<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
MFS(R) HIGH YIELD
OPPORTUNITIES FUND
ANNUAL REPORT o JANUARY 31, 1999
[Graphic Omitted]
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DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 32)
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<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 15
Notes to Financial Statements ............................................. 22
Independent Auditors' Report .............................................. 28
MFS' Year 2000 Readiness Disclosure ....................................... 30
Trustees and Officers ..................................................... 33
MFS CELEBRATES ITS DIAMOND ANNIVERSARY!
MARCH 21, 1999, MARKS THE 75TH ANNIVERSARY OF MFS' INVENTION OF
THE MUTUAL FUND. THE MUTUAL FUND INDUSTRY HAS BROUGHT THE POWER
OF INVESTING TO EVERY AMERICAN, OFFERING THEM THE OPPORTUNITY FOR
COLLEGE DEGREES, HOME OWNERSHIP, AND COMFORTABLE RETIREMENT.
IMAGINE TODAY'S WORLD WITHOUT MUTUAL
FUNDS. WE COULDN'T. AND WHILE THE MFS 75 YEARS
YEARS AHEAD WILL BRING A NUMBER OF [graphic omitted]
CHALLENGES, OUR 75 YEARS OF EXPERIENCE EXPERIENCE THE FUTURE(SM)
WILL HELP GUIDE A NEW GENERATION OF
INVESTORS INTO THE FUTURE.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders:
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual fund --
our Massachusetts Investors Trust (MIT) -- was introduced to the public on March
21, 1924. Since then, MFS Investment Management(R), the company that grew out of
that original fund, has helped guide shareholders through many economic and
investment cycles, primarily by focusing on the long-term opportunities created
by an expanding global economy. As of January 31, 1999, MFS manages over $100
billion, and the firm's 2,000 people serve almost four million investors and
their financial advisers worldwide. Meanwhile, MIT's assets have grown to over
$12 billion, and 56 mutual funds are offered in the MFS Family of Funds(R).
One of the elements in the success of MIT did not exist before our founders
invented it in 1924. That is daily redemption. This innovation means that if you
want to sell your investment in any MFS mutual fund, you have the security of
knowing that you may do so immediately by exchanging into another MFS fund. Or,
if you need your money for other purposes, it can quickly be wired or mailed to
you. This daily redemption feature, through which new shares were created when
people invested in MIT and were redeemed when people sold, brought another
important change to the industry. Now, the price of a mutual fund's shares
wasn't determined by supply and demand, but by the value of the securities owned
by each portfolio.
Another factor in our growth was the development of one of the industry's first
in-house research departments in 1932. Unlike companies that rely on Wall Street
research reports, which can be used by many investors at the same time, MIT's
managers built its long-term track record by visiting companies, talking to
managers and competitors, and "kicking the tires" so they could judge the
quality and potential of each company's products and services for themselves.
Today, MFS has more than 100 full-time portfolio managers, stock analysts, and
credit analysts who track the equity and bond markets.
While MIT introduced the daily redemption feature, that was not our only
invention. We also established the nation's first global bond fund, first
high-yield municipal bond fund, and first high-yield municipal closed-end bond
fund.
We are proud of the record of MIT and of the funds in the MFS Family of Funds,
but we are also proud of our long-standing relationship with financial advisers.
Not only do we believe investors can benefit from the advice of these experts
but, as was shown during the market volatility of 1998, people who work with
financial advisers are less likely to abandon their carefully designed,
long-term investment strategies.
Our ability to service your investment and information needs is also extremely
important to us. The MFS Service Center handles millions of transactions and
phone calls every year. Supporting the work of financial advisers, promptly
sending out statements and confirmations, and answering hundreds of investors'
questions every day are crucial elements in maintaining long-term relationships
with our fund shareholders. That link to our investors has also been enhanced by
our site on the World Wide Web: WWW.MFS.COM. Since 1996, this site has given
investors and the general public access to up-to-date information about MFS
products and services, as well as market outlooks and retirement information.
The site has rapidly become one of our primary vehicles for communicating with
our investors and educating the public about mutual funds in general and MFS in
particular.
If there is a common thread running through these milestones, it is our
always-increasing commitment to providing you with the best possible investment
management and shareholder service, just as we have done for the past 75 years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your investment
needs in the next century. We appreciate your confidence and welcome any
questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management
February 15, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Robert J. Manning]
Robert J. Manning
The Fund commenced operations on July 1, 1998, and from that date through
January 31, 1999, Class A shares provided a total return of -9.45%, Class B
shares -9.69%, Class C shares -9.89%, and Class I shares -8.96%. These returns
include the reinvestment of distributions but exclude the effects of any sales
charges. From July 31, 1998, through January 31, 1999, the Lehman Brothers
High Yield Bond Index (the Lehman Index), an unmanaged index of noninvestment-
grade corporate debt, returned -1.63%, while the average high current yield
fund returned -3.80% as reported by Lipper Analytical Services, Inc., an
independent firm that tracks mutual fund performance.
Q. LAST YEAR WAS VOLATILE FOR MOST INVESTMENT MARKETS, INCLUDING THE HIGH- YIELD
BOND MARKET. WHAT IMPACT DID THIS HAVE ON THE FUND?
A. The impact, particularly on somewhat more-aggressive funds such as this
one, was negative because investors moved toward the highest-quality
securities, such as U.S. Treasuries, and away from almost everything else.
This flight to quality helped push yields on Treasuries lower, while yields
on other securities, including emerging market, high-grade, and high-yield
corporate debt, moved higher. Because bond prices and yields move in
opposite directions, prices for these securities went down, while prices
for Treasuries went up. This meant lower total returns for many non-
Treasury portfolios. However, while this Fund is likely to be more volatile
than a conventional high-yield fund, we are selecting credits and picking
bonds based on their long-term outlooks. That's the approach we think
investors should take toward this Fund, too.
Q. WHY DID MFS INTRODUCE A NEW HIGH-YIELD FUND IN 1998?
A. We felt that the high-yield market had grown to a point at which we could
offer a portfolio that meets the needs of more-aggressive high-yield
investors who are willing to take a little more risk in exchange for the
opportunity to achieve somewhat higher yields. In 1978, only about $1.6
billion in new high-yield corporate debt was issued. Last year, the figure
was $141 billion, and the group of companies issuing high-yield debt was
much more diverse. We think the growth of the high-yield market makes a
portfolio like this one practical.
Q. HOW ARE YOU ATTEMPTING TO ACHIEVE A HIGHER YIELD?
A. We are trying to take full advantage of global investment opportunities by
focusing on domestic companies that are a little further down the credit-
quality spectrum and on emerging markets debt. We are also taking larger
positions in credits we believe offer long-term opportunities for greater
returns. While this investment strategy is somewhat aggressive, it relies
heavily on MFS(R) Original Research(SM) to find potential holdings. Our
research team evaluates such factors as company managements, financial
ratios, debt leverage, asset coverage, and industry fundamentals.
Q. COULD YOU TALK ABOUT SOME OF THE INDUSTRIES YOU'RE EMPHASIZING IN THE FUND?
A. Our largest sectors are telecommunications and media. In
telecommunications, we're focusing on the competitive local exchange
companies, better known as CLECs. These companies build fiber-optic
networks in metropolitan areas and compete with the telephone companies for
business customers. They have newly installed fiber optic cables in the
ground, and they're benefiting from the tremendous growth in voice and data
traffic. In media, our emphasis is on cable television companies, which
have performed very well and whose valuations have risen substantially
following the announcement that AT&T would acquire Telecommunications, Inc.
That announcement has led investors to expect further consolidation in the
industry as better-capitalized, higher-rated telecom companies seek to
acquire cable companies. The cable network is viewed as a very cost-
efficient way to deliver high-speed Internet services to the home.
Q. ARE THERE ANY PARTICULARLY INTERESTING COMPANIES YOU CAN TALK ABOUT?
A. One of our larger CLEC holdings is COLT Telecom, which is rapidly expanding
its fiber-optic networks in major European cities such as Amsterdam, Paris,
Frankfurt, Madrid, and London. Another example is NTL, which offers cable
and telephone services to residential customers in the United Kingdom. It
was just announced that Microsoft is going to invest $500 million in the
company. We think that the convergence of cable television,
telecommunication, and Internet technologies provides opportunities for
investors in the high-yield market.
Q. WHAT CAN YOU TELL US ABOUT THE FUND'S EMERGING MARKET EXPOSURE?
A. It's primarily in sovereign, that is, government-issued, credits. In
general, we think emerging markets debt is likely to experience continued
volatility. Over the past year, we have seen the crises move from Asia to
Russia, and now to Latin America. In Latin America, a lot hinges on the
outcome of adjustment efforts in Brazil, where the situation remains
unsettled following the Brazilian government's decision to let its currency
trade freely, or "float," on global currency markets. We do see some
improvements in underlying fundamentals among select Asian countries, as
exemplified by the recent ratings upgrade of South Korea. Eastern European
countries such as Poland and Bulgaria have been relatively insulated from
the problems in Brazil. In short, we think the problems in emerging markets
are still present, but the high yields appear to adequately reflect many of
the risks.
Q. WHAT IS YOUR CURRENT OUTLOOK ON THE HIGH-YIELD MARKET?
A. We expect the high-yield market to perform well in 1999. The premiums
investors are being paid for owning high-yield bonds are at historically
high levels and, over the long term, we expect these premiums to more than
compensate for credit risks. In addition, we think the present environment
of moderate economic growth and low inflation is a favorable one for high-
yield bonds. However, given the uncertainties in the world economies, we
believe that careful credit selection will remain crucial to the Fund's
performance.
/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
- --------------------------------------------------------------------------------
ROBERT J. MANNING IS SENIOR VICE PRESIDENT, DIRECTOR OF FIXED INCOME
RESEARCH AND A MEMBER OF THE FIXED INCOME MANAGEMENT GROUP OF MFS
INVESTMENT MANAGEMENT. 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, PORTFOLIO MANAGER OF
MFS HIGH YIELD OPPORTUNITIES FUND IN 1998, AND DIRECTOR OF FIXED INCOME
RESEARCH IN 1999. HE IS A GRADUATE OF THE UNIVERSITY OF LOWELL AND
EARNED AN M.B.A. DEGREE IN FINANCE FROM BOSTON COLLEGE.
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>
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FUND FACTS
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OBJECTIVE: SEEKS HIGH CURRENT INCOME BY INVESTING PRIMARILY IN A
DIVERSIFIED PORTFOLIO OF FIXED-INCOME SECURITIES.
CAPITAL GROWTH, IF ANY, IS INCIDENTAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JULY 1, 1998
CLASS INCEPTION: CLASS A JULY 1, 1998
CLASS B JULY 1, 1998
CLASS C JULY 1, 1998
CLASS I JULY 1, 1998
SIZE: $7.3 MILLION NET ASSETS AS OF JANUARY 31, 1999
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and
reflect the percentage change in net asset value, including reinvestment of
dividends. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. The performance of other share classes will be greater than or less
than the line shown. (See Notes to Performance Summary for more information.)
It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from July 1, 1998, through January 31, 1999)
MFS High Yield Lehman
Opportunities High Yield
Fund - Class A Bond Index
- -------------------------------------------
7/98 $10,000 $10,000
1/99 8,625 9,837
AVERAGE ANNUAL TOTAL RETURNS THROUGH JANUARY 31, 1999
CLASS A
10 Years/Life*
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Average Annual Total Return - 9.45%
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SEC Results -13.75%
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CLASS B
10 Years/Life*
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Average Annual Total Return - 9.69%
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SEC Results -13.11%
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CLASS C
10 Years/Life*
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Average Annual Total Return - 9.89%
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SEC Results -10.74%
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CLASS I
10 Years/Life*
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Average Annual Total Return - 8.96%
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COMPARATIVE INDICES
10 Years/Life*
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Average high current yield fund** - 3.80%
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Lehman Brothers High Yield Bond Index+ - 1.63%
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* For the period from the commencement of the Fund's investment operations,
July 1, 1998, through January 31, 1999. Index results are from July 31, 1998.
** Source: Lipper Analytical Services, Inc.
+ Source: AIM
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 4.75% 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.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Current subsidies
and waivers may be discontinued at any time. All results are historical and
assume the reinvestment of dividends and capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
Lower-rated securities may provide greater returns, but they are also
associated with greater-than-average risk. These risks may increase share
price volatility. See the prospectus for details.
PORTFOLIO CONCENTRATION AS OF JANUARY 31, 1999
PORTFOLIO STRUCTURE
High-Yield Corporates 70.3%
Emerging Markets 21.3%
Equity 5.2%
Cash 3.2%
The portfolio is actively managed, and holdings are subject to change.
<PAGE>
PORTFOLIO OF INVESTMENTS -- January 31, 1999
Bonds - 89.2%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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U.S. Bonds - 61.2%
Aerospace - 1.4%
L-3 Communications Corp., 10.375s, 2007 $ 90 $ 99,450
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Building Materials - 0.5%
Schuff Steel Co., 10.5s, 2008 $ 40 $ 35,500
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Business Services - 2.5%
Anacomp, Inc., 10.875s, 2004 $ 50 $ 52,000
Iron Mountain, Inc., 10.125s, 2006 35 38,325
Pierce Leahy Corp., 11.125s, 2006 85 93,075
----------
$ 183,400
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Chemicals - 1.9%
NL Industries, Inc., 11.75s, 2003 $ 90 $ 96,300
Sterling Chemicals, Inc., 11.25s, 2007 50 42,000
----------
$ 138,300
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Consumer Goods and Services - 2.0%
Galey & Lord, Inc., 9.125s, 2008 $ 45 $ 35,550
Polymer Group, Inc., 9s, 2007 50 50,312
Remington Products Co. LLC, 11s, 2006 50 35,375
Samsonite Corp., 10.75s, 2008 30 24,000
----------
$ 145,237
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Container, Forest and Paper Products - 2.1%
Applied Extrusion Technologies, Inc., 11.5s, 2002 $ 50 $ 51,500
Florida Coast Paper Co. LLC, 12.75s, 2003** 20 8,800
Gaylord Container Corp., 9.75s, 2007 55 50,875
Gaylord Container Corp., 9.875s, 2008 50 39,250
----------
$ 150,425
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Electric and Gas Utility Revenue - 1.0%
International Utility Structures, 10.75s, 2008 $ 75 $ 70,875
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Energy - 3.5%
Cheasapeake Energy Corp., 9.625s, 2005 $ 50 $ 37,000
Continental Resources, Inc., 10.25s, 2009 25 19,500
Forest Oil Corp., 10.5s, 2006 75 74,108
P&L Coal Holdings Corp., 9.625s, 2008 75 77,813
Pride Petroleum Services, Inc., 9.375s, 2007 50 47,250
----------
$ 255,671
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Entertainment - 1.4%
AMC Entertainment, Inc., 9.5s, 2009 $ 50 $ 49,625
Cinemark USA, Inc., 9.625s, 2008 50 51,500
----------
$ 101,125
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Food and Beverage Products - 1.6%
Friendly Ice Cream Corp., 10.5s, 2007 $ 25 $ 22,563
Specialty Foods Corp., 10.25s, 2001 100 95,000
----------
$ 117,563
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Gaming and Hotels - 2.3%
Boyd Gaming Corp., 9.5s, 2007 $ 25 $ 25,500
Casino America, Inc., 12.5s, 2003 50 55,500
Lady Luck Gaming Corp., 11.875s, 2001 65 66,300
Santa Fe Hotel, Inc., 11s, 2000 25 23,625
----------
$ 170,925
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Industrial - 7.3%
Grove Holdings LLC/Capital, Inc. 0s to 2003,
11.625s to 2009 $ 45 $ 18,394
Hayes Wheels International, Inc., 11s, 2006 50 55,625
Interlake Corp., 12s, 2001 90 96,300
International Knife & Saw, Inc., 11.375s, 2006 50 51,312
Johnstown America Industries, 11.75s, 2005 75 79,500
K & F Industries, Inc., 9.25s, 2007 75 76,500
Metallurg Holdings, Inc., 0s to 2003, 12.75s to 2008 50 16,500
Oxford Automotive, Inc., 10.125s, 2007 35 36,225
Simonds Industries, Inc., 10.25s, 2008 50 51,500
Thermadyne Holdings Corp., 0s to 2003, 12.5s to 2008 120 51,600
----------
$ 533,456
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Media - 9.1%
Avalon Cable Holdings LLC, 0s to 2003,
11.875s to 2008## $100 $ 61,000
Classic Communications, Inc., 0s to 2003,
13.25s to 2009 50 31,250
Cumulus Media, Inc., 10.375s, 2008 50 54,250
FrontierVision Holding LP, 11s, 2006 75 84,188
Granite Broadcasting Corp., 10.375s, 2005 25 25,875
Impsat Corp., 12.375s, 2008 50 39,000
Intermedia Capital Partners IV, LP, 11.25s, 2006 50 58,000
NTL, Inc., 0s to 2003, 9.75s to 2008 55 38,431
NTL, Inc., 0s to 2003, 12.375s, to 2008## 150 103,500
United International Holdings, Inc., 10.75s, 2008 250 167,500
----------
$ 662,994
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Medical and Health Technology and Services - 0.6%
Alaris Medical Inc., 0s to 2003, 11.125s to 2008## $ 75 $ 44,625
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Metals and Minerals - 2.3%
Doe Run Resources Corp., 11.25s, 2005 $ 50 $ 42,500
Kaiser Aluminum & Chemical Corp., 9.875s, 2002 50 48,500
Metal Management, Inc., 10s, 2008 50 30,000
WCI Steel, Inc., 10s, 2004 45 45,225
----------
$ 166,225
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Retail - 1.7%
J. Crew Group Inc., 0s to 2002, 13.125s to 2008 $ 45 $ 21,375
J. Crew Operating Corp., 10.375s, 2007 60 54,600
Musicland Group, Inc., 9s, 2003 50 49,500
----------
$ 125,475
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Supermarkets - 5.2%
Jitney-Jungle Stores of America, Inc., 12s, 2006 $100 $ 112,000
Pathmark Stores, Inc., 0s to 1999, 10.75s to 2003 185 160,950
Pathmark Stores, Inc., 11.625s, 2002 75 75,000
Penn Traffic Co., 8.625s, 2003** 75 36,000
----------
$ 383,950
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Telecommunications - 14.8%
Allegiance Telecom Inc., 12.875s, 2008 $ 80 $ 82,400
Centennial Cellular Operating Co., 10.75s, 2008## 30 31,650
GCI, Inc., 9.75s, 2007 65 64,675
ICG Holdings, Inc., 0s to 2001, 12.5s to 2006 100 77,000
ITC Deltacom, Inc., 9.75s, 2008## 50 52,750
Metromedia Fiber Network, Inc., 10s, 2008## 70 74,200
MJD Communications, Inc., 9.5s, 2008 60 61,050
Mobile Telecommunication Technologies Corp.,
13.5s, 2002 60 68,250
Nextel Communications, Inc., 0s, to 2003, 11.5s to 2008 45 28,800
Nextel International, Inc., 0s to 2003, 12.125 to 2008 40 18,550
Northeast Optic Network, 12.75s, 2008 35 35,350
Orbital Imaging Corp., 11.625s, 2005 25 26,000
Pagemart Wireless, Inc., 0s to 2003, 11.25s to 2008 40 18,800
Pathnet, Inc., 12.25s, 2008 20 11,600
Pinnacle Holdings, Inc., 1s, 2008 40 24,300
Psinet, Inc., 10s, 2005 50 51,500
Qwest Communications International, Inc., 10.875s, 2007 36 41,535
Telemundo Holdings, Inc., 0s to 2003, 11.5s to 2008## 100 57,000
Time Warner Telecommunications Inc., 9.75s, 2008 30 32,100
Triton PCS, Inc., 0s to 2003, 11s to 2008 80 43,200
Unisys Corp., 12s, 2003 50 55,500
Verio, Inc., 11.25s, 2008## 120 126,600
----------
$1,082,810
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Total U.S. Bonds $4,857,418
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Foreign Bonds - 28.0%
Argentina - 1.4%
Republic of Argentina, 11s, 2005 $ 35 $ 31,675
Republic of Argentina, 11s, 2006 74 67,636
----------
$ 99,311
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Brazil - 2.3%
Banco Nacional De Desenvolvi, 15.224s, 2008 $190 $ 128,250
Federal Republic of Brazil, 6.125s, 2024 70 37,716
----------
$ 165,966
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Bulgaria - 3.6%
National Republic of Bulgaria, 6.688s, 2011 $387 $ 260,645
- -------------------------------------------------------------------------------
Canada - 0.5%
PCI Chemicals Canada, Inc., 9.25s, 2007 (Chemicals) $ 50 $ 37,750
- -------------------------------------------------------------------------------
Colombia - 2.3%
Republic of Colombia, 7.625s, 2007 $170 $ 139,400
Republic of Colombia, 8.375s, 2027 40 29,600
----------
$ 169,000
- -------------------------------------------------------------------------------
Luxembourg - 1.5%
Millicom International Cellular Communications Corp.,
0s to 2001, 13.5s to 2006 (Telecommunications) $150 $ 108,750
- -------------------------------------------------------------------------------
Mexico - 3.9%
Satelites Mexicanos SA De CV, 10.125s, 2004
(Telecommunications)## $ 50 $ 40,375
United Mexican States, 11.375s, 2016 134 138,020
United Mexican States, 11.5s, 2026 99 104,445
----------
$ 282,840
- -------------------------------------------------------------------------------
Netherlands - 2.6%
Hermes Europe Railtel B. V., 10.375s, 2009## $ 50 $ 53,250
Versatel Telecom B.V., 13.25s, 2008 50 51,750
Versatel Telecom B.V., 13.25s, 2008## 75 77,625
----------
$ 182,625
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Panama - 2.0%
Republic of Panama, 8.25s, 2008 $ 95 $ 87,400
Republic of Panama, 8.875s, 2027 68 61,200
----------
$ 148,600
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Philippines - 1.6%
Republic of Philippines, 9.875s, 2019 $115 $ 117,875
- -------------------------------------------------------------------------------
Russia - 0.7%
Ministry of Finance, 10s, 2007 $165 $ 51,150
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South Korea - 2.4%
Republic of Korea, 8.875s, 2008 $168 $ 179,135
- -------------------------------------------------------------------------------
United Kingdom - 2.8%
Dialog Corporation PLC, 11s, 2007 $ 25 $ 24,437
Dolphin Telecom PLC, 11.5s, 2008## 80 30,800
Esat Telecom Group PLC, 11.875s, 2008## 70 72,800
Espirit Telecom Group PLC, 10.875s, 2008 75 78,750
----------
$ 206,787
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Venezuela - 0.4%
Republic of Venezuela, 9.25s, 2027 $ 55 $ 31,350
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Total Foreign Bonds $2,041,784
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Total Bonds (Identified Cost, $6,584,195) $6,509,790
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Preferred Stock - 5.2%
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SHARES
- -------------------------------------------------------------------------------
Energy - 0.8%
CSC Holdings, Inc., 11.125% 513 $ 59,764
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Media - 0.9%
Primedia, Inc., 8.625% 650 $ 63,051
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Telecommunications - 3.5%
Crown Castle International Corp.## * 150 $ 156,000
Global Crossing Holdings Ltd.## * 1,000 97,750
----------
$ 253,750
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Total Preferred Stock (Identified Cost, $367,575) $ 376,565
- -------------------------------------------------------------------------------
Warrants
- -------------------------------------------------------------------------------
Orbital Imaging Corp. (Telecommunications) * 25 $ 1,000
Pathnet, Inc. (Telecommunications)##* 20 200
Versatel Telecom B.V. Netherlands (Telecommunications)* 125 1,250
- -------------------------------------------------------------------------------
Total Warrants (Identified Cost, $2,748) $ 2,450
- -------------------------------------------------------------------------------
Short-Term Obligations - 3.5%
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 2/01/99,
at Amortized Cost $255 $ 255,000
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $7,209,518) $7,143,805
Other Assets, Less Liabilities - 2.1% 156,734
- -------------------------------------------------------------------------------
Net Assets - 100.0% $7,300,539
- -------------------------------------------------------------------------------
* Non-income producing security.
** Non-income producing security - in default.
## SEC Rule 144A restriction.
See portfolio notes and notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
JANUARY 31, 1999
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $7,209,518) $7,143,805
Cash 77,268
Receivable for Fund shares sold 20,040
Receivable for investments sold 18,431
Interest and dividends receivable 148,089
----------
Total assets $7,407,633
----------
Liabilities:
Distributions payable $ 30,075
Payable for investments purchased 74,108
Payable to affiliates -
Management fee 388
Distribution and service fee 2,523
----------
Total liabilities $ 107,094
----------
Net assets $7,300,539
==========
Net assets consist of:
Paid-in capital $7,735,266
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (65,713)
Accumulated net realized loss on investments (364,389)
Accumulated distributions in excess of net investment
income (4,625)
----------
Total $7,300,539
==========
Shares of beneficial interest outstanding 855,219
=======
Class A shares:
Net asset value per share
(net assets of $2,052,234 / 240,629 shares of beneficial
interest outstanding) $8.53
=====
Offering price per share (100 / 95.25) $8.95
=====
Class B shares:
Net asset value and offering price per share
(net assets of $4,307,512 / 504,180 shares of beneficial
interest outstanding) $8.54
=====
Class C shares:
Net asset value and offering price per share
(net assets of $940,650 / 110,393 shares of beneficial
interest outstanding) $8.52
=====
Class I shares:
Net asset value, offering price, and redemption price per
share (net assets of $142.88 / 16.70 shares of
beneficial interest outstanding) $8.56
=====
On sales of $100,000 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
- -------------------------------------------------------------------------------
PERIOD ENDED JANUARY 31, 1999*
- -------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 290,199
Dividends 2,573
---------
Total investment income $ 292,772
---------
Expenses -
Management fee $ 16,977
Trustees' compensation 2,966
Shareholder servicing agent fee 2,936
Distribution and service fee (Class A) 3,889
Distribution and service fee (Class B) 12,566
Distribution and service fee (Class C) 2,441
Administrative fee 239
Custodian fee 3,044
Printing 28,312
Postage 402
Auditing fees 15,185
Legal fees 1,890
Registration fees 42,735
Miscellaneous 3,784
---------
Total expenses $ 137,366
Reduction of expenses by investment adviser (101,494)
---------
Net expenses $ 35,872
---------
Net investment income $ 256,900
---------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $(363,142)
Foreign currency transactions (118)
---------
Net realized loss on investments and foreign currency
transactions $(363,260)
---------
Change in unrealized depreciation on investments $ (65,713)
---------
Net realized and unrealized loss on investments and
foreign currency translation $(428,973)
---------
Decrease in net assets from operations $(172,073)
=========
* For the period from the commencement of the Fund's investment operations, July
1, 1998, through January 31, 1999.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
PERIOD ENDED JANUARY 31, 1999*
- -------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 256,900
Net realized loss on investments and foreign currency
transactions (363,260)
Net unrealized loss on investments and foreign currency
transactions (65,713)
----------
Decrease in net assets from operations $ (172,073)
----------
Distributions declared to shareholders -
From net investment income (Class A) $ (111,834)
From net investment income (Class B) (121,561)
From net investment income (Class C) (23,497)
From net investment income (Class I) (8)
In excess of net investment income (Class A) (2,505)
In excess of net investment income (Class B) (2,723)
In excess of net investment income (Class C) (526)
----------
Total distributions declared to shareholders $ (262,654)
----------
Net increase in net assets from Fund share transactions $7,735,266
----------
Total increase in net assets $7,300,539
Net assets:
At beginning of period --
----------
At end of period (including accumulated distributions in excess
of net investment income of $4,625) $7,300,539
==========
* For the period from the commencement of the Fund's investment operations, July
1, 1998, through January 31, 1999.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
- -----------------------------------------------------------------------------
PERIOD ENDED JANUARY 31, 1999*
- -----------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment income(S) $ 0.54
Net realized and unrealized loss on investments and foreign
currency transactions (1.50)
------
Total from investment operations $(0.96)
------
Less distributions declared to shareholders -
From net investment income $(0.50)
In excess of net investment income (0.01)
------
Total distributions declared to shareholders $(0.51)
------
Net asset value - end of period $ 8.53
======
Total return(+) (9.45)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.00%+
Net investment income 10.25%+
Portfolio turnover 127%
Net assets at end of period (000 omitted) $2,052
* For the period from the commencement of the Fund's investment operations,
July 1, 1998, through January 31, 1999.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund had an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent. The Fund's expenses are calculated
without reduction for this expense offset arrangement.
(+) 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 agreed to maintain expenses of the Fund, exclusive of
managements and distribution and service fees, at not more than 0.00% of
average daily net assets. To the extent actual expenses were over this
limitation, the net investment income per share and the ratios would have
been:
Net investment income $ 0.33
Ratios (to average net assets):
Expenses## 4.90%+
Net investment income 6.35%+
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- ------------------------------------------------------------------------------
PERIOD ENDED JANUARY 31, 1999**
- ------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment income(S) $ 0.47
Net realized and unrealized loss on investments and foreign
currency transactions (1.45)
------
Total from investment operations $(0.98)
------
Less distributions declared to shareholders -
From net investment income $(0.47)
In excess of net investment income (0.01)
------
Total distributions declared to shareholders $(0.48)
------
Net asset value - end of period $ 8.54
======
Total return (9.69)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.65%+
Net investment income 9.60%+
Portfolio turnover 127%
Net assets at end of period (000 omitted) $4,308
** For the period from the commencement of the Fund's investment operations,
July 1, 1998, through January 31, 1999.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund had an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent. The Fund's expenses are calculated
without reduction for this expense offset arrangement.
(S) The investment adviser agreed to maintain expenses of the Fund, exclusive of
managements and distribution and service fees, at not more than 0.00% of
average daily net assets. To the extent actual expenses were over this
limitation, the net investment income per share and the ratios would have
been:
Net investment income $ 0.28
Ratios (to average net assets):
Expenses## 5.55%+
Net investment income 5.70%+
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- -------------------------------------------------------------------------------
PERIOD ENDED JANUARY 31, 1999***
- -------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment income(S) $ 0.47
Net realized and unrealized loss on investments and foreign
currency transactions (1.47)
------
Total from investment operations $(1.00)
------
Less distributions declared to shareholders -
From net investment income $(0.47)
In excess of net investment income (0.01)
------
Total distributions declared to shareholders $(0.48)
------
Net asset value - end of period $ 8.52
======
Total return (9.89)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.65%+
Net investment income 9.60%+
Portfolio turnover 127%
Net assets at end of period (000 omitted) $941
*** For the period from the commencement of the Fund's investment operations,
July 1, 1998, through January 31, 1999.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund had an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent. The Fund's expenses are calculated
without reduction for this expense offset arrangement.
(S) The investment adviser agreed to maintain expenses of the Fund, exclusive of
managements distribution and service fees, at not more than 0.00% of average
daily net assets. To the extent actual expenses were over this limitation,
the net investment income per share and the ratios would have been:
Net investment income $ 0.27
Ratios (to average net assets):
Expenses## 5.55%+
Net investment income 5.54%+
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
- -------------------------------------------------------------------------------
PERIOD ENDED JANUARY 31, 1999****
- -------------------------------------------------------------------------------
CLASS I
- -------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment income(S) $ 0.64
Net realized and unrealized loss on investments and foreign
currency transactions (1.55)
------
Total from investment operations $(0.91)
------
Less distributions declared to shareholders -
From net investment income $(0.52)
In excess of net investment income (0.01)
------
Total distributions declared to shareholders $(0.53)
------
Net asset value - end of period $ 8.56
======
Total return (8.96)%++
Ratios (to average net assets)/Supplemental
data(S):
Expenses## 0.65%+
Net investment income 11.10%+
Portfolio turnover 127%
Net assets at end of period (000 omitted) $ --
**** For the period from the commencement of the Fund's investment operations,
July 1, 1998, through January 31, 1999.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund had an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent. The Fund's expenses are calculated
without reduction for this expense offset arrangement.
(S) The investment adviser agreed to maintain expenses of the Fund, exclusive
of managements distribution and service fees, at not more than 0.00% of
average daily net assets. To the extent actual expenses were over this
limitation, the net investment income per share and the ratios would have
been:
Net investment income $ 0.41
Ratios (to average net assets):
Expenses## 4.55%+
Net investment income 7.20%+
See notes to financial statements
NOTES TO FINANCIAL STATEMENTS
(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 opened-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 legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues and forward contracts are
valued on the basis of valuations furnished by dealers or by a pricing service
with consideration to factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics, and other market data, without exclusive reliance upon
exchange or over-the-counter prices. Equity securities listed on securities
exchanges or reported through the NASDAQ system are reported at market value
using last sale prices. Unlisted equity securities or listed equity securities
for which last sale prices are not available are reported at market value using
last quoted bid prices. Short- term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. Securities
for which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All 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. During
the period ended January 31, 1999, $1,129 was reclassified from accumulated
undistributed net investment income to accumulated net realized gain on
investments due to differences between book and tax accounting for defaulted
securities and currency transactions, and the offset of net investment loss
against short-term capital gains. This change had no effect on the net assets or
net asset value per share.
At January 31, 1999, the Fund, for federal income tax purposes, had a capital
loss carryforward of $351,410, which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on January 31, 2007 ($351,410).
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 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
the Fund's average daily net assets. The investment adviser has voluntarily
agreed to pay the Fund's operating expenses exclusive of management and
distribution and service fees such that the Fund's other expenses do not exceed
0.00% of 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. Included in Trustees'
compensation is a net periodic pension expense of $160 for the period ended
January 31, 1999.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$4,701 for the period ended January 31, 1999, 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 not attributable to a securities
dealer, which amounted to $492 for the period ended January 31, 1999. Fees
incurred under the distribution plan during the period ended January 31, 1999,
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 $202 and $0 for Class B and Class C shares, respectively, for the
period ended January 31, 1999. Fees incurred under the distribution plan during
the period ended January 31, 1999, 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
redemption's 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 period ended January 31,
1999, were $0, $3, 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
$13,307,588 and $6,034,152, 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 $7,222,497
----------
Gross unrealized appreciation $ 203,342
Gross unrealized depreciation (282,034)
----------
Net unrealized depreciation $ (78,692)
==========
(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. Transactions in
Fund shares were as follows:
Class A Shares
PERIOD ENDED JANUARY 31, 1999*
------------------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------
Shares sold 472,706 $ 4,288,642
Shares issued to shareholders in reinvestment of
distribution 9,169 78,586
Shares reacquired (241,246) (1,993,787)
------- -----------
Net increase 240,629 $ 2,373,441
======= ===========
Class B Shares
PERIOD ENDED JANUARY 31, 1999*
------------------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------
Shares sold 553,031 $ 4,823,469
Shares issued to shareholders in reinvestment of
distributions 3,552 30,138
Shares reacquired (52,403) (457,181)
------- -----------
Net increase 504,180 $ 4,396,426
======= ===========
Class C Shares
PERIOD ENDED JANUARY 31, 1999*
------------------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------
Shares sold 127,217 $ 1,112,271
Shares issued to shareholders in reinvestment of
distributions 1,180 9,966
Shares reacquired (18,004) (157,003)
------- -----------
Net increase 110,393 $ 965,234
======= ===========
* For the period from the commencement of the Fund's investment operations,
July 1, 1998, through January 1, 1999.
Class I Shares
PERIOD ENDED JANUARY 31, 1999*
------------------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------
Shares sold 16 $ 160
Shares issued to shareholders in reinvestment of
distributions 1 5
Shares reacquired -- --
------- -----------
Net increase 17 $ 165
======= ===========
* For the period from the commencement of the Fund's investment operations,
July 1, 1998, through January 31, 1999.
(6) Line of Credit
The Fund and other affiliated funds participate in an $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of Fund
shares. Interest is charged to each fund, based on its borrowings, at a rate
equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Fund for the period ended January 31, 1999, was $0. The Fund had no
borrowings during the period.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust III and Shareholders of MFS High Yield
Opportunities Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS High Yield Opportunities Fund (a series of
MFS Series Trust III) as of January 31, 1999, the related statements of
operations, changes in net assets and the financial highlights for the ten-year
period ended January 31, 1999. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned at January 31, 1999, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS High Yield
Opportunities Fund at January 31, 1999, the results of its operations, the
changes in its net assets, and its financial highlights for the period from July
1, 1998 (commencement of investment operations) to January 31, 1999 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 5, 1999
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 1999, SHAREHOLDERS WERE MAILED A TAX FORM SUMMARY REPORTING
THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR
YEAR 1998.
<PAGE>
MFS(R) HIGH YIELD OPPORTUNITIES FUND
<TABLE>
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Peter G. Harwood - Private Investor
CUSTODIAN
J. Atwood Ives - Chairman and Chief State Street Bank and Trust Company
Executive Officer, Eastern Enterprises
(diversified services company) AUDITORS
Deloitte & Touche LLP
Lawrence T. Perera - Partner, Hemenway
& Barnes (attorneys) INVESTOR INFORMATION
For MFS stock and bond market outlooks, call toll
William J. Poorvu - Adjunct Professor, free: 1-800-637-4458 anytime from a touch-tone
Harvard University Graduate School of telephone.
Business Administration
For information on MFS mutual funds,
Charles W. Schmidt - Private Investor call your financial adviser or, for an
information kit, call toll free:
Arnold D. Scott* - Senior Executive 1-800-637-2929 any business day from 9
Vice President, Director, and Secretary, a.m. to 5 p.m. Eastern time (or leave a
MFS Investment Management message anytime).
Jeffrey L. Shames* - Chairman, Chief INVESTOR SERVICE
Executive Officer, and Director, MFS Service Center, Inc.
MFS Investment Management P.O. Box 2281
Boston, MA 02107-9906
Elaine R. Smith - Independent Consultant
For general information, call toll free:
David B. Stone - Chairman and Director, 1-800-225-2606 any business day from 8 a.m. to
North American Management Corp. 8 p.m. Eastern time.
(investment advisers)
For service to speech- or hearing-impaired, call
INVESTMENT ADVISER toll free: 1-800-637-6576 any business day from 9
Massachusetts Financial Services Company a.m. to 5 p.m. Eastern time. (To use this service,
500 Boylston Street your phone must be equipped with a
Boston, MA 02116-3741 Telecommunications Device for the Deaf.)
DISTRIBUTOR For share prices, account balances, and exchanges,
MFS Fund Distributors, Inc. call toll free: 1-800-MFS-TALK (1-800-637-8255)
500 Boylston Street anytime from a touch-tone telephone.
Boston, MA 02116-3741
WORLD WIDE WEB
PORTFOLIO MANAGER www.mfs.com
Robert J. Manning*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
MFS(R) HIGH YIELD ------------
OPPORTUNITIES FUND BULK RATE
U.S. POSTAGE
[logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
WE INVENTED THE MUTUAL FUND(R) ------------
500 Boylston Street
Boston, MA 02116-3741
(c)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MHO-2 3/99 5M 70/270/370/870
