<PAGE>
[logo] MFS Annual Report for
THE FIRST NAME IN MUTUAL FUNDS Year Ended
August 31, 1995
MFS(R) OTC FUND
Front cover
A photo of computer disks.
<PAGE>
MFS(R) OTC FUND
<TABLE>
<S> <C>
TRUSTEES CUSTODIAN
A. Keith Brodkin<F1> - Chairman and President Investors Bank & Trust Company
Richard B. Bailey<F1> - Private Investor; AUDITORS
Former Chairman and Director (until 1991), Deloitte & Touche LLP
Massachusetts Financial Services Company
INVESTOR INFORMATION
Peter G. Harwood - Private Investor For MFS stock and bond market outlooks,
call toll free: 1-800-637-4458 anytime from
J. Atwood Ives - Chairman and Chief Executive a touch-tone telephone.
Officer, Eastern Enterprises
For information on MFS mutual funds,
Lawrence T. Perera - Partner, call your financial adviser or, for an
Hemenway & Barnes information kit, call toll free:
1-800-637-2929 any business day from
William J. Poorvu - Adjunct Professor, Harvard 9 a.m. to 5 p.m. Eastern time (or leave
University Graduate School of Business a message anytime).
Administration
INVESTOR SERVICE
Charles W. Schmidt - Private Investor MFS Service Center, Inc.
P.O. Box 2281
Arnold D. Scott<F1> - Senior Executive Vice Boston, MA 02107-9906
President and Secretary, Massachusetts
Financial Services Company For general information, call toll free:
1-800-225-2606 any business day from
Jeffrey L. Shames<F1> - President, Massachusetts 8 a.m. to 8 p.m. Eastern time.
Financial Services Company
For service to speech- or hearing-impaired,
Elaine R. Smith - Independent Consultant call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time.
David B. Stone - Chairman, North American (To use this service, your phone must be equipped with a
Management Corp. (Investment Adviser) Telecommunications Device for the Deaf.)
INVESTMENT ADVISER For share prices, account balances and
Massachusetts Financial Services Company exchanges, call toll free: 1-800-MFS-TALK
500 Boylston Street (1-800-637-8255) anytime from a touch-tone telephone.
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
Mark Regan<F1>
TREASURER
W. Thomas London<F1>
ASSISTANT TREASURER
James O. Yost<F1>
SECRETARY
Stephen E. Cavan<F1>
ASSISTANT SECRETARY
James R. Bordewick, Jr.<F1>
<FN>
<F1> Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
In a period that saw high levels of market volatility, then a massive surge in
the prices of U.S. stocks - particularly technology stocks - and, finally, a
levelling pullback in the prices of many of those same stocks, the Fund
performed in line with the Standard & Poor's 500 Composite Index (the S&P 500)
for the 12 months ended August 31, 1995. The S&P 500 is a popular, unmanaged
index of common stock performance. As investors began to anticipate the end of
the Federal Reserve Board's year-long effort to restrain inflation by raising
short-term interest rates, stock markets began gaining ground in the final
weeks of 1994, an advance that continued into the summer of 1995. In this
environment, the S&P 500 had a total return of +21.42%, while Class A shares
of the Fund had a total return of +19.77%, Class B shares had a total return
of +18.75% and Class C shares had a total return of +18.63%. All of the Fund's
returns include the reinvestment of distributions but exclude the effects of
any sales charges. Complete performance information for the Fund is provided
on pages four, five and six of this report.
Economic Outlook
Moderate, but sustainable growth appears to be the hallmark of the economic
expansion's fifth year. After slowing earlier in the summer, consumer spending
and homebuying were showing renewed strength by August 31, while businesses
continued to work off excess inventories and reduce factory output. Meanwhile,
overseas economies, particularly those of Germany and Japan, have not
recovered as expected, limiting U.S. export growth. However, we believe the
Federal Reserve's consistent and, so far, successful efforts to fight
inflation seem to be giving consumers and businesses enough confidence to help
maintain 2 1/2% to 3% real (adjusted for inflation) growth in gross domestic
product, at least through 1995.
Stock Market
After several months of very strong performance in 1995, the stock market
became somewhat volatile in the last few weeks before August 31 as concerns
about interest rates had a negative effect on stock prices. At the same time,
the technology sector, which had been one of the best-performing sectors this
year, came under significant pressure this summer because of concerns that
these stocks had become overpriced relative to expected earnings. Still, the
longer-term outlook for technology and other growth sectors, such as leisure
and household products, remains favorable, as do the prospects for many small-
company stocks because of their growth potential relative to larger companies.
Also, companies' increasing emphasis on cost containment, coupled with their
growing use of technology, have helped keep them competitive and reasonably
profitable. Finally, we have been watching with interest the recent series of
corporate mergers in such industries as banking, entertainment, health care
and consumer products. Unlike previous merger waves, which were often intended
to build conglomerates of loosely related or unrelated businesses, this year's
mergers of similar companies seem to be more rationally based on the goal of
helping the merged companies reduce costs and, in general, be more
competitive. Looking ahead, we believe these factors, along with a stabilizing
interest rate environment and a continuation of favorable earnings reports,
will help maintain the stock market's positive momentum.
Portfolio Performance and Strategy
The Fund's performance has been positively impacted by investments in a number
of areas, specifically technology, including software and networking
companies; communications, such as wireless communications and long distance
telephone companies; selected medical devices companies; and gaming companies.
Areas that have not performed well include health maintenance organizations
(HMOs), nursing homes and Canadian communications companies.
About 36% of the Fund has been invested in technology companies this year
and these holdings have dramatically outperformed the overall market. For
example, the explosion in demand for multimedia personal computers (PCs) has
driven the valuation of entertainment software companies that provide the
games and educational software that PC users demand. The Fund has large
weightings in this area, including such companies as Electronic Arts, the
Learning Company, Sierra On-Line, Spectrum Holobyte and Softkey. Meanwhile,
the move to distributed processing by corporations has resulted in several
significant long-term technology trends, including the development of improved
database software, benefiting companies such as Oracle, Informix and Sybase,
and communication developments between the different local area networks and
the new sources of data, helping companies like Cisco.
Gaming stocks, particularly casinos, have also contributed to the Fund's
performance as purchases were made at depressed levels in the fourth quarter
of 1994. Going forward, our strategy for investing in the gaming area is to
identify new or emerging gaming markets.
In the field of medical devices, the focus of our investments has been on
companies utilizing new or under-recognized products that can help reduce
costs or provide a higher value of medical care, such as Medisense, for the
monitoring of diabetes; Ventritex; EP Technologies; Zoll, for heart treatment;
and Uromed, for urological treatment.
While HMOs, nursing homes and Canadian communications companies have had
disappointing results in the past year, we have reviewed each of these areas
and believe they still offer tremendous opportunity over the next six to 12
months.
Finally, we believe the valuations of our holdings remain attractive,
based on estimated future growth rates. As these valuations change, positions
in the Fund will be evaluated and, where it seems necessary, modified
accordingly.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
- ----------------------- ----------------------------
A photo of A. Keith A photo of Mark Regan, Portfolio
Brodkin, Chairman and Manager.
President.
- ----------------------- ----------------------------
/s/A. Keith Brodkin /s/Mark Regan
A. Keith Brodkin Mark Regan
Chairman and President Portfolio Manager
September 12, 1995
PORTFOLIO MANAGER PROFILE
Mark Regan began his career at MFS in 1989 as a research analyst. A graduate
of Cornell University and the Sloan School of Management at the Massachusetts
Institute of Technology, he was promoted to Investment Officer in 1990,
Assistant Vice President - Investments in 1991 and Vice President -
Investments in 1992. Mr. Regan has managed MFS OTC Fund since its inception in
1993.
OBJECTIVE AND POLICIES
The Fund's primary investment objective is to provide long-term growth of
capital.
The Fund seeks to achieve its objective by investing at least 65% of its
assets, under normal circumstances, in securities principally traded on the
over-the-counter (OTC) securities market. OTC securities tend to be securities
of companies which are smaller or newer than those listed on the New York or
American Stock Exchanges. The Fund may invest in securities of companies that
are not traded on the OTC securities market that represent opportunities for
capital appreciation, as well as in fixed-income securities.
TAX FORM SUMMARY
In January 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995.
PERFORMANCE
The information on the following page illustrates the historical performance
of MFS OTC Fund Class A and Class B shares in comparison to various market
indicators. Class A share results reflect the deduction of the 5.75% maximum
sales charge. Class B share results reflect the current maximum contingent
deferred sales charge (CDSC) of 4%. Benchmark comparisons are unmanaged and do
not reflect any fees or expenses. You cannot invest in an index. All results
reflect the reinvestment of all dividends and capital gains.
Class C shares were offered effective August 1, 1994. Information on Class C
share performance appears on the next page.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the Period from December 1, 1993* to August 31, 1995)
Line graph representing the growth of a $10,000 investment for the period from
December 1, 1993 to August 31, 1995. The graph is scaled from $8,000 to $13,000
in $1,000 segments. The years are marked in 3-month segments from 1993 to 1995.
There are five lines drawn to scale. One is a solid line representing MFS OTC
Fund (Class A), a second line of short dashes represents MFS OTC Fund (Class B),
a third line of medium-short dashes represents the S&P 500, a fourth line of
medium-long dashes represents the Russell 2000 Index, and a fifth line of long
dashes represents the Consumer Price Index.
MFS OTC Fund (Class A) $12,541
MFS OTC Fund (Class B) $12,509
S&P 500 $12,764
Russell 2000 Index $12,627
Consumer Price Index $10,487
AVERAGE ANNUAL TOTAL RETURNS
12/01/93*-
1 Year 8/31/95
- ------------------------------------------------------------------------------
MFS OTC Fund (Class A) including 5.75% sales charge +12.87% +13.67%
- ------------------------------------------------------------------------------
MFS OTC Fund (Class A) at net asset value +19.77% +17.60%
- ------------------------------------------------------------------------------
MFS OTC Fund (Class B) with CDSC(+) +14.75% +14.28%
- ------------------------------------------------------------------------------
MFS OTC Fund (Class B) without CDSC +18.75% +16.33%
- ------------------------------------------------------------------------------
MFS OTC Fund (Class C) +18.63% +28.30%#
- ------------------------------------------------------------------------------
Average small company growth fund +26.39% +16.08%
- ------------------------------------------------------------------------------
Russell 2000 Index(++) +20.79% +13.81%
- ------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index +21.42% +14.96%
- ------------------------------------------------------------------------------
Consumer Price Index(S) + 2.62% + 2.75%
- ------------------------------------------------------------------------------
* For the period from the commencement of offering of Class A and Class B
shares, December 1, 1993 to August 31, 1995.
(+) These returns reflect the maximum CDSC of 4%.
# For the period from the commencement of offering of Class C shares,
August 1, 1994 to August 31, 1995. Class C shares have no initial sales
charge or CDSC but, along with Class B shares, have higher annual fees and
expenses than Class A shares.
(++) The Russell 2000 Index is an unmanaged index comprised of 2,000 of the
smallest U.S.-domiciled company common stocks which are traded on the New
York Stock Exchange, the American Stock Exchange and NASDAQ.
(S) The Consumer Price Index is a popular measure of change in prices.
In the preceding table, we have included the average annual total returns of
all small company growth funds (including the Fund) tracked by Lipper
Analytical Services, Inc. (an independent firm which reports mutual fund
performance) for the applicable time periods (281 and 218 funds for the one-
year period ended August 31, 1995, and for the period from December 1, 1993
through August 31, 1995, respectively). Because these returns do not reflect
any applicable sales charges, we have also included the Fund's results at net
asset value (no sales charge) for comparison.
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual
fund will vary with changes in market conditions, and shares, when redeemed,
may be worth more or less than their original cost.
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1995
Percent of Percent of
Five Largest Industries Net Assets Ten Largest Holdings Net Assets
- --------------------------------------------------------------------------
Entertainment 17.3 Medisense, Inc. 7.0
- -------------------------------------- ----------------------------------
Computer Software - Personal Showboat, Inc. 5.6
Computers 16.2 ----------------------------------
- -------------------------------------- Spectrum Holobyte Industries 5.4
Medical and Health Technology and ----------------------------------
Services 14.3 Rogers Communications, Inc. 5.0
- -------------------------------------- ----------------------------------
Telecommunications 13.4 Argosy Gaming Corp. 4.5
- -------------------------------------- ----------------------------------
Medical and Health Products 11.1 Mid-Atlantic Medical Services,
- -------------------------------------- Inc. 4.2
----------------------------------
Electric Arts, Inc. 4.1
----------------------------------
Pacific Health Systems,
Inc., "B" 3.9
----------------------------------
Rogers Cantel Mobile Co. 3.8
----------------------------------
Cisco Systems, Inc. 3.4
----------------------------------
<PAGE>
PORTFOLIO OF INVESTMENTS - August 31, 1995
Common Stocks and Warrants - 97.1%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
Business Machines - 0.5%
Affiliated Computer Services, "A"* 15,000 $ 448,125
- -----------------------------------------------------------------------------
Business Services - 0.1%
Global Directmail Corp.* 3,100 $ 85,250
HPR, Inc.* 500 12,500
------------
$ 97,750
- -----------------------------------------------------------------------------
Cellular Telephones - 1.7%
AirTouch Communications, Inc.* 50,000 $ 1,625,000
- -----------------------------------------------------------------------------
Computer Software - Personal Computers - 16.2%
ARCSYS, Inc.* 600 $ 24,000
Autodesk, Inc. 12,800 590,400
Eagle Point Software* 500 11,000
Electronic Arts, Inc.* 102,800 3,906,400
Learning Co.* 55,000 3,217,500
Network Peripherals* 145,700 2,058,013
Novadigm, Inc.* 700 14,000
Pure Software, Inc.* 900 24,975
Softkey International, Inc.* 11,000 438,625
Spectrum Holobyte Industries* 298,900 5,156,025
------------
$ 15,440,938
- -----------------------------------------------------------------------------
Computer Software - Systems - 9.6%
BDM International, Inc. 1,500 $ 37,687
BMC Software, Inc.* 46,000 1,960,750
Computron Software* 1,000 19,000
Compuware Corp.* 132,500 2,997,812
Datalogix International, Inc.* 900 21,150
Dendrite International, Inc.* 900 12,713
Discreet Logic, Inc.* 700 28,350
HNC Software* 500 12,437
Inference Corp.* 400 7,200
Informix Corp.* 20,000 560,000
Legato Systems, Inc.* 400 9,400
Netscape Communications* 700 34,650
ON Technology Corp.* 500 8,000
Oracle Systems Corp.* 10,000 401,250
Seer Technologies, Inc.* 600 10,050
Spyglass* 700 29,839
Sybase, Inc.* 92,100 2,958,712
Vantive Corp.* 500 6,438
------------
$ 9,115,438
- -----------------------------------------------------------------------------
Consumer Goods and Services - 0.1%
Oakley, Inc.* 1,400 $ 44,975
USA Detergents, Inc.* 700 12,950
------------
$ 57,925
- -----------------------------------------------------------------------------
Electronics - 5.3%
Advance Circuits, Inc.* 62,100 $ 1,311,862
C.P. Clare Corp.* 1,000 24,000
Intel Corp. 21,800 1,337,975
LTX Corp.* 158,400 1,801,800
MEMC Electronics Materials, Inc.* 4,400 135,300
National Semiconductor* 15,000 423,750
Ontrak Systems, Inc.* 700 18,813
Paradigm Technology* 700 23,100
Thermospectra Corp.* 700 12,513
------------
$ 5,089,113
- -----------------------------------------------------------------------------
Entertainment - 17.3%
Ambassadors International, Inc.* 3,000 $ 34,500
American Radio Systems Corp.* 1,300 37,050
Argosy Gaming Corp.* 300,100 4,276,425
Casino America, Inc.* 185,900 2,695,550
Central European Media Enterprises Ltd.* 95,000 2,386,875
Showboat, Inc. 230,600 5,303,800
Starsight Telecast, Inc.* 369,200 1,661,400
Station Casinos, Inc.* 3,600 69,750
------------
$ 16,465,350
- -----------------------------------------------------------------------------
Financial Institutions
Jayhawk Acceptance Corp.* 1,500 $ 21,937
- -----------------------------------------------------------------------------
Machinery
Computational Systems, Inc.* 1,000 $ 15,500
- -----------------------------------------------------------------------------
Medical and Health Products - 11.1%
EP Technologies, Inc.* 50,000 $ 668,750
Medisense, Inc.* 280,000 6,650,000
Uromed Corp.* 167,900 1,595,050
Zoll Medical Corp.* 170,300 1,617,850
------------
$ 10,531,650
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 14.3%
American Oncology Resources* 1,400 $ 52,850
Beverly Enterprises* 126,300 1,673,475
Mariner Health Group, Inc.* 204,500 2,811,875
Mid-Atlantic Medical Services, Inc.* 212,200 3,952,225
Oxford Health Plans, Inc.* 8,300 406,700
Pacificare Health Systems, Inc., "A"* 15,000 821,250
Pacificare Health Systems, Inc., "B"* 65,000 3,721,250
United Healthcare Corp. 5,000 211,250
------------
$ 13,650,875
- -----------------------------------------------------------------------------
Metals and Minerals - 0.7%
Southern Africa Minerals Corp.* 810,000 $ 663,633
- -----------------------------------------------------------------------------
Printing and Publishing - 0.1%
American Media, Inc., Warrants 1,351,600 $ 63,256
Desktop Data, Inc.* 500 14,187
------------
$ 77,443
- -----------------------------------------------------------------------------
Restaurants and Lodging - 0.3%
Apple South, Inc. 1,300 $ 31,850
Papa John's International, Inc.* 1,600 64,000
Promus Hotel Corp.* 9,900 204,187
------------
$ 300,037
- -----------------------------------------------------------------------------
Special Products and Services - 1.2%
Sphere Drake Holdings Ltd.* 65,000 $ 1,105,000
- -----------------------------------------------------------------------------
Telecommunications - 13.4%
Chipcom Corp.* 25,000 $ 1,003,125
Cisco Systems, Inc.* 50,000 3,281,250
Lambert Communication* 33,000 1,650
Midcom Communication* 3,600 56,700
Rogers Cantel Mobile Co.* 150,000 3,600,000
Rogers Communications, Inc.* 467,200 4,784,735
Sitel Corp.* 1,100 23,650
Teltrend, Inc.* 1,300 30,550
------------
$ 12,781,660
- -----------------------------------------------------------------------------
Utilities - Telephone - 5.2%
MCI Communications Corp. 205,000 $ 4,932,812
- -----------------------------------------------------------------------------
Total Common Stocks and Warrants (Identified Cost, $88,459,928) $ 92,420,186
- -----------------------------------------------------------------------------
Short-Term Obligations - 3.8%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Federal National Mortgage Assn., 5.67s, due
9/12/95 $2,000 $ 1,995,590
Ford Motor Credit, 5.8s, due 9/01/95 1,650 1,649,734
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 3,645,324
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $92,105,252) $ 96,065,510
Other Assets, Less Liabilities - (0.9)% (921,294)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $ 95,144,216
- -----------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
August 31, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $92,105,252) $96,065,510
Cash 1,653
Receivable for Fund shares sold 1,286,262
Interest receivable 1,219
Other assets 1,227
-----------
Total assets $97,355,871
-----------
Liabilities:
Payable for investments purchased $ 1,978,900
Payable for Fund shares reacquired 138,309
Payable to affiliates -
Management fee 1,910
Shareholder servicing agent fee 499
Distribution fee 19,299
Accrued expenses and other liabilities 72,738
-----------
Total liabilities $ 2,211,655
-----------
Net assets $95,144,216
===========
Net assets consist of:
Paid-in capital $79,907,768
Unrealized appreciation on investments 3,960,258
Accumulated undistributed net realized gain on investments
and foreign currency transactions 11,279,452
Accumulated net investment loss (3,262)
-----------
Total $95,144,216
===========
Shares of beneficial interest outstanding 9,533,726
===========
Class A shares:
Net asset value and redemption price per share
(net assets of $30,193,568 / 2,996,256 shares of
beneficial interest outstanding) $10.08
======
Offering price per share (100/94.25) $10.69
======
Class B shares:
Net asset value and offering price per share
(net assets of $61,741,683 / 6,213,651 shares of
beneficial interest outstanding) $9.94
=====
Class C shares:
Net asset value, offering price, and redemption price per
share (net assets of $3,208,965 / 323,819 shares of
beneficial interest outstanding) $9.91
=====
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A
and Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended August 31, 1995
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends (including $397,265 received from affiliated
issuers) $ 509,038
Interest 173,982
-----------
Total investment income $ 683,020
-----------
Expenses -
Management fee $ 594,194
Trustees' compensation 4,475
Shareholder servicing agent fee (Class A) 38,322
Shareholder servicing agent fee (Class B) 114,682
Shareholder servicing agent fee (Class C) 2,325
Distribution and service fee (Class B) 491,201
Distribution and service fee (Class C) 15,495
Custodian fee 55,011
Printing 48,156
Auditing fees 36,350
Postage 29,678
Legal fees 8,236
Miscellaneous 121,200
-----------
Total expenses $ 1,559,325
-----------
Net investment loss $ (876,305)
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions (including $851,692 loss from
transactions in securities of affiliated issuers) $14,682,413
Foreign currency transactions (314)
-----------
Net realized gain on investments $14,682,099
-----------
Change in unrealized appreciation (depreciation) -
Investments $ 959,373
Translation of assets and liabilities in foreign currencies (6)
-----------
Net unrealized gain on investments $ 959,367
-----------
Net realized and unrealized gain on investments and
foreign currency $15,641,466
-----------
Increase in net assets from operations $14,765,161
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
1995 1994*
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (876,305) $ (297,097)
Net realized gain on investments and foreign
currency transactions 14,682,099 144,573
Net unrealized gain on investments and
foreign currency 959,367 3,000,891
------------ -----------
Increase in net assets from operations $ 14,765,161 $ 2,848,367
------------ -----------
Distributions declared to shareholders -
From net realized gain on investments and
foreign currency transactions (Class A) $ (918,344) $ --
From net realized gain on investments and
foreign currency transactions (Class B) (1,440,882) --
From net realized gain on investments and
foreign currency transactions (Class C) (47,151) --
------------ -----------
Total distributions declared to
shareholders $ (2,406,377) $ --
------------ -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $110,456,952 $74,941,646
Net asset value of shares issued to
shareholders in reinvestment of
distributions 2,174,647 --
Cost of shares reacquired (84,557,685) (23,080,495)
------------ -----------
Increase in net assets from Fund share
transactions $ 28,073,914 $51,861,151
------------ -----------
Total increase in net assets $ 40,432,698 $54,709,518
Net assets:
At beginning of period 54,711,518 2,000
------------ -----------
At end of period (including accumulated net
investment loss of $3,262 and $1,903,
respectively) $ 95,144,216 $54,711,518
============ ===========
*For the period from the commencement of investment operations, December 1,
1993 to August 31, 1994.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------
Year Ended August 31, 1995 1994<F1> 1995 1994<F1> 1995 1994<F2>
- -------------------------------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 8.68 $ 7.83 $ 8.59 $ 7.83 $ 8.61 $ 7.80
------ ------ ------ ------ ------ ------
Income from investment operations<F4> -
Net investment loss $(0.03) $(0.05) $(0.13) $(0.12) $(0.14) $(0.04)
Net realized and unrealized gain on
investments 1.69 0.90 1.69 0.88 1.69 0.85
------ ------ ------ ------ ------ ------
Total from investment operations $ 1.66 $ 0.85 $ 1.56 $ 0.76 $ 1.55 $ 0.81
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders from net realized gain on
investments $(0.26) $ -- $(0.21) $ -- $(0.25) $ --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.26) $ -- $(0.21) $ -- $(0.25) $ --
------ ------ ------ ------ ------ ------
Net asset value - end of period $10.08 $ 8.68 $ 9.94 $ 8.59 $ 9.91 $ 8.61
====== ====== ====== ====== ====== ======
Total return<F5> 19.77% 10.86% 18.75% 9.71% 18.63% 10.38%
Ratios (to average net assets)/Supplemental
data<F6>:
Expenses 1.29% 1.50%<F3> 2.29% 2.57%<F3> 2.30% 2.50%<F3>
Net investment loss (0.40)% (0.87)%<F3> (1.44)% (2.02)%<F3> (1.55)% (2.22)%<F3>
Portfolio turnover 218% 82% 218% 82% 218% 82%
Net assets at end of period (000 omitted) $30,194 $17,776 $61,742 $36,849 $3,209 $ 87
<FN>
<F1> For the period from the commencement of investment operations, December 1, 1993 to August 31, 1994.
<F2> For the period from the commencement of offering of Class C shares, August 1, 1994 to August 31, 1994.
<F3> Annualized.
<F4> Per share data is based upon average shares outstanding.
<F5> 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.
<F6> The investment adviser did not impose a portion of its management fee and distribution fee, respectively, for the periods
indicated. If these fees had been incurred by the Fund, the net investment loss per share and the ratios would have been:
Net investment loss -- $(0.08) -- $(0.15) -- $(0.05)
Ratios (to average net assets):
Expenses -- 2.03%<F3> -- 3.10%<F3> -- 3.03%
Net investment loss -- (1.40)%<F3> -- (2.56)%<F3> -- (2.71)%<F3>
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS OTC Fund (the Fund) is a non-diversified series of MFS Series Trust IV
(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, diversified management investment company.
(2) Significant Accounting Policies
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are
not available are valued at last quoted bid prices. 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 transactions
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 original issue discount are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. Dividend and interest payments received in additional securities are
recorded on the ex-dividend or ex-interest date in an amount equal to the
value of the security on such date.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of
net investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return, and
consequently, the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on Form
1099-DIV. Foreign taxes have been provided for on interest and dividend income
earned on foreign investments in accordance with the applicable country's tax
rates and to the extent unrecoverable are recorded as a reduction of
investment income. Distributions to shareholders are recorded on the ex-
dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains. During the year ended August 31, 1995, $874,946 was
reclassified from accumulated net investment loss to accumulated net realized
gain on investments to offset short-term capital gains. This change had no
effect on the net assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B and Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, distribution and service fees. All
shareholders bear the common expenses of the Fund pro rata based on the
average daily net assets of each class, without distinction between share
classes. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of average daily net assets. 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 of the 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 $1,185 for the year ended August 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$35,335 for the year ended August 31, 1994 as its portion of the sales charge
on sales of Class A shares of the Fund. The Trustees have adopted separate
distribution plans for Class A, Class B and Class C shares pursuant to Rule
12b-1 of the Investment Company Act of 1940 as follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets
attributable to Class A shares, commissions to dealers and payments to MFD
wholesalers for sales at or above a certain dollar level, and other such
distribution-related expenses that are approved by the Fund. Payments will
commence under the distribution plan on such date that the net assets of the
Fund attributable to Class A shares first equals or exceeds $40 million.
The Class B and Class C distribution plans provide that the Fund will pay MFD
a monthly distribution fee, equal to 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. The service fee is not charged on Class B shares
held over one year. MFD will pay to securities dealers that enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class B
and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended
to be additional consideration for services rendered by the dealer with
respect to Class B and Class C shares. Fees incurred under the distribution
plans during the year ended August 31, 1995 were 0.94% and 1.00% of average
daily net assets attributable to Class B and Class C shares, respectively.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within 12 months following the share purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended August 31, 1995 were $41
and $132,216 for Class A and Class B 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 average daily net assets of each class of shares at an
effective annual rate of up to 0.15%, up to 0.22% and up to 0.15% attributable
to Class A, Class B and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, aggregated $197,493,525 and $173,368,376,
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 $92,628,804
===========
Gross unrealized appreciation $13,592,098
Gross unrealized depreciation 10,155,392
-----------
Net unrealized appreciation $ 3,436,706
===========
(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
Year Ended August 31, 1995 Period Ended August 31, 1994*
---------------------------- ----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,680,448 $ 39,610,152 3,491,940 $ 28,339,992
Shares issued to
shareholders in
reinvestment of
distributions 104,971 868,094 -- --
Shares
reacquired (3,837,263) (32,341,967) (1,443,968) (11,474,151)
----------- ------------- ----------- -------------
Net increase 948,156 $ 8,136,279 2,047,972 $ 16,865,841
=========== ============= =========== =============
*For the period from the commencement of investment operations, December 1,
1993 to August 31, 1994.
Class B Shares
Year Ended August 31, 1995 Period Ended August 31, 1994*
---------------------------- ----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 7,325,159 $ 62,579,527 5,765,354 $ 46,517,609
Shares issued to
shareholders in
reinvestment of
distributions 154,411 1,266,051 -- --
Shares
reacquired (5,554,198) (46,622,744) (1,477,203) (11,606,344)
----------- ------------- ----------- -------------
Net increase 1,925,372 $ 17,222,834 4,288,151 $ 34,911,265
=========== ============= =========== =============
*For the period from the commencement of investment operations, December 1,
1993 to August 31, 1994.
Class C Shares
Year Ended August 31, 1995 Period Ended August 31, 1994**
---------------------------- ----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 948,839 $8,267,273 10,122 $84,045
Shares issued to
shareholders in
reinvestment of
distributions 4,957 40,502 -- --
Shares
reacquired (640,099) (5,592,974) -- --
-------- ---------- ------ -------
Net increase 313,697 $2,714,801 10,122 $84,045
======== ========== ====== =======
**For the period from the commencement of offering of Class C shares, August
1, 1994 to August 31, 1994.
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the year ended August
31, 1995 was $23,882.
(7) Transactions in Securities of Affiliated Issuers
Affiliated issuers, as defined under the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the year ended August
31, 1995 is set forth below.
<TABLE>
<CAPTION>
Acquisitions Dispositions Interest and
Beginning --------------------- ------------------------ Ending Realized Dividend Ending
Affiliate Shares Shares Cost Shares Cost Shares Loss Income Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
American Media, Inc. 93,300 157,200 $1,905,064 250,500 $2,501,179 0 $(851,692) $397,265 0
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust IV and Shareholders of MFS OTC Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS OTC Fund (one of the series
constituting MFS Series Trust IV) as of August 31, 1995, the related statement
of operations for the year then ended and the statement of changes in net
assets and the financial highlights for the year ended August 31, 1995 and the
period ended August 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at August 31, 1995, 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
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS OTC Fund at
August 31, 1995, the results of its operations, the changes in its net assets,
and its financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 6, 1995
---------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
MFS INVESTMENT OPPORTUNITIES
MUTUAL FUNDS
The MFS Family of Funds(R), shown on the facing page, falls into the eight
general categories below. All offer full-time professional management, a
diversified portfolio, and a wide array of shareholder services.
STOCK FUNDS seek growth of capital rather than income through investments in
stocks.
STOCK AND BOND FUNDS seek current income and growth of capital through
investments in both stocks and bonds.
BOND FUNDS seek current income through investments in debt securities.
WORLD FUNDS seek stock, balanced, and bond fund objectives through
investments in U.S. and foreign stocks and bonds.
LIMITED-MATURITY FUNDS seek current income and preservation of capital through
investments in debt securities with remaining maturities of five years or less.
NATIONAL TAX-FREE BOND FUNDS seek current income exempt from federal income
tax through investments in debt securities issued by states and
municipalities.(1)
STATE TAX-FREE BOND FUNDS seek current income exempt from federal and state
income taxes through investments in debt securities issued by a single state
and its municipalities.(1)
MONEY MARKET FUNDS seek preservation of capital and current income through
investments in short-term debt securities.(2)
To determine which MFS fund may be appropriate for you, please contact your
financial adviser, who can help you relate these investment opportunities to
your financial goals. If you prefer, you may call MFS Investor Information for
literature(3) on MFS products and services: 1- 800-637-2929, from 9 a.m. to 5
p.m. Eastern time any business day (leave a message any time).
(1) A small portion of the income may be subject to federal, state and/or
alternative minimum tax.
(2) Investments in money market funds are not issued or guaranteed by the U.S.
government and there is no assurance that the Fund will be able to maintain
a stable net asset value.
(3) Including a prospectus containing more complete information including
charges and expenses. Read the prospectus carefully before investing.
<PAGE>
THE MFS FAMILY OF FUNDS(R)
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-637-2929
any business day from 9 a.m. to 5 p.m. Eastern time (or, leave a message any
time). This material should be read carefully before investing or sending money.
<TABLE>
<S> <C>
STOCK LIMITED MATURITY BOND
- ---------------------------------------------------- ----------------------------------------------------
Massachusetts Investors Trust MFS(R) Government Limited Maturity Fund
- ---------------------------------------------------- ----------------------------------------------------
Massachusetts Investors Growth Stock Fund MFS(R) Limited Maturity Fund
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Capital Growth Fund MFS(R) Municipal Limited Maturity Fund
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Emerging Growth Fund
- ---------------------------------------------------- WORLD
MFS(R) Gold & Natural Resources Fund ----------------------------------------------------
- ---------------------------------------------------- MFS(R) World Asset Allocation Fund
MFS(R) Growth Opportunities Fund ----------------------------------------------------
- ---------------------------------------------------- MFS(R) World Equity Fund
MFS(R) Managed Sectors Fund ----------------------------------------------------
- ---------------------------------------------------- MFS(R) World Governments Fund
MFS(R) OTC Fund ----------------------------------------------------
- ---------------------------------------------------- MFS(R) World Growth Fund
MFS(R) Research Fund ----------------------------------------------------
- ---------------------------------------------------- MFS(R) World Total Return Fund
MFS(R) Value Fund ----------------------------------------------------
- ----------------------------------------------------
NATIONAL TAX-FREE BOND
STOCK AND BOND ----------------------------------------------------
- ---------------------------------------------------- MFS(R) Municipal Bond Fund
MFS(R) Total Return Fund ----------------------------------------------------
- ---------------------------------------------------- MFS(R) Municipal High Income Fund
MFS(R) Utilities Fund (closed to new investors)
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Municipal Income Fund
BOND ----------------------------------------------------
- ----------------------------------------------------
MFS(R) Bond Fund STATE TAX-FREE BOND
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Government Mortgage Fund Alabama, Arkansas, California, Florida,
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Government Securities Fund Georgia, Louisiana, Maryland, Massachusetts,
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) High Income Fund Mississippi, New York, North Carolina,
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Intermediate Income Fund Pennsylvania, South Carolina, Tennessee,
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Strategic Income Fund Texas, Virginia, Washington, West Virginia
(formerly MFS(R) Income & Opportunity Fund) ----------------------------------------------------
- ----------------------------------------------------
MONEY MARKET
----------------------------------------------------
MFS(R) Cash Reserve Fund
----------------------------------------------------
MFS(R) Government Money Market Fund
----------------------------------------------------
MFS(R) Money Market Fund
----------------------------------------------------
</TABLE>
<PAGE>
MFS(R) OTC FUND BULK RATE
U.S. POSTAGE
500 Boylston Street P A I D
Boston, MA 02116 PERMIT #55638
BOSTON, MA
[logo] MFS
THE FIRST NAME IN MUTUAL FUNDS
OTC-2 10/95 13M 83/283/383
