,573,189 $ 882,568,781
========== ============== ========== ==============
<CAPTION>
Class B Shares
SIX MONTHS ENDED MARCH 31, 1998 YEAR ENDED SEPTEMBER 30, 1997
----------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 20,856,302 $ 455,617,865 54,545,061 $1,060,979,848
Shares issued to
shareholders in
reinvestment of
distributions 3,256,591 65,099,747 1,931,398 35,055,000
Shares reacquired (9,088,231) (198,015,865) (9,937,744) (194,950,157)
---------- -------------- ---------- --------------
Net increase 15,024,662 $ 322,701,747 46,538,715 $ 901,084,691
========== ============== ========== ==============
<CAPTION>
Class C Shares
SIX MONTHS ENDED MARCH 31, 1998 YEAR ENDED SEPTEMBER 30, 1997
----------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,481,725 $ 119,435,395 15,371,511 $ 299,397,595
Shares issued to
shareholders in
reinvestment of
distributions 630,456 12,602,805 345,098 6,266,936
Shares reacquired (2,302,609) (50,084,087) (2,445,437) (48,012,155)
---------- -------------- ---------- --------------
Net increase 3,809,572 $ 81,954,113 13,271,172 $ 257,652,376
========== ============== ========== ==============
<CAPTION>
Class I Shares
SIX MONTHS ENDED MARCH 31, 1998 PERIOD ENDED SEPTEMBER 30, 1997*
----------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 44,970 $ 1,005,080 140,144 $ 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 (122,641) (2,719,681) (94,466) (1,904,947)
---------- -------------- ---------- --------------
Net increase (decrease) (38,806) $ (920,980) 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 a $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. The commitment fee allocated to the Fund for the six
months ended March 31, 1998, was $13,736.
(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 six months ended
March 31, 1998, is set forth below:
<TABLE>
<CAPTION>
ACQUISITION
BEGINNING ------------------------------ ENDING DIVIDEND ENDING
AFFILIATE SHARES SHARES COST SHARE INCOME VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Newport News
Shipbuilding, Inc. 1,683,500 83,500 $1,992,256 1,767,000 $139,160 $47,156,812
</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 March 31, 1998, the
Fund owned the following restricted securities (constituting 0.35% 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 supplied
by a pricing service or brokers, or if not available, are valued at fair value
as determined in good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
DESCRIPTION DATE OF ACQUISITION SHARE AMOUNT COST VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jarvis Hotels PLC 6/21/96 - 8/12/97 7,234,295 $19,283,864 $20,364,603
</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.
<PAGE>
MFS(R) RESEARCH FUND
TRUSTEES CUSTODIAN
Richard B. Bailey* - Private Investor; State Street Bank and Trust Company
Former Chairman and Director (until
1991), MFS Investment Management INVESTOR INFORMATION For MFS stock and
bond market outlooks, call toll free:
Peter G. Harwood - Private Investor 1-800-637-4458 anytime from a
touch-tone telephone.
J. Atwood Ives - Chairman and Chief
Executive Officer, Eastern Enterprises For information on MFS mutual funds,
call your financial adviser or, for an
Lawrence T. Perera - Partner, Hemenway information kit, call toll free:
& Barnes 1-800-637-2929 any business day from 9
a.m. to 5 p.m. Eastern time (or leave
William J. Poorvu - Adjunct Professor, a message anytime).
Harvard University Graduate School of
Business Administration INVESTOR SERVICE
MFS Service Center, Inc.
Charles W. Schmidt - Private Investor P.O. Box 2281
Boston, MA 02107-9906
Arnold D. Scott* - Senior Executive
Vice President, Director, and Secretary, For general information, call toll
MFS Investment Management free: 1-800-225-2606 any business day
from 8 a.m. to 8 p.m. Eastern time.
Jeffrey L. Shames* - Chairman, Chief
Executive Officer, and Director, For service to speech- or
MFS Investment Management hearing-impaired, call toll free:
1-800-637-6576 any business day from 9
Elaine R. Smith - Independent Consultant a.m. to 5 p.m. Eastern time. (To use
this service, your phone must be
David B. Stone - Chairman, equipped with a Telecommunications
North American Management Corp. Device for the Deaf.)
(investment advisers)
For share prices, account balances,
INVESTMENT ADVISER and exchanges, call toll free:
Massachusetts Financial Services 1-800-MFS-TALK (1-800-637-8255)
Company anytime from a touch-tone telephone.
500 Boylston Street
Boston, MA 02116-3741 WORLD WIDE WEB
www.mfs.com
DISTRIBUTOR
MFS Fund Distributors, Inc. [DALBAR logo] For the fourth year in a
500 Boylston Street row, MFS earned a #1 ranking in the
Boston, MA 02116-3741 DALBAR, Inc. Broker/Dealer Survey,
Main Office Operations Service Quality
DIRECTOR OF RESEARCH Category. The firm achieved a 3.42
Kevin R. Parke* overall score on a scale of 1 to 4 in
the 1997 survey. A total of 111 firms
TREASURER responded, offering input on the
W. Thomas London* quality of service they received from
29 mutual fund companies nationwide.
ASSISTANT TREASURERS The survey contained questions about
Mark E. Bradley* service quality in 11 categories,
Ellen Moynihan* including "knowledge of operations
James O. Yost* contact," "keeping you informed," and
"ease of doing business" with the
SECRETARY firm.
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
<PAGE>
MFS{R} RESEARCH FUND --------------
BULK RATE
[Graphic omitted] MFS(SM) U.S. POSTAGE
INVESTMENT MANAGEMENT PAID
We invented the mutual fund(SM) MFS
--------------
500 Boylston Street
Boston, MA 02116-3741
[DALBAR Logo]
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MFR-3 5/98 474M 14/214/314/814
