[LOGO] Semiannual report
THE FIRST NAME IN MUTUAL FUNDS February 28, 1995
MFS (r) OTC FUND
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MFS(R) OTC FUND
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TRUSTEES CUSTODIAN
<S> <C>
A. Keith Brodkin* - Chairman and President Investors Bank & Trust Company
Richard B. Bailey* - Private Investor; INVESTOR INFORMATION
Former Chairman and Director (until 1991), For MFS stock and bond market outlooks,
Massachusetts Financial Services Company call toll-free: 1-800-637-4458 anytime from
a touch-tone telephone.
Peter G. Harwood - Former Financial Vice
President, Treasurer and Director (until 1988), For information on MFS mutual funds,
Loomis, Sayles & Co., Inc. call your financial adviser or, for an
information kit, call toll-free:
J. Atwood Ives - Chairman and Chief Executive 1-800-637-2929 any business day from
Officer, Eastern Enterprises 9 a.m. to 5 p.m. Eastern time (or leave
a message anytime).
Lawrence T. Perera - Partner, Hemenway & Barnes
INVESTOR SERVICE
William J. Poorvu - Adjunct Professor, Harvard MFS Service Center, Inc.
University Graduate School of Business P.O. Box 2281
Administration Boston, MA 02107-9906
Charles W. Schmidt - Private Investor; For current account service, call toll free:
Former Senior Vice President and Group Executive 1-800-225-2606 any business day from
(until 1990), Raytheon Company 8 a.m. to 8 p.m. Eastern time.
Arnold D. Scott* - Senior Executive Vice President and For service to speech- or hearing-impaired,
Secretary, Massachusetts Financial Services call toll free: 1-800-637-6576 any business
Company day from 9 a.m. to 5 p.m. Eastern time. (To use this
service, your phone must be equipped with a
Jeffrey L. Shames* - President and Chief Equity Telecommunications Device for the Deaf.)
Officer, Massachusetts Financial Services Company
For share prices, account balances and
Elaine R. Smith - Independent Consultant exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone
David B. Stone - Chairman, North American telephone.
Management Corp. (Investment Advisers)
INVESTMENT ADVISER
Massachusetts Financial Services Company TOP-RATED SERVICE
500 Boylston Street MFS was rated first when securities firms evaluated the
Boston, Massachusetts 02116-3741 quality of service they receive from 40 mutual fund companies.
MFS got high marks for answering calls quickly, processing
PORTFOLIO MANAGER transactions accurately and sending statements out on time.
Mark Regan* (source: 1994 DALBAR Survey)
TREASURER
W. Thomas London*
ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
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LETTER TO SHAREHOLDERS
Dear Shareholders:
Over the six months ended February 28, 1995, the stock market, as measured by
the Standard & Poor's 500 Composite Index (a popular, unmanaged index of common
stock performance), returned +3.96%, while the Russell 2000 Total Return Index
(an index comprised of 2,000 of the smallest U.S.-domiciled company stocks which
are traded in the U.S. on the New York Stock Exchange, the American Stock
Exchange and NASDAQ) returned +0.58%. Over this same period, Class A shares of
the Fund provided a total return of -2.10%, Class B shares - 2.52%, and Class C
shares -2.80% (assuming the reinvestment of distributions but excluding the
effects of any sales charges). Although many stock prices improved during the
past few months, the Fund's performance was impacted by its holdings in certain
health maintenance organizations (HMOs) and some of its smaller-market
capitalization issues. These are discussed in the Portfolio Performance and
Strategy section below.
Economic Outlook
The economic expansion, entering its fifth year, gained firmer underpinnings in
1994 as employers significantly stepped up hiring levels. Increased employment,
stronger capital spending by businesses, and strengthening overseas economies
resulted in 4% real (adjusted for inflation) gross domestic product growth last
year. Interest rates rose substantially over the past year, which should help
restrain, but not curtail, the economic expansion. Based on sound economic
fundamentals both here and abroad, we expect the business expansion to continue
well into 1995.
Stock Market
The stock market has rebounded from its uninspiring performance during 1994.
Prices recently have responded to growing confidence that the Federal Reserve
Board is nearing the end of its tightening initiatives and that gains in
corporate earnings may continue to be substantial. Although we expect the
economy to slow in 1995, earnings growth of most companies should remain intact
because of continued gains in operating efficiency. We believe smaller
companies, which typically have had greater earnings dynamics than larger
companies but also have had greater price fluctuations, should continue to be
rewarded in the marketplace as earnings growth remains the primary focus of many
investors. Despite the potential impact on the growth rates of corporate profits
from a slowing economy, we believe stock prices should respond to continued
momentum in profitability.
Portfolio Performance and Strategy
Currently, the Fund's investments are focused in three major sectors: health
care, technology and leisure. As mentioned earlier, the Fund's results during
the six months ended February 28, 1995 were impacted by its holdings in HMOs,
which weakened over concerns regarding cost containment and continued
subscription growth. However, we believe that not only do our holdings have the
potential to experience continued subscriber growth, but also that they will be
able to successfully manage their medical costs. Thus, we have added to some of
our positions in this sector, to HMOs such as United Health and U.S. Health. We
have also added to our positions in nursing homes such as Mariner Health, and
selected equipment suppliers such as Ventritex.
Within the technology sector, our investments are concentrated primarily in
software, networking and telecommunications companies, based on our view that
processing power will continue to grow exponentially per unit cost. There are
two main beneficiaries of this trend: first, the software that takes advantage
of the processing power manufactured by companies such as Oracle, Informix,
Sybase, Broderbund, Learning Company and Sierra On-Line; and second, the network
and equipment manufacturers such as Cisco Systems and Newbridge Networks that
allow the most powerful data users to communicate.
<PAGE>
LETTER TO SHAREHOLDERS - continued
Finally, in the leisure sector, we remain focused on companies that should
benefit from higher disposable income or growth in consumers' free time.
Selective investments have been made in companies in the entertainment area such
as cable TV, programming, gaming and restaurants. We believe all of these areas
are attractive when you compare their estimated growth rates to their current
market valuations.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
- --------------------------- ---------------------------
A 1 1/2 inch by 1 5/8 inch A 1 1/2 inch by 1 5/8 inch
photo of A. Keith Brodkin, photo of Mark Regan,
Chairman and President. Portfolio Manager.
- --------------------------- ---------------------------
A. Keith Brodkin Mark Regan
Chairman and President Portfolio Manager
March 9, 1995
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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 served as Portfolio Manager for 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.
PORTFOLIO CONCENTRATION AS OF FEBRUARY 28, 1995
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Percent of Percent of
Five Largest Industries Net Assets Ten Largest Holdings Net Assets
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Telecommunications 22.0 Rogers Communications, Inc. 10.90
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Entertainment 15.8 Cisco Systems, Inc. 5.47
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Computer Software - Systems 15.4 Electronic Arts, Inc. 5.18
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Medical and Health Technology and Services 9.1 MCI Communications Corp. 5.16
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Computer Software - Personal Computers 7.5 Mid-Atlantic Medical Services, Inc. 4.85
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Compuware Corp. 4.24
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Newbridge Networks 3.92
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Showboat, Inc. 3.43
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Sybase, Inc. 3.25
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Casino America, Inc. 2.93
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PERFORMANCE SUMMARY
Because mutual funds like MFS OTC Fund are designed for investors with long-term
goals, we have provided cumulative results as well as the average annual total
returns for the past 6-month and 1-year periods ended February 28, 1995 and for
the period from December 1, 1993+ to February 28, 1995.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
Class A Investment Results
(net asset value change including reinvested distributions)
12/01/93+
6 Months 1 Year 2/28/95
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Cumulative Total Return* -2.10% -3.65% +8.53%
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Average Annual Total Return* -- -3.65% +6.80%
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The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the Securities and Exchange Commission
(the SEC), with all distributions reinvested and reflecting the maximum sales
charge of 5.75% on the initial investment for the 1-year period and for the
period from December 1, 1993+ to December 31, 1994, were -1.60% and +2.89%,
respectively.
Class B Investment Results
(net asset value change including reinvested distributions)
12/01/93+
6 Months 1 Year 2/28/95
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Cumulative Total Return++ -2.52% -4.52% +6.95%
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Average Annual Total Return++ -- -4.52% +5.55%
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The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the SEC, for the 1-year period ended
December 31, 1994 and for the period from December 1, 1993+ to December 31,
1994, reflecting the current maximum contingent deferred sales charge (CDSC) of
4%, were -1.01% and +3.68%, respectively.
Class C Investment Results
The aggregate total return from August 1, 1994+ to February 28, 1995 was +7.30%.
The aggregate total return, calculated for the period ended as of the most
recent calendar quarter as required by the SEC, for the period from August 1,
1994+ to December 31, 1994 was +8.49%. 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.
All results represent past performance and are not necessarily an indication of
future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost. All
Fund results reflect the applicable expense subsidy which is explained in the
Notes to Financial Statements. Had the subsidy not been in effect, the results
would have been less favorable. The subsidy may be rescinded at any time.
+ Commencement of offering of this class of shares.
* These results do not include the sales charge. If the charge had been
included, the results would have been lower.
++These results do not include the CDSC. If the charge had been included, the
results would have been lower.
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PORTFOLIO OF INVESTMENTS (UNAUDITED) - February 28, 1995
Common Stocks and Warrants - 100.4%
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Issuer Shares Value
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Automotive - 0.5%
Monro Muffler Brake, Inc. 21,450 $ 375,375
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Biotechnology - 2.2%
Immunex Corp. 100,300 $ 1,680,025
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Business Machines - Peripherals - 1.8%
Exabyte Corp. 75,000 $ 1,415,625
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Business Services
Transaction Systems, "A" 1,400 $ 25,025
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Cellular Phones - 2.1%
AirTouch Communications, Inc.* 60,000 $ 1,626,600
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Computer Software - 0.8%
Microtech Research, Inc. 55,000 $ 605,000
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Computer Software - Personal Computers - 7.5%
Electronic Arts, Inc.* 187,000 $ 4,029,250
General Magic, Inc. 2,000 36,500
Learning Co.* 60,300 1,793,925
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$ 5,859,675
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Computer Software - Systems - 15.4%
BMC Software, Inc.* 20,000 $ 1,285,000
Compuware Corp. 90,000 3,294,814
Informix Corp.* 30,000 1,132,500
Oracle Systems Corp. 55,000 1,750,342
Quickturn Design System, Inc. 140,000 1,103,875
Spectrum Holobyte Industries 65,300 881,550
Sybase, Inc.* 62,100 2,530,579
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$11,978,660
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Consumer Goods and Services - 4.2%
Perrigo Co. 120,000 $ 1,665,000
RJR Nabisco Group, Inc. 271,000 1,520,852
Sola International, Inc. 4,800 81,600
Toy Biz, Inc. 900 18,675
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$ 3,286,127
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Electronics - 0.4%
LTX Corp. 46,700 $ 280,200
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Entertainment - 15.8%
Acclaim Entertainment, Inc. 30,000 $ 302,814
Argosy Gaming Corp.* 175,100 1,641,562
Bally Gaming International, Inc. 158,000 1,273,875
Casino America, Inc.* 220,000 2,277,650
Central European Media Enterprises Ltd. 26,300 253,137
Grand Casinos, Inc. 115,900 1,854,400
Showboat, Inc. 185,750 2,670,156
Starsight Telecast, Inc.* 324,200 2,026,250
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$12,299,844
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PORTFOLIO OF INVESTMENTS (UNAUDITED) - continued
Common Stocks and Warrants - continued
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Financial Institutions - 0.9%
Servicios Financieros Quadram 202,000 $ 732,250
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Issuer Shares Value
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Medical and Health Products - 5.5%
EP Technology, Inc. 19,400 $ 172,175
U.S. Healthcare, Inc. 30,500 1,311,500
Uromed Corp. 96,800 689,700
Ventritex, Inc.* 49,700 $ 1,041,410
Zoll Medical Corp. 87,500 1,071,875
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$ 4,286,660
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Medical and Health Technology and Services - 9.1%
Mariner Health Group, Inc.* 90,000 $ 1,552,500
Mid-Atlantic Medical Services, Inc. 184,000 3,772,000
United Healthcare Corp. 40,000 1,718,489
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$ 7,042,989
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Metals and Minerals - 0.7%
Southern Africa Minerals 516,700 $ 549,873
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Printing and Publishing - 2.6%
American Media, Inc., "A"+ 217,500 $ 1,576,875
American Media, Inc., Warrants 1,351,600 422,375
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$ 1,999,250
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Restaurants and Lodging
DF&R Restaurants, Inc. 2,300 $ 35,650
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Special Products and Services - 1.2%
Sphere Drake Holdings Ltd. 65,000 $ 901,875
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Stores - 1.9%
General Nutrition Cos.* 40,000 $ 960,000
Micro Warehouse, Inc. 17,500 504,288
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$ 1,464,288
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Telecommunications - 22.0%
American Telecasting, Warrants 6,750 $ 13,500
Cablevision Systems Corp., "A" 22,500 1,293,400
Cisco Systems, Inc. 125,000 4,259,430
Lambert Communication* 33,000 7,920
Newbridge Networks* 90,000 3,048,750
Rogers Communications, Inc.* 680,000 8,480,515
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$17,103,515
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Utilities - Telephone - 5.2%
MCI Communications Corp. 200,000 $ 4,012,797
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PORTFOLIO OF INVESTMENTS (UNAUDITED) - continued
Common Stocks and Warrants - continued
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Foreign Stock - 0.6%
Hong Kong
Peregrine Investment Holdings 400,000 $ 488,920
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Total Common Stocks and Warrants (Identified
Cost, $83,846,050) $78,050,223
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Corporate Bond - 0.7%
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Principal Amount
(000 Omitted)
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American Telecasting Unit, 12.5s, 2004
(Identified Cost, $801,725) $1,350 $ 546,750
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Total Investments (Identified Cost, $84,647,775) $78,596,973
Other Assets, Less Liabilities - (1.1)% (841,731)
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Net Assets - 100.0% $77,755,242
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*Non-income producing security.
+Affiliated issuer.
See notes to financial statements
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FINANCIAL STATEMENTS
Statement of Assets and Liabilities
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February 28, 1995 (Unaudited)
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Assets:
Investments, at value -
Unaffiliated issuers (identified cost, $81,371,346) $77,020,098
Affiliated issuers (identified cost, $3,276,429) 1,576,875
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Total investments, at value (identified cost, $84,647,775) $78,596,973
Receivable for investments sold 6,289,393
Receivable for Fund shares sold 369,752
Interest and dividends receivable 615
Other assets 25
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Total assets $85,256,758
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Liabilities:
Cash overdraft $ 994,946
Payable for investments purchased 6,294,136
Payable for Fund shares reacquired 109,148
Payable to affiliates -
Management fee 5,065
Shareholder servicing agent fee 1,306
Distribution fee 25,451
Accrued expenses and other liabilities 71,464
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Total liabilities $ 7,501,516
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Net assets $77,755,242
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Net assets consist of:
Paid-in capital $78,950,097
Unrealized depreciation on investments and translation of
assets and liabilities in foreign
currencies (6,050,802)
Accumulated undistributed net realized gain on investments and
foreign currency transactions 4,174,999
Accumulated net investment income 680,948
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Total $77,755,242
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Shares of beneficial interest outstanding 9,513,740
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Class A shares:
Net asset value and redemption price per share
(net assets of $25,275,335 / 3,071,623 shares of beneficial
interest outstanding) $8.23
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Offering price per share (100/94.25) $8.73
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Class B shares:
Net asset value, redemption price, and offering price per share
(net assets of $50,761,542 / 6,230,373 shares of beneficial
interest outstanding) $8.15
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Class C shares:
Net asset value, redemption price, and offering price per share
(net assets of $1,718,365 / 211,744 shares of beneficial
interest outstanding) $8.12
----
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
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FINANCIAL STATEMENTS - continued
Statement of Operations
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Six Months Ended February 28, 1995 (Unaudited)
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Net investment income:
Income -
Dividends (including $4,665 received from affiliated issuer) $ 1,316,934
Interest 141,717
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Total investment income $ 1,458,651
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Expenses -
Management fee $ 282,780
Trustees' compensation 1,610
Shareholder servicing agent fee (Class A) 18,295
Shareholder servicing agent fee (Class B) 54,997
Shareholder servicing agent fee (Class C) 763
Distribution and service fee (Class B) 249,991
Distribution and service fee (Class C) 5,088
Printing 30,731
Custodian fee 19,626
Postage 10,931
Auditing fees 5,000
Legal fees 4,100
Miscellaneous 91,888
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Total expenses $ 775,800
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Net investment income $ 682,851
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Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 6,702,890
Foreign currency transactions (191)
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Net realized gain on investments $ 6,702,699
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Change in unrealized appreciation (depreciation) -
Investments $(9,051,687)
Translation of assets and liabilities in foreign currencies (6)
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Net unrealized loss on investments $(9,051,693)
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Net realized and unrealized loss on investments and
foreign currency $(2,348,994)
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Decrease in net assets from operations $(1,666,143)
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See notes to financial statements
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FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
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Six Months Ended
February 28, 1995 Year Ended
(Unaudited) August 31, 1994*
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Increase (decrease) in net assets:
From operations -
Net investment income (loss) $ 682,851 $ (297,097)
Net realized gain on investments and
foreign currency transactions 6,702,699 144,573
Net unrealized gain (loss) on
investments and foreign
currency translation (9,051,693) 3,000,891
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Increase (decrease) in net assets
from operations $(1,666,143) $ 2,848,367
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Distributions declared to shareholders -
From net realized gain on investments
and foreign currency transactions $(2,406,376) $ --
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Fund share (principal) transactions -
Net proceeds from sale of shares $87,723,971 $74,941,646
Net asset value of shares issued to
shareholders in reinvestment of
distributions 2,175,034 --
Cost of shares reacquired (62,782,762) (23,080,495)
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Increase in net assets from Fund
share transactions $27,116,243 $51,861,151
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Total increase in net assets $23,043,724 $54,709,518
Net assets:
At beginning of period 54,711,518 2,000
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At end of period (including accumulated net
investment income (loss) of $680,948
and $(1,903), respectively) $77,755,242 $54,711,518
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* For the period from the commencement of investment operations, December 1,
1993 to August 31, 1994.
See notes to financial statements
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<CAPTION>
FINANCIAL STATEMENTS - continued
Financial Highlights
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Six Months Six Months Six Months
Ended Period Ended Period Ended Period
February 28, Ended February 28, Ended February 28, Ended
1995 August 31, 1995 August 31, 1995 August 31,<F4>
(Unaudited) 1994<F3> (Unaudited) 1994<F3> (Unaudited) 1994
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Class A Class B Class C
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<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<F6>-
Net investment income (loss)<F7> $ 0.11 $(0.05) $ 0.06 $(0.12) $(0.11) $(0.04)
Net realized and unrealized gain
(loss) on investments (0.30) 0.90 (0.29) 0.88 (0.13) 0.85
----- ----- ----- ----- ----- -----
Total from investment operations $(0.19) $ 0.85 $ (0.23) $ 0.76 $(0.24) $ 0.81
----- ----- ----- ----- ----- -----
Less distributions declared to
shareholders - on investments $(0.26) -- $ (0.21) -- $(0.25) --
----- ----- ----- ----- ----- -----
Net asset value - end of period $ 8.23 $ 8.68 $ 8.15 $ 8.59 $ 8.12 $ 8.61
----- ----- ----- ----- ----- -----
Total return<F5> (2.10)%<F2> 10.86%<F2> (2.52)%<F2> 9.71%<F2> (2.80)%<F2> 10.38%<F2>
Ratios (to average net assets)/
Supplemental data<F7>:
Expenses 1.35%<F1> 1.50%<F1> 2.40%<F1> 2.57%<F1> 2.41%<F1> 2.50%<F1>
Net investment income (loss) 2.70%<F1> (0.87)%<F1> 1.37%<F1> (2.02)%<F1> (2.60)%<F1> (2.22)%<F1>
Portfolio turnover 132% 82% 132% 82% 132% 82%
Net assets at end of period
(000 omitted) $25,275 $17,776 $50,762 $36,849 $1,718 $ 87
<FN>
<F1>Annualized.
<F2>Not annualized.
<F3>For the period from the commencement of investment operations, December 1, 1993 to August 31, 1994.
<F4>For the period from the commencement of offering of Class C shares, August 1, 1994 to August 31, 1994.
<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>Per share data for the periods indicated are based on average shares outstanding.
<F7>The investment adviser assumed a portion of operating expenses for the periods indicated. If these expenses had been incurred
by the Fund, the net investment income per share and ratios would have been:
Net investment loss -- $(0.08) -- $ (0.15) -- $ (0.05)
Ratios (to average net assets):
Expenses -- 2.03%<F1> -- 3.10%<F1> -- 3.03%<F1>
Net investment loss -- (1.40)%<F1> -- (2.56)%<F1> -- (2.71)%<F1>
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(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
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. 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.
Short-term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates value. Non-U.S. dollar denominated short-term
obligations are valued at amortized cost as calculated in the base currency and
translated into U.S. dollars at the closing daily exchange rate. Futures
contracts, options and options on futures contracts listed on commodities
exchanges are valued at closing settlement prices. Over-the-counter options are
valued by brokers through the use of a pricing model which takes into account
closing bond valuations, implied volatility and short-term repurchase rates.
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.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities purchased in a repurchase transaction be transferred to the custodian
in a manner sufficient to enable the Fund to obtain those securities in the
event of a default under the repurchase agreement. The Fund monitors, on a daily
basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
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 and 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.
Written Options - The Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options may
also be used as a part of an income producing strategy reflecting the view of
the Fund's management on the direction of interest rates.
<PAGE>
Futures Contracts - The Fund may enter into stock index and foreign currency
futures contracts for the delayed delivery of securities, currency or contracts
based on financial indices at a fixed price on a future date. In entering such
contracts, the Fund is required to deposit either in cash or securities an
amount equal to a certain percentage of the contract amount. Subsequent payments
are made or received by the Fund each day, depending on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Fund. The Fund's
investment in futures contracts is designed to hedge against anticipated future
changes in interest or exchange rates or securities prices. The Fund may also
invest in futures contracts for non-hedging purposes. Should exchange rates or
securities prices move unexpectedly, the Fund may not achieve the anticipated
benefits of the futures contracts and may realize a loss.
Security Loans - The Fund may lend its securities to member banks of the Federal
Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. The loans are collateralized at all times by cash or
securities with a market value at least equal to the market value of securities
loaned. As with other extensions of credit, the Fund may bear the risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund receives compensation for lending its
securities in the form of fees or from all or a portion of the income from
investment of the collateral. The Fund would also continue to earn income on the
securities loaned. At February 28, 1995, the Fund had no securities on loan.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering these contracts from the potential inability of counterparties to meet
the terms of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar. The Fund will enter into forward
contracts for hedging purposes as well as for non-hedging purposes. For hedging
purposes, the Fund may enter into contracts to deliver or receive foreign
currency it will receive from or require for its normal investment activities.
It may also use contracts in a manner intended to protect foreign
currency-denominated securities from declines in value due to unfavorable
exchange rate movements. For non-hedging purposes, the Fund may enter into
contracts with the intent of changing the relative exposure of the Fund's
portfolio of securities to different currencies to take advantage of anticipated
changes. The forward foreign currency exchange contracts are adjusted by the
daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the contract
settlement date.
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 both 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 payments received in additional securities are recorded on the
ex-dividend date in an amount equal to the value of the security on such date.
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. 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.
<PAGE>
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 period ended August 31, 1994, $265,897 and $29,297 was
reclassified from accumulated realized gain on investment and foreign currency
transactions and paid-in capital, respectively, to accumulated net investment
loss due to differences between book and tax accounting for operating losses.
This change had no effect on the net assets or net asset value per share.
Realized gains on investments and foreign currency were greater than those
recognized for book purposes by approximately $121,000 at August 31, 1994. This
difference, which pertains to losses disallowed under tax rules, reverses in
future years.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B and Class C shares. Class A and Class B shares were first offered to the
public on December 1, 1993. Class C shares were first offered to the public on
August 1, 1994. The three classes of shares differ in their respective
shareholder servicing agent, distribution and service fees. Shareholders of each
class also bear certain expenses that pertain only to that particular class. 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, including distribution and shareholder
service fees.
(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, computed daily and paid monthly at an effective annual rate of
0.75% of average daily net assets, amounted to $282,780 for the period ended
February 28, 1995. 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. Included in
Trustees' compensation is a net periodic pension expense of $702 for the period
ended February 28, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$27,187 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% of
its average daily net assets attributable to Class A shares annually 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 when
the net assets of the Fund attributable to Class A shares first equals or
exceeds $40 million.
<PAGE>
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 quarterly service fee
of up to 0.25% per annum, of the Fund's average daily net assets attributable to
Class B and Class C shares. MFD will pay to securities dealers that enter into a
sales agreement with MFD all or a portion of the service fee attributable to
Class B and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended to
be additional consideration for services rendered by the dealer with respect to
Class B and Class C shares. Fees incurred under the distribution plans for the
period ended February 28, 1995 were 1.00% of average daily net assets
attributable to Class B and Class C shares on an annualized basis and amounted
to $249,991 and $5,088, 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 twelve 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 period ended February 28, 1995 were $31 and $47,611
for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
$18,295, $54,997 and $763 for Class A, Class B and Class C shares, respectively,
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 $122,650,300 and $95,336,999, 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 $84,647,775
-----------
Gross unrealized depreciation $(9,870,725)
Gross unrealized appreciation 3,819,923
-----------
Net unrealized depreciation $(6,050,802)
-----------
<PAGE>
(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
Six Months Ended Period Ended
February 28, 1995 August 31, 1994*
------------------------- --------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------
Shares sold 4,045,385 $33,783,750 3,491,940 $28,339,992
Shares issued to
shareholders in
reinvestment of
distributions 104,954 867,941 -- --
Shares reacquired (3,126,816) (26,029,822) (1,443,968) (11,474,151)
----------- ------------ ----------- ------------
Net increase 1,023,523 $ 8,621,869 2,047,972 $16,865,841
----------- ------------ ----------- ------------
Class B Shares
Six Months Ended Period Ended
February 28, 1995 August 31, 1994*
------------------------- --------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------
Shares sold 5,951,519 $50,080,666 5,765,354 $46,517,609
Shares issued to
shareholders in
reinvestment of
distributions 154,476 1,266,591 -- --
Shares reacquired (4,163,901) (34,520,471) (1,477,203) (11,606,344)
----------- ------------ ----------- ------------
Net increase 1,942,094 $16,826,786 4,288,151 $34,911,265
----------- ------------ ----------- ------------
Class C Shares
Six Months Ended Period Ended
February 28, 1995 August 31, 1994**
------------------------- -------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------
Shares sold 465,180 $ 3,859,555 10,122 $ 84,045
Shares issued to
shareholders in
reinvestment of
distributions 4,957 40,502 -- --
Shares reacquired (268,515) (2,232,469) -- --
----------- ------------ ----------- ------------
Net increase 201,622 $ 1,667,588 10,122 $ 84,045
----------- ------------ ----------- ------------
*For the period from the commencement of investment operations, December 1,
1993 to August 31, 1994.
**For the period from the commencement of offering of Class C shares, August 1,
1994 to August 31, 1994.
<PAGE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS, or an affiliate of 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
period ended February 28, 1995 was $800.
(7) Transactions in Securities of Affiliated Issuers
Under the Investment Company Act of 1940, issuers affiliated with the Fund 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 period ended February
28, 1995 is set forth below:
<TABLE>
<CAPTION>
Acquisitions Dispositions Realized
Beginning --------------------- --------------------- Ending Gain 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.,
"A" 93,300 124,200 $1,698,814 -- -- 217,500 -- $4,665 $1,576,875
---------
</TABLE>
- ----------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
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 the MFS Service Center
at 1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time. This
material should be read carefully before investing or sending money.
<TABLE>
<CAPTION>
STOCK LIMITED MATURITY BOND
<S> <C>
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)
BOND MFS(r) Municipal Income Fund
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, Texas,
MFS(r) Strategic Income Fund 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>
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