<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
We invented the mutual Fund(R)
MFS(R) HIGH YIELD
OPPORTUNITIES FUND
SEMIANNUAL REPORT O JUNE 30, 1998
[Graphic Omitted]
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Portfolio of Investments .................................................. 7
Financial Statements ...................................................... 11
Notes to Financial Statements ............................................. 15
Trustees and Officers ..................................................... 21
HIGHLIGHTS
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o THE FUND EXPECTS TO ACHIEVE A HIGHER YIELD BY TAKING FULL ADVANTAGE OF
GLOBAL OPPORTUNITIES, INCLUDING THOSE IN EMERGING MARKETS, AS WELL AS OF
DOMESTIC CREDITS THAT ARE A LITTLE FURTHER DOWN THE CREDIT-QUALITY
SPECTRUM.
o WE EXPECT TO HAVE ABOUT 25% OF THE PORTFOLIO IN EMERGING MARKETS, AND
ALTHOUGH THESE MARKETS HAVE GONE THROUGH A LOT OF TURMOIL RECENTLY, WE HAVE
SEVERAL FIXED-INCOME ANALYSTS WHO PERFORM INTENSIVE RESEARCH JUST ON
EMERGING MARKET DEBT.
o AMONG INDUSTRIES BEING CONSIDERED FOR THIS FUND, TELECOMMUNICATIONS AND
MEDIA HAVE BEEN AMONG THE BEST PERFORMING IN THE HIGH-YIELD MARKET OVER THE
PAST YEAR. GIVEN WHAT WE SEE AS THE GROWTH OPPORTUNITIES OF COMPANIES IN
THESE INDUSTRIES AND THE WIDER YIELD SPREADS IN THIS SECTOR, WE BELIEVE
THESE COMPANIES REPRESENT SOME OF THE BEST POTENTIAL VALUES IN THE
HIGH-YIELD MARKET.
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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:
Although the U.S. stock market has enjoyed several years of double-digit
advances, this summer's volatility shows the necessity of taking a cautious
outlook. By most commonly accepted measures, equity valuations appear to have
risen to a point at which stock prices have become more vulnerable to changes in
the investment environment such as rising inflation and interest rates, a
slowing economy, or -- as we have seen recently -- earnings disappointments. As
a result, while we continue to hold a favorable long-term outlook for the equity
markets, we also believe that a significant market correction would be a healthy
near-term event.
Currently, equity investors seem to be primarily focused on the slowdown in
corporate earnings. In the second quarter, 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, the stock market has begun to
retreat from the record-high levels set in mid-July. This retreat may help
correct some of the overvaluations that have been building in the market for
some time. Prior to July, equity prices had continued to rise 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. A year ago this July, the average P/E ratio
for stocks in the S&P 500 stood at approximately 23; this July, the average P/E
ratio was some 20% higher, at about 28. If this summer's downturn helps create
more reasonable valuations, we believe the correction could provide a sounder
long-term foundation for the equity markets. On another positive note, interest
rates have been relatively stable for several months 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.
As long as interest rates remain low and the economy continues to grow, we
expect stock prices to advance over the next 12 months in line with corporate
earnings, that is, about 8% to 10%. However, just as no one can predict market
cycles, so too no one can predict economic cycles -- except to say that these
cycles do exist and that an economic slowdown at some point is inevitable.
Internationally, the economic turmoil in Asia continues to be a concern to us,
and 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 but, for the
most part, the region's economies are still very weak and the situation could
turn worse before getting better. While the crisis has affected all countries in
Asia, Japan was the major factor behind the turmoil as excesses in its banking
and real estate sectors led to severe currency problems. Although Japan now has
a new government, questions remain about the nation's commitment to ending the
loan crisis and reforming its banking system. 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
summer. But as these countries move toward economic union, they have benefited
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 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 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 market
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. These analysts thoroughly investigate
each company's earnings potential and position in its industry as well as the
overall prospects for that industry.
MFS also uses active portfolio management on the fixed-income side, taking
advantage of 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.
We believe that applying this discipline of thorough, bottom-up research to both
the equity and fixed-income markets is the best way to provide favorable
long-term performance for our shareholders -- regardless of changes in the
overall market environment.
We appreciate your support 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)
August 14, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Robert J. Manning]
Robert J. Manning
Q. WHY IS MFS INTRODUCING A NEW HIGH-YIELD FUND?
A. For one thing, the high-yield market is much bigger than it used to be. Back
in 1978, this market was in its infancy, and new issuance of corporate
high-yield debt was only $1.6 billion. Today, the high-yield market is much
larger, with new issuance of $118 billion in 1997. Plus, the range of
securities is so diverse and complex that we think it makes sense to offer a
portfolio that meets the needs of the more aggressive high-yield investors
who are willing to take a little more risk in exchange for the opportunity to
achieve a somewhat higher yield.
Q. HOW DO YOU EXPECT TO ACHIEVE THIS HIGHER YIELD?
A. The Fund will attempt to take full advantage of global opportunities,
including those in emerging markets, as well as of domestic credits that are
a little further down the credit-quality spectrum. While the investment
strategy will be aggressive, it will also rely heavily on our Original
ResearchSM to find potential holdings. The research team evaluates such
factors as company managements, cash flow projections, industry trends, and
macroeconomic issues.
Q. COULD YOU BE A BIT MORE SPECIFIC ABOUT THE FUND'S EMERGING MARKET EXPOSURE?
A. We expect to have about 25% of the portfolio in these markets, and although
the emerging markets have gone through a lot of turmoil lately, we have
several fixed-income analysts who perform intensive research just on emerging
market debt. (Investing in foreign and emerging market securities involves
special risks. These risks may increase share price volatility.)
Q. COULD YOU TALK ABOUT THE INDUSTRIES YOU WOULD CONSIDER FOR THIS FUND?
A. Telecommunications and media have been among the best-performing industries
in the high-yield market over the past year. Given what we see as the growth
opportunities of the companies in these industries and the wider spreads in
this sector, we believe these companies represent some of the best potential
values in the high-yield market.
Q. WHY IS RESEARCH SO IMPORTANT IN THIS TYPE OF FUND?
A. With yield spreads between the investment-grade and high-yield markets
narrowing, research has become increasingly vital to our goal of finding
issuers that meet our investment criteria. Also, the unrest in Asia, which
has spread to most of the other emerging markets, has left little margin for
error. Avoiding problem areas means carefully scrutinizing issuers,
particularly their debt levels and their ability to repay those debts, even
more carefully than in the past.
Q. WHAT IS YOUR CURRENT OUTLOOK ON THE OVERALL HIGH-YIELD MARKET?
A. This market is experiencing an unprecedented period of growth and strong
performance. During the second quarter of this year, a record $53 billion in
high-yield bonds was issued, and the market surpassed $500 billion in bonds
outstanding. Although past performance is no guarantee of future results,
healthy economic growth benefited the market as companies continued to post
improved operating results.
/s/ Robert J. Manning
Robert J. Manning
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
only through the end of the period of the report as stated on the cover. The
manager's 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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PORTFOLIO MANAGER'S PROFILE
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ROBERT J. MANNING IS SENIOR VICE PRESIDENT AND A MEMBER OF THE FIXED INCOME
MANAGEMENT GROUP OF MFS INVESTMENT MANAGEMENT(R). HE IS PORTFOLIO MANAGER OF
MFS(R) HIGH INCOME FUND, MFS(R) HIGH YIELD OPPORTUNITIES FUND, MFS(R) SPECIAL
VALUE TRUST, MFS(R) AMERICAN(SM) U.S. HIGH YIELD FUND, AND MFS(R) MERIDIAN(SM)
U.S. HIGH YIELD FUND.
MR. MANNING JOINED MFS IN 1984 AS A RESEARCH ANALYST IN THE HIGH YIELD BOND
DEPARTMENT. HE WAS NAMED VICE PRESIDENT IN 1988, PORTFOLIO MANAGER OF MFS
SPECIAL VALUE TRUST IN 1992, SENIOR VICE PRESIDENT IN 1993, PORTFOLIO MANAGER OF
MFS HIGH INCOME FUND IN 1994, AND PORTFOLIO MANAGER OF MFS HIGH YIELD
OPPORTUNITIES FUND IN 1998. HE IS A GRADUATE OF THE UNIVERSITY OF LOWELL AND
EARNED AN M.B.A. IN FINANCE FROM BOSTON COLLEGE.
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FUND FACTS
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OBJECTIVE: SEEKS HIGH CURRENT INCOME.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JULY 1, 1998
SIZE: $2.5 MILLION NET ASSETS AS OF JULY 31, 1998
LOWER RATED SECURITIES MAY PROVIDE GREATER RETURNS, BUT THEY ARE ALSO
ASSOCIATED WITH GREATER-THAN-AVERAGE RISK. THIS RISK MAY INCREASE SHARE PRICE
VOLATILITY.
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. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - July 31, 1998
Bonds - 96.0%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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U.S. Bonds - 69.4%
Business Services - 1.0%
Zilog, Inc., 9.5s, 2005## $ 35 $ 26,950
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Chemicals - 1.6%
Brunner Mond Group Plc, 11s, 2008## $ 15 $ 15,263
Sterling Chemicals, Inc., 11.25s, 2007 25 25,250
----------
$ 40,513
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Consumer Goods and Services - 1.9%
Remington Products Co. LLC, 11s, 2006 $ 25 $ 22,688
Samsonite, Inc., 10.75s, 2008## 25 24,687
----------
$ 47,375
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Energy - 3.8%
Chesapeake Energy Corp., 9.625s, 2005## $ 50 $ 48,250
Continental Resources Inc., 10.25s, 2008## 25 24,625
Wiser Oil Co. Delaware, 9.5s, 2007 25 23,125
----------
$ 96,000
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Food and Beverage Products - 2.7%
Planet Hollywood, 12s, 2005 $ 25 $ 21,125
Specialty Foods Corp., 10.25s, 2001 50 48,375
----------
$ 69,500
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Forest and Paper Products - 1.8%
Gaylord Container Corp., 9.875s, 2008 $ 50 $ 46,000
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Gaming - 1.0%
Santa Fe Hotel, Inc., 11s, 2000 $ 25 $ 24,625
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Industrial - 8.9%
Aqua Chemical Inc., 11.25s, 2008 $ 25 $ 25,812
Grove Holdings LLC/Capital, 0s to 2003,
11.625s to 2009 45 24,300
Interlake Corp., 12s, 2001 90 97,650
Simonds Industries, Inc., 10.25s, 2008## 25 25,563
Thermadyne Industries Holdings Corp.,
0s to 2003, 12.5s to 2008## 50 28,000
Walbro Corp., 10.125s, 2007 25 24,625
----------
$ 225,950
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Media - 5.2%
Classic Communications Inc., 0s to 2003,
13.25s to 2008## $ 50 $ 28,750
FrontierVision Holding LP, 11s, 2006 25 27,781
Impsat Corp., 12.375s, 2008## 50 50,000
United International Holdings, Inc.,
0s to 2003, 10.75s to 2008 40 25,300
----------
$ 131,831
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Medical and Health Technology and Services - 2.7%
Alaris Medical Inc., 0s to 2003, 11.125s to 2008## $ 75 $ 43,687
Mediq, Inc., 11s, 2008## 25 25,188
----------
$ 68,875
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Metals and Minerals - 13.0%
Algoma Steel, Inc., 12.375s, 2005 $ 50 $ 54,000
Doe Run Resources Corp., 11.25s, 2005## 50 50,500
Metal Management, Inc., 10s, 2008## 50 49,500
Metallurg Holdings Inc., 0s to 2003, 12.75s to 2008## 50 27,500
Renco Steel Holdings Inc., 10.875s, 2005 50 49,750
Schuff Steel Co., 10.5s, 2008## 50 50,000
WHX Corp., 10.5s, 2005## 50 50,500
----------
$ 331,750
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Retail - 2.3%
J Crew Group Inc., 0s to 2003, 13.5s to 2008 $ 45 $ 25,425
J Crew Operating Corp., 10.375s, 2007 35 34,300
----------
$ 59,725
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Supermarkets - 2.0%
Pathmark Stores, Inc., 11.625s, 2002 $ 50 $ 50,625
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Telecommunications - 21.5%
Allegiance Telecom Inc., 12.875s, 2008 $ 40 $ 40,500
Dolphin Telecom PLC, 0s to 2003, 11.5s to 2008## 80 45,600
Esprit Telecom Group PLC, 10.875s, 2008## 25 25,500
Mobile Telecommunication Technologies Corp.,
13.5s, 2002 60 69,600
Nextel Communications Inc., 0s, to 2003,
11.5s to 2008## 45 29,587
Nextel International, Inc., 0s to 2003,
12.125s to 2008## 45 23,600
Northeast Optic Network, 12.75s, 2008## 75 75,000
Orbital Imaging Corp., 11.625s, 2005## 25 25,375
Pagemart Wireless, Inc., 0s to 2003, 11.25s to 2008 40 24,700
Pathnet, Inc., 12.25s, 2008 25 26,375
Pinnacle Holdings, Inc., 0s to 2003, 10s to 2008 40 26,550
Psinet, Inc., 10s, 2005 25 26,250
Time Warner Telecommunications Inc., 9.75s, 2008 10 10,225
Triton Communications, LLC, 0s to 2003, 11s to 2008## 80 46,000
Verio, Inc., 10.375s, 2005## 25 26,125
Versatel Telecom B V, 13.25s, 2008 25 26,313
----------
$ 547,300
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Total U.S. Bonds $1,767,019
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Foreign Bonds - 26.6%
Argentina - 2.6%
Republic of Argentina, 11s, 2006 $ 14 $ 15,141
Republic of Argentina, 9.75s, 2027 54 51,867
----------
$ 67,008
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Brazil - 4.9%
Federal Republic of Brazil, 10.125s, 2027 $139 $ 124,586
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Bulgaria - 1.8%
National Republic of Bulgaria, 6.688s, 2011 $ 63 $ 45,914
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Canada - 1.9%
Repap New Brunswick, Inc., 10.625s, 2005 (Forest and
Paper Products) $ 50 $ 49,000
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Mexico - 4.3%
Satelites Mexicanos SA de C V, 10.125s, 2004
(Telecommunications)## $ 25 $ 23,937
United Mexican States, 11.375s, 2016 13 14,710
United Mexican States, 11.375s, 2016 62 70,060
----------
$ 108,707
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Panama - 1.1%
Republic of Panama, 8.875s, 2027 $ 31 $ 29,088
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Russia - 4.7%
Ministry of Finance, Russia, 10s, 2007 $ 48 $ 33,600
Ministry of Finance, Russia, 12.75s, 2028 86 70,520
Vnesheconombank, Russia, 6.625s, 2015 30 15,281
----------
$ 119,401
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South Korea - 2.3%
Republic of Korea, 8.875s, 2008 $ 63 $ 59,201
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United Kingdom - 2.0%
Hmv Media Group PLC, 10.25s, 2008 (Retail)## $ 25 $ 25,437
Middleweb PLC Bankers Trust Lux, 10.5s, 2008(Media)## 15 24,434
----------
$ 49,871
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Venezuela - 1.0%
Republic of Venezuela, 9.25s, 2027 $ 38 $ 25,916
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Total Foreign Bonds $ 678,692
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Total Bonds (Identified Cost, $2,469,130) $2,445,711
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Convertible Preferred Stock - 1.0%
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U.S. Stocks - 1.0%
Cendant Corp., (Identified Cost, $24,820) $750 $ 24,656
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Warrants
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SHARES
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Orbital Imaging Corp., (Telecommunications)*##
(Identified Cost, $1,125) 25 $ 1,250
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Total Investments (Identified Cost, $2,495,075) $2,471,617
Other Assets, Less Liabilities - 3.0% 75,803
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Net Assets - 100.0% $2,547,420
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* Non-income producing security.
## SEC Rule 144A restriction.
See portfolio notes and notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
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JULY 31, 1998
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Assets:
Investments, at value (identified cost, $2,495,075) $2,471,617
Receivable for investments sold 318,697
Receivable for Fund shares sold 104,772
Interest and dividends receivable 50,918
Other assets 11
----------
Total assets $2,946,015
----------
Liabilities:
Cash overdraft $ 98,856
Distributions payable 1,413
Payable for investments purchased 297,945
Payable for Fund shares reaquired 1
Payable to affiliates -
Management fee 43
Distribution and service fee 337
----------
Total liabilities 398,595
----------
Net assets $2,547,420
==========
Net assets consist of:
Paid-in capital $2,563,786
Unrealized depreciation on investments and
foreign currency transactions (23,449)
Accumulated net realized gain on investments
and foreign currency transactions 7,459
Distributions in excess of net investment income (376)
----------
Total $2,547,420
==========
Shares of beneficial interest outstanding 256,050
=======
Class A shares:
Net asset value per share
(net assets of $1,760,923 / 176,931 shares of
beneficial interest outstanding) $ 9.95
======
Offering price per share (100 / 95.25) $10.45
======
Class B shares:
Net asset value and offering price per share
(net assets of $711,785 / 71,612 shares of beneficial
interest outstanding) $ 9.94
======
Class C shares:
Net asset value and offering price per share
(net assets of $74,552 / 7,491 shares of beneficial
interest outstanding) $ 9.95
======
Class I shares:
Net asset value, offering price, and redemption
price per share (net assets of $160 / 16 shares
of beneficial interest outstanding) $ 9.95
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
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JULY 31, 1998
- ------------------------------------------------------------------------------
Net investment income:
Interest income $ 12,782
----------
Expenses -
Management fee $ 812
Administrative fee 18
Trustees' compensation 366
Shareholder servicing agent fee 133
Distribution and service fee (Class A) 384
Distribution and service fee (Class B) 141
Distribution and service fee (Class C) 11
Custodian fee 50
Registration fee 44,875
Auditing fees 15,638
Printing 3,500
Legal fees 210
Postage 100
Miscellaneous 2,514
----------
Total expenses $ 68,752
Preliminary reduction of expenses by investment adviser (67,404)
----------
Net expenses $ 1,348
----------
Net investment income $ 11,434
----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 7,603
Foreign currency transactions (144)
----------
Net realized gain on investments and foreign
currency transactions $ 7,459
----------
Change in unrealized depreciation -
Investments $ (23,458)
Translation of assets and liabilities in
foreign currencies 9
----------
Net unrealized loss on investments and foreign
currency translations $ (23,449)
----------
Net realized and unrealized loss on investments $ (15,990)
----------
Decrease in net assets from operations $ (4,556)
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets (Unaudited)
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ONE MONTH ENDED JULY 31, 1998
- --------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 11,434
Net realized gain on investments and foreign
currency transactions 7,459
Net unrealized loss on investments and foreign
currency translations (23,449)
----------
Decrease in net assets from operations $ (4,556)
----------
Distributions declared to shareholders -
From net investment income (Class A) $ (10,150)
From net investment income (Class B) (1,601)
From net investment income (Class C) (58)
From net investment income (Class I) (1)
----------
Total distributions declared to shareholders $ (11,810)
----------
Net increase in net assets from Fund share transactions $2,563,786
----------
Net assets:
At beginning of period --
----------
At end of period (including distribution in excess of
net investment income of $376) $2,547,420
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ONE MONTH ENDED JULY 31, 1998 CLASS A CLASS B CLASS C CLASS I
- --------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.07 $ 0.04 $ 0.01 $ 0.50
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.05) (0.04) -- (0.48)
------ ------ ------ ------
Total from investment operations $ 0.02 $ -- $ 0.01 $ 0.02
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.07) $(0.06) $(0.06) $(0.07)
------ ------ ------ ------
Total distributions declared to shareholders $(0.07) $(0.06) $(0.06) $(0.07)
------ ------ ------ ------
Net asset value - end of period $ 9.95 $ 9.94 $ 9.95 $ 9.95
====== ====== ====== ======
Total return(+) 0.20%++ (0.05)%++ 0.16%++ 0.22%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.00%+ 1.65%+ 1.65%+ 0.65%+
Net investment income 9.10%+ 9.84%+ 5.13%+ 9.29%+
Portfolio turnover 28% 28% 28% 28%
Net assets at end of period (000 omitted) $1,761 $712 $75 $0
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## 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 investment adviser voluntarily agreed to maintain the expenses of the Fund at not more than 1.00%, 1.65%, 1.65%,
and 0.65% for Class A, B, C, and I respectively, of average daily net asset effective July 31, 1998. To the extent actual
expenses were over these limitations, the net investment loss per share and ratios would have been:
Net investment income (loss) $(0.25) $(0.04) $(0.20) $ 3.50
Ratios (to average net assets):
Expenses## 54.95%+ 55.6%+ 55.6%+ 54.6%+
Net investment loss (44.85)%+ (44.11)%+ (48.82)%+ (44.6)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS High Yield Opportunities Fund (the Fund) is a diversified series of MFS
Series Trust III (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 U.S. dollar and to the effects of changes in
each country's legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, forward contracts, and swap
agreements, are valued on the basis of valuations furnished by dealers or by a
pricing service with consideration to factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data, without exclusive
reliance upon exchange or over-the-counter prices. 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 markets 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 premium and
discount are 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.
The Fund can invest up to 100% of its portfolio in high-yield securities rated
below investment grade. Investments in high-yield securities involve greater
degrees of credit and market risk than investments in higher-rated securities,
and tend to be more sensitive to economic conditions.
The Fund uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds. Legal fees and other related expenses incurred to
preserve and protect the value of a security owned are added to the cost of the
security; other legal fees are expensed. Capital infusions, which are generally
non-recurring, incurred to protect or enhance the value of high-yield debt
securities, are reported as additions to the cost basis of the security. Costs
that are incurred to negotiate the terms or conditions of capital infusions or
that are expected to result in a plan of reorganization are reported as realized
losses. Ongoing costs incurred to protect or enhance an investment, or costs
incurred to pursue other claims or legal actions, are expensed.
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.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on the value
of settled shares outstanding of each class, without distinction between share
classes. Dividends are declared separately for each class. 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. The
management fee is computed daily and paid monthly at an annual rate of 0.65% of
average daily net assets. The investment advisor has voluntarily agreed to pay
the expenses of the Fund in order to maintain expenses at no more than 1.00% for
Class A, 1.65% for Class B, 1.65% for Class C, and 0.65% for Class I per annum
of the Fund's average daily net assets. This is reflected as a reduction of
expenses in the Statement of Operations.
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.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$640 for the one month ended July 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 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 $0 for the one month ended July 31, 1998.
Fees incurred under the distribution plan during the one month ended July 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 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 $0 and $0 for Class B and Class C shares, respectively, for the six
months ended July 31, 1998. Fees incurred under the distribution plan during the
one month ended July 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 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 one month ended July 31,
1998, were $0, $0, and $0 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%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated $3,176,593
and $691,436, 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 $2,495,075
----------
Gross unrealized appreciation $ 9,659
Gross unrealized depreciation (33,118)
----------
Net unrealized depreciation $ (23,457)
==========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Class A Shares
ONE MONTH ENDED JULY 31, 1998
-----------------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------
Shares sold 175,923 $1,761,818
Shares issued to shareholders in
reinvestment of distributions 1,008 10,025
------- ----------
Net increase 176,931 $1,771,843
======= ==========
Class B Shares
ONE MONTH ENDED JULY 31, 1998
-----------------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------
Shares sold 71,575 $ 716,198
Shares issued to shareholders in
reinvestment of distributions 37 374
------- ----------
Net increase 71,612 $ 716,572
======= ==========
Class C Shares
ONE MONTH ENDED JULY 31, 1998
-----------------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------
Shares sold 7,490 $ 75,209
Shares issued to shareholders in
reinvestment of distributions 2 1
Shares reacquired (1) --
------- ----------
Net increase 7,491 $ 75,210
======= ==========
Class I Shares
ONE MONTH ENDED JULY 31, 1998
-----------------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------
Shares sold 15 $ 160
Shares issued to shareholders in
reinvestment of distributions 1 1
------- ----------
Net increase 16 $ 161
======= ==========
(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 one
month ended July 31, 1998, was $0.
<PAGE>
<TABLE>
MFS(R) HIGH YIELD OPPORTUNITIES FUND
<S> <C>
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,
Peter G. Harwood - Private Investor call toll free: 1-800-637-4458 anytime from
a touch-tone telephone.
J. Atwood Ives - Chairman and Chief Executive
Officer, Eastern Enterprises (diversified For information on MFS mutual funds, call your
services company) financial adviser or, for an information kit,
call toll free: 1-800-637-2929 any business
Lawrence T. Perera - Partner, Hemenway day from 9 a.m. to 5 p.m. Eastern time (or
& Barnes (attorneys) leave a message anytime).
William J. Poorvu - Adjunct Professor, Harvard INVESTOR SERVICE
University Graduate School of Business MFSService Center, Inc.
Administration P.O. Box 2281
Boston, MA 02107-9906
Charles W.Schmidt - Private Investor
For general information, call toll free:
Arnold D. Scott* - Senior Executive 1-800-225-2606 any business day from
Vice President, Director, and Secretary, 8 a.m. to 8 p.m. Eastern time.
MFS Investment Management
For service to speech- or hearing-impaired,
Jeffrey L. Shames* - Chairman, Chief call toll free: 1-800-637-6576 any business
Executive Officer, and Director, day from 9 a.m. to 5 p.m. Eastern time. (To
MFS Investment Management use this service, your phone must be equipped
with a Telecommunications Device for the
Elaine R. Smith - Independent Consultant Deaf.)
David B. Stone - Chairman and Director, For share prices, account balances, and
North American Management Corp. exchanges, call toll free: 1-800-MFS-TALK
(investment advisers) (1-800-637-8255) anytime from a touch-tone
telephone.
INVESTMENT ADVISER
Massachusetts Financial Services Company WORLD WIDE WEB
500 Boylston Street www.mfs.com
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
Robert J. Manning*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
</TABLE>
*Affiliated with the Investment Adviser
<PAGE>
-----------------
MFS(R) HIGH YIELD Bulk Rate
OPPORTUNITIES FUND U.S. Postage
Paid
[Logo] M F S(R) MFS
INVESTMENT MANAGEMENT -----------------
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
MHO-3 9/98 5.5M 70/270/370/870
