<PAGE>
[LOGO: M F S(SM) ANNUAL REPORT
INVESTMENT MANAGEMENT FOR YEAR ENDED
We invented the mutual fund(SM)] AUGUST 31, 1996
MFS(R) OTC FUND
[Graphic Omitted: Floppy Disks]
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman ................................................... 1
A Discussion with the Fund Manager ......................................... 3
Fund Manager's Profile ..................................................... 5
Fund Facts ................................................................. 6
Performance ................................................................ 6
Portfolio Concentration .................................................... 9
Portfolio of Investments ...................................................10
Financial Statements .......................................................14
Notes to Financial Statements ..............................................20
Independent Auditors' Report ...............................................25
It's Easy to Contact Us ....................................................26
MFS Investment Opportunities ...............................................27
The MFS Family of Funds(R) .................................................28
Trustees and Officers ......................................................29
HIGHLIGHTS
* FOR THE 12 MONTHS ENDED AUGUST 31, 1996, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN OF 10.55%, CLASS B SHARES 9.67%, AND CLASS C
SHARES 9.60%. ALL OF THESE RETURNS ARE AT NET ASSET VALUE.
* PERFORMANCE WAS HINDERED BY THE HEALTH CARE SECTOR. HEALTH MAINTENANCE
ORGANIZATIONS PERFORMED POORLY AS THE INCREASES IN INSURANCE PREMIUMS
LAGGED THE COST OF PROVIDING SERVICES TO PATIENTS, ALTHOUGH SEVERAL
MEDICAL-DEVICE COMPANIES PERFORMED EXCEPTIONALLY WELL.
* THE FUND'S LARGEST CONCENTRATIONS ARE IN TECHNOLOGY, WHICH REPRESENTS
33% OF THE PORTFOLIO; HEALTH CARE, WHICH ACCOUNTS FOR 24%; AND LEISURE,
AT 14%.
* THE BIGGEST CHANGES TO THE PORTFOLIO HAVE RESULTED FROM TAKEOVERS, AS
SEVERAL MAJOR HOLDINGS WERE BENEFICIARIES OF BUYOUT OFFERS AT
SIGNIFICANT PREMIUMS OVER THE MARKET PRICE.
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of A. Keith Brodkin]
Dear Shareholders:
The U.S. economy in 1996 appears to have settled into a pattern of fairly
reasonable growth and moderate inflation -- two factors that we think can be
important contributors to a favorable long-term investment climate. During the
first quarter of 1996, real (inflation-adjusted) economic growth was 2.3% on
an annualized basis, followed by a rate of 4.7% in the second quarter. Thus,
real growth in gross domestic product has exceeded our expectations so far
this year, and we now expect that growth for all of 1996 could exceed 2.5%.
Although individual consumers appear to be carrying an excessive debt load,
the consumer sector itself, which represents two-thirds of the economy,
continues to be impressive as the automobile and housing markets remain
resilient. Consumer spending has also been positively impacted by widespread
job growth. At the same time, however, the economies of Europe and Japan
continue to be in the doldrums, weakening U.S. export markets while subduing
the capital spending plans of American corporations.
While we do not expect the U.S. stock market to match 1995's extraordinary
performance, we continue to be positive about the equity market this year.
Although we believe the equity market represents fair value at current levels,
the expected slowdown in corporate earnings growth and the increases in
interest rates experienced so far this year have raised some near-term
concerns, as was seen in July's stock market correction. Further increases in
interest rates, and an acceleration of inflation coupled with an additional
slowdown in corporate earnings growth, could have a negative effect on the
stock market. However, to the extent that some earnings disappointments are
taken as a sign that the economy is not overheating, this may prove beneficial
for the equity market's longer-term health. We continue to believe that many
of the technology-driven productivity gains that U.S. companies have made in
recent years will continue to enhance corporate America's competitiveness and
profitability. Therefore, while we have some near-term concerns, we remain
quite constructive on the long-term viability of the equity market.
Finally, as you may have noticed, this report to shareholders incorporates a
number of changes which we believe will make it more informative and useful to
you. Following the discussion with the Fund Manager, you will find new
information on the Fund's holdings, including charts illustrating the
portfolio's concentration in the different types of investments that meet its
criteria. Near the back of the report, you will find a list of telephone
numbers and addresses in case you need to contact MFS.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
September 17, 1996
<PAGE>
A DISCUSSION WITH THE FUND MANAGER
[Photo of Mark Regan]
The Fund's performance has been in line with the general OTC market, as
measured by the Russell 2000 Total Return Index (the Russell Index), although
it underperformed the Standard & Poor's 500 Composite Index (the S&P 500). For
the 12 months ended August 31, 1996, Class A shares of the Fund provided a
total return of 10.55%, Class B shares 9.67%, and Class C shares 9.60%. These
returns compare to a 10.82% return for the Russell Index, an unmanaged index
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; and
to an 18.72% return for the S&P 500, a popular, unmanaged index of common
stock performance. All of the Fund's returns include the reinvestment of
distributions but exclude the effects of any sales charges.
Q. WHAT DO YOU THINK WERE SOME OF THE THINGS THAT AFFECTED PERFORMANCE OVER
THE PAST YEAR, MARK?
A. Performance was most severely impacted by the health care sector. Health
maintenance organizations, or HMOs, performed very poorly in the past 12
months, as the increases in insurance premiums lagged the cost of providing
services to patients.
On the positive side, several medical-device companies, including Medisense
and Zoll Medical, performed exceptionally well over this period.
Q. HOW WOULD YOU DESCRIBE THE BUSINESS AND ECONOMIC ENVIRONMENT YOU FACED OVER
THE PAST 12 MONTHS, PARTICULARLY AS IT RELATES TO THIS FUND?
A. We've seen a gradual increase in interest rates as the economy has moved
toward lower unemployment levels. We've also observed that price increases
have been very difficult for companies to get; in fact, for most technology
and health care companies, continuous price declines have become an ongoing
business reality.
At the same time, technology companies have seen increased volatility based
on a number of events. For example, semiconductor companies, especially those
that make memory chips, suffered huge price declines, while the sales growth
of personal computers slowed and digital communications began to replace
analog communications in the wireless area. These events created significant
disruption, but also opportunity, in the technology area.
Q. ARE THERE ANY PARTICULAR SEGMENTS OF THE MARKET YOU'VE BEEN CONCENTRATING
ON RECENTLY?
A. The Fund's largest concentrations are in technology, which represents 33%
of the portfolio; health care, which accounts for 24%; and leisure, at 14%. We
decreased the Fund's holdings in the technology sector while increasing them
in the health care sector, as we have found new opportunities in that market.
Q. HAVE ANY SIGNIFICANT CHANGES BEEN MADE IN YOUR HOLDINGS THIS YEAR?
A. The biggest changes have resulted from takeovers. Several major holdings
were beneficiaries of buyout offers, at significant premiums over the market
price, over the last year. Medisense, which was the Fund's largest holding at
mid-year, was purchased by Abbott Labs. Meanwhile, Sierra On-Line and Davidson
& Associates were purchased by CUC International.
Q. CAN YOU NAME SOME STOCKS THAT PERFORMED AS WELL AS OR BETTER THAN YOU
EXPECTED?
A. A number of important holdings performed well over the past year. In
addition to the buyout companies, others included Starsight Telecast, a
provider of electronic program guides and services to the television market;
Gymboree, a retailer of clothing for infants; and Oracle Software, the leading
provider of database and application software for the client server market.
Q. NOW, HOW ABOUT SOME STOCKS THAT DIDN'T DO AS WELL AS YOU EXPECTED?
A. Most of these companies have been in the HMO group, which suffered from
rising medical costs and did not have the ability to change short-term
pricing. However, we believe this problem will correct itself in 1997 with
tighter control of medical costs and more aggressive price increases. Several
gaming companies, including Harrah's, Argosy, and Showboat, also hurt the
Fund's performance as projects were delayed and as competitors entered
previously non-competitive markets.
Q. LOOKING AHEAD, WHAT CHANGES DO YOU SEE IN THE OVERALL MARKET ENVIRONMENT AS
IT RELATES TO YOUR FUND?
A. It looks like it will be hard for companies to raise prices for their
products, except as a pass-through of raw material increases. We do not see
many inflationary pressures in the economy and, in fact, see continued price
declines in many of the major industry groups. We believe advances in the
price performance of technology products and the increasing efficacy of new
drugs and medical devices will continue to provide opportunities for growth in
the technology and health care industries.
Q. AND HOW ARE YOU POSITIONING THE FUND TO TRY AND TAKE ADVANTAGE OF THOSE
CHANGES?
A. We'll continue to look for companies and technologies in the OTC market
that we believe offer the best prospects for sustained growth with reasonable
valuations.
Respectfully,
/s/ Mark Regan
Mark Regan
Fund Manager
FUND MANAGER'S 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 OF
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.
<PAGE>
FUND FACTS
STRATEGY: THE FUND'S PRIMARY INVESTMENT OBJECTIVE IS TO
PROVIDE LONG-TERM GROWTH OF CAPITAL BY INVESTING
AT LEAST 65% OF ITS ASSETS, UNDER NORMAL
CIRCUMSTANCES, IN SECURITIES PRINCIPALLY TRADED ON
THE OVER-THE-COUNTER (OTC) SECURITIES MARKET.
COMMENCEMENT OF
INVESTMENT OPERATIONS: DECEMBER 1, 1993
SIZE: $109.0 MILLION AS OF AUGUST 31, 1996
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.
The performance of Class C shares will be greater than or less than the line
shown, based on the differences in loads or fees paid by shareholders
investing in the different classes.
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from December 1, 1993* to August 31, 1996)
MFS Consumer S&P MFS
OTC Price Russell 500 OTC
Fund-A Index-US 2000 Composite Fund-B
------ -------- ------- --------- ------
12/1/93 $ 9,425 $10,000 $10,000 $10,000 $10,000
12/31/93 9,882 10,000 10,342 10,124 10,485
12/31/94 10,316 10,268 10,153 10,251 10,799
12/31/95 12,611 10,521 13,041 14,091 13,088
8/31/96 13,833 10,787 13,897 15,134 14,288
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS
<CAPTION>
12/01/93 *-
1 Year 8/31/96
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS OTC Fund (Class A) including 5.75% sales charge + 4.24% +12.51%
- ---------------------------------------------------------------------------------------------------------------------------
MFS OTC Fund (Class A) at net asset value +10.55% +14.97%
- ---------------------------------------------------------------------------------------------------------------------------
MFS OTC Fund (Class B) with CDSC + 6.08% +12.98%
- ---------------------------------------------------------------------------------------------------------------------------
MFS OTC Fund (Class B) without CDSC + 9.67% +13.85%
- ---------------------------------------------------------------------------------------------------------------------------
MFS OTC Fund (Class C) + 9.60% +13.88%
- ---------------------------------------------------------------------------------------------------------------------------
Average small company growth fund +15.30% +11.53%
- ---------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index +10.82% +12.72%
- ---------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index +18.72% +16.28%
- ---------------------------------------------------------------------------------------------------------------------------
Consumer Price Index(S) + 2.86% + 2.79%
- ---------------------------------------------------------------------------------------------------------------------------
*Commencement of investment operations.
(S)The Consumer Price Index is a popular measure of change in prices.
</TABLE>
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. 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.
Class A SEC results include the maximum 5.75% sales charge. Class B SEC
results reflect the applicable contingent deferred sales charge (CDSC), which
declines over six years as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%. Class C shares
have no initial sales charge but, along with Class B shares, have higher
annual fees and expenses than Class A shares. Class C share purchases made on
or after April 1, 1996 will be subject to a 1% CDSC if redeemed within 12
months of purchase. See the prospectus for details. Class C share performance
includes the performance of the Fund's Class A shares for periods prior to the
commencement of offering of Class C shares on August 1, 1994. Sales charges
and operating expenses for Class A and Class C shares differ. The Class A
share performance, which is included within the Class C share SEC performance,
has been adjusted to reflect the CDSC generally applicable to Class C shares
rather than the initial sales charge generally applicable to Class A shares.
Class C share performance has not been adjusted, however, to reflect
differences in operating expenses (e.g., Rule 12b-1 fees), which generally are
lower for Class A shares.
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. Performance results
reflect any applicable expense subsidies and waivers, without which the
performance results would have been less favorable. Subsidies and waivers may
be rescinded at any time. See prospectus for details.
TAX FORM SUMMARY
IN JANUARY 1997, SHAREHOLDERS WILL BE MAILED A TAX FORM SUMMARY
REPORTING THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE
CALENDAR YEAR 1996.
<PAGE>
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1996
<TABLE>
TOP TEN HOLDINGS
<C> <C>
STARSIGHT TELECAST, INC. MCI COMMUNICATIONS CORP.
Developer of interactive television guide Telecommunications company
and VCR services
GYMBOREE CORP.
ROGERS CANTEL MOBILE CO. Manufacturer of children's apparel
Canadian cellular telephone operator
ZOLL MEDICAL CORP.
UROMED CORP. Medical products company
Medical products company
ARGOSY GAMING CORP.
VENTRITEX, INC. Operates casino vessel on Mississippi River
Medical products company
SHOWBOAT, INC.
PACIFICARE HEALTH SYSTEMS, INC. Las Vegas and Atlantic City casino operator
Manufacturer of managed health care
products
</TABLE>
LARGEST SECTORS
Technology 32.8%
Health Care 24.0%
Leisure 14.3%
Utilities & Communications 10.2%
Financial Services 5.9%
Other 12.8%
<PAGE>
PORTFOLIO OF INVESTMENTS - August 31, 1996
Common Stocks and Warrants - 99.7%
- ---------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------
U.S. Stocks and Warrants - 95.6%
Advertising
Lamar Advertising Co., "A"* 1,100 $ 30,800
- ---------------------------------------------------------------------------
Airlines - 0.3%
Greenwich Air Services, Inc., "B"* 18,700 $ 359,975
- ---------------------------------------------------------------------------
Banks and Credit Companies - 0.6%
Corestates Financial Corp. 14,700 $ 608,212
- ---------------------------------------------------------------------------
Biotechnology - 0.6%
Oncogene Science, Inc.* 80,800 $ 707,000
- ---------------------------------------------------------------------------
Business Machines - 1.8%
Digital Equipment Corp.* 49,900 $ 1,927,387
- ---------------------------------------------------------------------------
Business Services - 0.8%
DST Systems, Inc.* 26,800 $ 824,100
ICT Group, Inc.* 400 6,500
------------
$ 830,600
- ---------------------------------------------------------------------------
Cellular Telephones - 1.6%
AirTouch Communications, Inc.* 22,700 $ 624,250
Telephone & Data Systems, Inc. 26,900 1,146,612
------------
$ 1,770,862
- ---------------------------------------------------------------------------
Computer Software - Personal Computers - 7.9%
Activision, Inc.* 50,600 $ 607,200
Autodesk, Inc. 48,100 1,106,300
Electronic Arts, Inc.* 94,600 2,920,775
Intuit, Inc.* 5,400 197,100
Maxis, Inc.* 23,400 269,100
Microsoft Corp.* 10,000 1,225,000
Spectrum Holobyte Industries* 445,500 2,283,187
------------
$ 8,608,662
- ---------------------------------------------------------------------------
Computer Software - Systems - 12.6%
Adobe Systems, Inc. 78,200 $ 2,727,225
BMC Software, Inc.* 26,700 1,989,150
Cadence Design Systems, Inc.* 24,700 731,737
E Trade Group, Inc.* 1,800 18,900
Informix Corp.* 129,200 2,907,000
Oracle Systems Corp.* 64,800 2,284,200
Sybase, Inc.* 53,800 866,680
Synopsys, Inc.* 58,500 2,223,000
------------
$ 13,747,892
- ---------------------------------------------------------------------------
Electronics - 4.6%
Altera Corp.* 10,200 $ 448,800
Intel Corp. 26,400 2,107,050
Intel Corp., Warrants* 18,800 788,050
LSI Logic Corp.* 48,100 1,052,187
Xilinx, Inc.* 17,300 605,500
------------
$ 5,001,587
- ---------------------------------------------------------------------------
Entertainment - 12.4%
Argosy Gaming Corp.* 481,400 $ 3,129,100
Harrah's Entertainment, Inc.* 55,600 1,056,400
Showboat, Inc. 150,000 2,981,250
Starsight Telecast, Inc.* 711,500 6,403,500
------------
$ 13,570,250
- ---------------------------------------------------------------------------
Financial Institutions - 4.7%
Advanta Corp., "B" 15,000 $ 667,500
Countrywide Credit Industries, Inc. 42,000 1,013,250
Credit Acceptance Corp.* 42,900 954,525
Green Tree Financial 17,400 604,650
Medallion Financial Corp. 42,900 552,337
National Auto Credit, Inc.* 114,530 1,317,095
------------
$ 5,109,357
- ---------------------------------------------------------------------------
Medical and Health Products - 12.0%
St. Jude Medical, Inc. 51,400 $ 1,843,975
Uromed Corp.* 403,100 4,182,162
Ventritex, Inc.* 282,800 3,853,150
Zoll Medical Corp.* 206,700 3,152,175
------------
$ 13,031,462
- ---------------------------------------------------------------------------
Medical and Health Technology and Services - 10.9%
Affymetrix, Inc.* 400 $ 5,650
Coventry Corp.* 156,800 2,067,800
Foundation Health Corp.* 22,500 675,000
Healthsource, Inc.* 120,500 1,807,500
Owen Healthcare, Inc.* 59,400 712,800
Pacificare Health Systems, Inc., "A"* 48,100 3,667,625
Riscorp, Inc., "A"* 49,700 683,375
Safeguard Health Enterprises* 18,800 347,800
United Healthcare Corp.* 50,979 1,969,083
------------
$ 11,936,633
- ---------------------------------------------------------------------------
Oils - 2.1%
Carbo Ceramics, Inc. 104,100 $ 1,951,875
Newfield Exploration Co.* 8,000 357,000
------------
$ 2,308,875
- ---------------------------------------------------------------------------
Railroads - 1.5%
Kansas City Southern Industries, Inc. 9,200 $ 372,600
Wisconsin Central Transportation Corp.* 36,200 1,276,050
------------
$ 1,648,650
- ---------------------------------------------------------------------------
Restaurants and Lodging - 1.1%
Applebee's International, Inc. 28,400 $ 823,600
Promus Hotel Corp.* 13,150 396,145
------------
$ 1,219,745
- ---------------------------------------------------------------------------
Special Products and Services - 0.4%
YES! Entertainment Corp.* 39,400 $ 487,575
- ---------------------------------------------------------------------------
Stores - 4.9%
General Nutrition Cos., Inc.* 106,600 $ 1,572,350
Gymboree Corp.* 110,700 3,196,463
Men's Warehouse, Inc.* 16,200 352,350
Travis Boats & Motors* 19,700 186,533
-----------
$ 5,307,696
- ---------------------------------------------------------------------------
Telecommunications - 11.6%
American Media, Inc.* 1,351,600 $ 21,085
American Portable Telecom, Inc.* 2,700 24,300
Cable Design Technology* 50,100 1,778,550
Cabletron Systems, Inc.* 35,000 2,135,000
Cisco Systems, Inc.* 8,800 464,200
Echostar Communications, "A"* 14,000 355,032
Glenayre Technologies, Inc.* 40,800 1,499,400
Lambert Communication, Inc.* 33,000 330
Paging Network, Inc.* 26,200 461,775
Rogers Cantel Mobile Co.* 247,100 5,065,550
U.S. Robotics Corp.* 15,300 803,250
------------
$ 12,608,472
- ---------------------------------------------------------------------------
Utilities - Telephone - 3.2%
MCI Communications Corp. 137,600 $ 3,457,200
- ---------------------------------------------------------------------------
Total U.S. Stocks and Warrants $104,278,892
- ---------------------------------------------------------------------------
Foreign Stocks - 4.1%
Canada - 0.8%
Southern Africa Minerals Corp.* 810,000 $ 858,600
- ---------------------------------------------------------------------------
Germany - 1.0%
SAP AG, Preferred 4,600 $ 754,705
Sap Aktiengesellscha, ADR*## 6,700 361,800
------------
$ 1,116,505
- ---------------------------------------------------------------------------
Hong Kong - 1.1%
Giordano Holdings Ltd. 1,384,000 $ 1,145,539
- ---------------------------------------------------------------------------
Philippines - 0.2%
Pilipino Telephone Corp. 199,800 $ 263,496
- ---------------------------------------------------------------------------
Sweden - 1.0%
Nobel Biocare AB 56,500 $ 1,074,969
- ---------------------------------------------------------------------------
Total Foreign Stocks $ 4,459,109
- ---------------------------------------------------------------------------
Total Common Stocks and Warrants (Identified
Cost, $116,962,150) $108,738,001
- ---------------------------------------------------------------------------
Convertible Bond
- ---------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------
Ventritex, Inc., 5.75s, due 2001
(Identified Cost, $40,000) $ 40 $ 40,100
- ---------------------------------------------------------------------------
Short-Term Obligation - 3.2%
- ---------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 5.215s,
due 9/03/96, at Amortized Cost $3,490 $ 3,487,991
- ---------------------------------------------------------------------------
Total Investments (Identified Cost, $120,490,141) $112,266,092
Other Assets, Less Liabilities - (2.9)% (3,264,817)
- ---------------------------------------------------------------------------
Net Assets - 100.0% $109,001,275
- ---------------------------------------------------------------------------
*Non-income producing security.
##SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
August 31, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $120,490,141) $112,266,092
Cash 6,834
Receivable for Fund shares sold 271,690
Interest and dividends receivable 12,031
Other assets 969
------------
Total assets $112,557,616
------------
Liabilities:
Payable for Fund shares reacquired $ 298,807
Payable for investments purchased 3,117,352
Payable to affiliates -
Management fee 4,500
Shareholder servicing agent fee 1,157
Distribution fee 43,668
Accrued expenses and other liabilities 90,857
------------
Total liabilities $ 3,556,341
------------
Net assets $109,001,275
============
Net assets consist of:
Paid-in capital $103,263,475
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (8,224,049)
Accumulated undistributed net realized gain on investments
and foreign currency transactions 13,967,507
Accumulated net investment loss (5,658)
------------
Total $109,001,275
============
Shares of beneficial interest outstanding 12,156,108
============
Class A shares:
Net asset value per share
(net assets of $35,098,281 / 3,875,873 shares of beneficial
interest outstanding) $9.06
=====
Offering price per share (100/94.25) $9.61
=====
Class B shares:
Net asset value and offering price per share
(net assets of $67,043,466 / 7,505,225 shares of beneficial
interest outstanding) $8.93
=====
Class C shares:
Net asset value and offering price per share
(net assets of $6,859,528 / 775,010 shares of beneficial
interest outstanding) $8.85
=====
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A,
Class B and Class C shares.
See notes to financial statements
<PAGE>
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended August 31, 1996
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 155,559
Dividends 116,493
Foreign taxes withheld (864)
------------
Total investment income $ 271,188
------------
Expenses -
Management fee $ 755,233
Trustees' compensation 11,639
Shareholder servicing agent fee (Class A) 49,906
Shareholder servicing agent fee (Class B) 137,168
Shareholder servicing agent fee (Class C) 7,616
Distribution and service fee (Class A) 28,237
Distribution and service fee (Class B) 539,460
Distribution and service fee (Class C) 49,574
Custodian fee 49,803
Printing 30,416
Postage 29,634
Auditing fees 22,645
Legal fees 4,152
Miscellaneous 144,515
------------
Total expenses $ 1,859,998
Fees paid indirectly (3,115)
------------
Net expenses $ 1,856,883
------------
Net investment loss $ (1,585,695)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $ 20,722,770
Foreign currency transactions (407)
------------
Net realized gain on investments and foreign currency
transactions $ 20,722,363
------------
Change in unrealized appreciation (depreciation) -
Net unrealized loss on investments $(12,184,307)
------------
Net realized and unrealized gain on investments and
foreign currency $ 8,538,056
------------
Increase in net assets from operations $ 6,952,361
============
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------
Year Ended August 31, 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (1,585,695) $ (876,305)
Net realized gain on investments and foreign currency
transactions 20,722,363 14,682,099
Net unrealized gain (loss) on investments and foreign currency
translation (12,184,307) 959,367
------------ ------------
Increase in net assets from operations $ 6,952,361 $ 14,765,161
------------ ------------
Distributions declared to shareholders -
From net realized gain on investments and foreign currency
transactions (Class A) $ (5,350,459) $ (918,344)
From net realized gain on investments and foreign currency
transactions (Class B) (10,344,167) (1,440,882)
From net realized gain on investments and foreign currency
transactions (Class C) (756,617) (47,151)
------------ ------------
Total distributions declared to shareholders $(16,451,243) $ (2,406,377)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 80,419,295 $110,456,952
Net asset value of shares issued to shareholders in
reinvestment
of distributions 14,791,845 2,174,647
Cost of shares reacquired (71,855,199) (84,557,685)
------------ ------------
Increase in net assets from Fund share transactions $ 23,355,941 $ 28,073,914
------------ ------------
Total increase in net assets $ 13,857,059 $ 40,432,698
Net assets:
At beginning of period 95,144,216 54,711,518
------------ ------------
At end of period (including accumulated net investment loss
of $1,588,957 and $3,262, respectively) $109,001,275 $ 95,144,216
============ ============
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------
Year Ended August 31, 1996 1995 1994*
- -------------------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $10.08 $ 8.68 $ 7.83
------ ------ ------
Income from investment operations# -
Net investment income (loss) $ 0.10 $(0.03) $(0.05)
Net realized and unrealized gain on investments and
foreign currency transactions 0.76 1.69 0.90
------ ------ ------
Total from investment operations $ 0.86 $ 1.66 $ 0.85
------ ------ ------
Less distributions declared to shareholders from net
realized gain on investments and foreign currency
transactions $(1.88) $(0.26) $ --
------ ------ ------
Total distributions declared to shareholders $(1.88) $(0.26) $ --
------ ------ ------
Net asset value - end of period $ 9.06 $10.08 $ 8.68
====== ====== ======
Total return(+) 10.55% 19.77% 10.86%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.28% 1.29% 1.50%+
Net investment loss (1.08)% (0.40)% (0.87)%+
Portfolio turnover 157% 218% 82%
Average commission rate### $0.0422 -- --
Net assets at end of period (000 omitted) $35,098 $30,194 $17,776
<FN>
*For the period from the commencement of investment operations, December 1, 1993 to August 31, 1994.
+Annualized.
++Not annualized.
(+)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.
#Per share data is based upon average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees
paid indirectly.
###Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
(S)The investment adviser did not impose a portion of its management fee for the periods indicated. If this fee
had been incurred by the Fund, the net investment loss per share and the ratios would have been:
Net investment loss -- -- $(0.08)
Ratios (to average net assets):
Expenses -- -- 2.03%+
Net investment loss -- -- (1.40)%+
</FN>
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights - continued
- -------------------------------------------------------------------------------------------------------
Year Ended August 31, 1996 1995 1994*
- -------------------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $ 9.94 $ 8.59 $ 7.83
------ ------ ------
Income from investment operations# -
Net investment income (loss) $ 0.17 $(0.13) $(0.12)
Net realized and unrealized gain on investments and
foreign currency transactions 0.61 1.69 0.88
------ ------ ------
Total from investment operations $ 0.78 $ 1.56 $ 0.76
------ ------ ------
Less distributions declared to shareholders from net
realized gain on investments and foreign currency
transactions $(1.79) $(0.21) $ --
------ ------ ------
Total distributions declared to shareholders $(1.79) $(0.21) $ --
------ ------ ------
Net asset value - end of period $ 8.93 $ 9.94 $ 8.59
====== ====== ======
Total return 9.67% 18.75% 9.71%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.13% 2.29% 2.57%+
Net investment loss (1.81)% (1.44)% (2.02)%+
Portfolio turnover 157% 218% 82%
Average commission rate### $0.0422 -- --
Net assets at end of period (000 omitted) $67,043 $61,742 $36,849
<FN>
*For the period from the commencement of investment operations, December 1, 1993 to August 31, 1994.
+Annualized.
++Not annualized.
#Per share data is based upon average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees
paid indirectly.
###Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
(S)The investment adviser did not impose a portion of its management fee for the periods indicated. If this
fee had been incurred by the Fund, the net investment loss per share and the ratios would have been:
Net investment loss -- -- $(0.15)
Ratios (to average net assets):
Expenses -- -- 3.10%
Net investment loss -- -- (2.56)%
</FN>
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights - continued
- -------------------------------------------------------------------------------------------------------
Year Ended August 31, 1996 1995 1994**
- -------------------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $ 9.91 $ 8.61 $ 7.80
------ ------ ------
Income from investment operations# -
Net investment income (loss) $ 0.17 $(0.14) $(0.04)
Net realized and unrealized gain on investments and
foreign currency transactions 0.60 1.69 0.85
------ ------ ------
Total from investment operations $ 0.77 $ 1.55 $ 0.81
------ ------ ------
Less distributions declared to shareholders from net
realized gain on investments and foreign currency
transactions $(1.83) $(0.25) $ --
------ ------ ------
Total distributions declared to shareholders $(1.83) $(0.25) $ --
------ ------ ------
Net asset value - end of period $ 8.85 $ 9.91 $ 8.61
====== ====== ======
Total return 9.60% 18.63% 10.38%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.17% 2.30% 2.50%+
Net investment loss (1.90)% (1.55)% (2.22)%+
Portfolio turnover 157% 218% 82%
Average commission rate### $0.0422 -- --
Net assets at end of period (000 omitted) $6,860 $3,209 $87
<FN>
**For the period from the commencement of offering of Class C shares, August 1, 1994 to August 31, 1994.
+Annualized.
++Not annualized.
#Per share data is based upon average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees
paid indirectly.
###Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
(S)The investment adviser did not impose a portion of its management fee for the periods indicated. If this fee
had been incurred by the Fund, the net investment loss per share and the ratios would have been:
Net investment loss -- -- $(0.05)
Ratios (to average net assets):
Expenses -- -- 3.03%+
Net investment loss -- -- (2.71)%+
</FN>
</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
management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 market value. Securities for which there are no such
quotations or valuations are valued at fair value as determined in good faith by
or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
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 into 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 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.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on the
Fund's average daily net assets. This fee is reduced according to an expense
offset arrangement with State Street Bank, the dividend disbursing agent, which
provides for partial reimbursement of custody fees based on a formula developed
to measure the value of cash deposited by the Fund with the custodian and with
the dividend disbursing agent. This amount is shown as a reduction of expenses
on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV. 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 tax return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended August 31, 1996, $1,583,299 was reclassified from
accumulated net realized gain on investments and paid-in capital to accumulated
net investment loss 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 its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of $2,164
for the year ended August 31, 1996.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$23,992 for the year ended August 31, 1996, 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. Payment of the 0.10% per annum Class A
distribution fee will commence on such date as the Trustees of the Trust may
determine. MFD retains the service fee for accounts not attributable to a
securities dealer which amounted to $3,356 for the year ended August 31, 1996.
Fees incurred under the distribution plan during the year ended August 31, 1996
were 0.09% of average daily net assets attributable to Class A shares on an
annualized basis.
The Class B and Class C distribution plans provide that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per annum,
of the Fund's average daily net assets attributable to Class B and Class C
shares. MFD will pay to securities dealers that enter into a sales agreement
with MFD all or a portion of the service fee attributable to Class B and Class C
shares, and will pay to such securities dealers all of the distribution fee
attributable to Class C shares. The service fee is intended to be additional
consideration for services rendered by the dealer with respect to Class B and
Class C shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $3,254 and $457 for Class B and Class C
shares, respectively, for the year ended August 31, 1996. Fees incurred under
the distribution plans during the year ended August 31, 1996 were 0.87% and
1.00% of average daily net assets attributable to Class B and Class C shares,
respectively.
Purchases over $1 million of Class A shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months following
such purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. A contingent deferred sales charge is imposed on
shareholder redemptions of Class C shares in the event of a shareholder
redemption within 12 months of purchases made on or after April 1, 1996. MFD
receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the year ended August 31, 1996 were $1,116, $106,267 and
$346 for Class A, Class B and Class C shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the 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 U.S. government securities,
purchased option transactions and short-term obligations, aggregated
$161,860,736 and $154,123,283, 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 $120,490,141
============
Gross unrealized depreciation $(15,667,148)
Gross unrealized appreciation 7,443,099
------------
Net unrealized depreciation $ (8,224,049)
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
Year Ended August 31, 1996 Year Ended August 31, 1995
--------------------------- ----------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,953,255 $ 28,054,414 4,680,448 $ 39,610,152
Shares issued to shareholders in
reinvestment of distributions 609,434 4,991,266 104,971 868,094
Shares reacquired (2,683,072) (24,825,437) (3,837,263) (32,341,967)
---------- ------------ ---------- ------------
Net increase 879,617 $ 8,220,243 948,156 $ 8,136,279
========== ============ ========== ============
<CAPTION>
Class B Shares
Year Ended August 31, 1996 Year Ended August 31, 1995
--------------------------- ----------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,674,349 $ 33,978,577 7,325,159 $ 62,579,527
Shares issued to shareholders in
reinvestment of distributions 1,119,205 9,076,592 154,411 1,266,051
Shares reacquired (3,501,980) (31,963,123) (5,554,198) (46,622,744)
---------- ------------ ---------- ------------
Net increase 1,291,574 $ 11,092,046 1,925,372 $ 17,222,834
========== ============ ========== ============
<CAPTION>
Class C Shares
Year Ended August 31, 1996 Year Ended August 31, 1995
--------------------------- ----------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,005,344 $ 18,386,304 948,839 $ 8,267,273
Shares issued to shareholders in
reinvestment of distributions 89,936 723,987 4,957 40,502
Shares reacquired (1,644,089) (15,066,639) (640,099) (5,592,974)
---------- ------------ ---------- ------------
Net increase 451,191 $ 4,043,652 313,697 $ 2,714,801
========== ============ ========== ============
</TABLE>
(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, 1996 was $1,189.
<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, 1996, the related statement
of operations for the year then ended, the statement of changes in net assets
for the years ended August 31, 1996 and 1995, and the financial highlights for
each of the years in the three-year period ended August 31, 1996. 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, 1996 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, 1996, 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 4, 1996
--------------------------------------------
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>
<TABLE>
<CAPTION>
MFS(R) OTC FUND
<C> <C>
TRUSTEES AUDITORS
A. Keith Brodkin* - Chairman and President Deloitte & Touche LLP
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
Director, Cambridge Bancorp; Director, a touch-tone telephone.
Cambridge Trust Company
For information on MFS mutual funds,
Peter G. Harwood - Private Investor 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
MFS Service Center, Inc.
William J. Poorvu - Adjunct Professor, P.O. Box 2281
Harvard University Graduate School of Boston, MA 02107-9906
Business Administration
For general information, call toll free:
Charles W. Schmidt - Private Investor 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
Arnold D. Scott* - Senior Executive
Vice President, Director and Secretary, For service to speech- or hearing-impaired,
Massachusetts Financial Services Company call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time.
Jeffrey L. Shames* - President and Director, (To use this service, your phone must be equipped
Massachusetts Financial Services Company with a Telecommunications Device for the Deaf.)
Elaine R. Smith - Independent Consultant For share prices, account balances and
exchanges, call toll free: 1-800-MFS-TALK
David B. Stone - Chairman, North American (1-800-637-8255) anytime from a touch-tone telephone.
Management Corp. (investment advisers)
WEB SITE
INVESTMENT ADVISER http://www.mfs.com
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc. --------------------------------------------
500 Boylston Street
Boston, MA 02116-3741 TOP RATED SERVICE
For the second year in a row,
FUND MANAGER [DALBAR MFS earned a #1 ranking in
Mark Regan* LOGO] DALBAR, Inc.'s Broker/Dealer
Survey, Main Office Operations
TREASURER Service Quality category. The
W. Thomas London* firm achieved a 3.49 overall score - on a
scale of 1 to 4 - in the 1995 survey. A total
ASSISTANT TREASURER of 71 firms responded, offering input on the
James O. Yost* quality of service they receive from 36
mutual fund companies nationwide. The survey
SECRETARY contained questions about service quality in
Stephen E. Cavan* 17 categories, including "knowledge of phone
service contacts," "accuracy of transaction
ASSISTANT SECRETARY processing," and "overall ease of doing
James R. Bordewick, Jr.* business with the firm." The 1996 survey
results were not available at the time of
CUSTODIAN this printing.
Investors Bank & Trust Company
* Affiliated with the Investment Adviser
</TABLE>
<PAGE>
-------------
MFS(R) OTC FUND [DALBAR LOGO: #1 BULK RATE
TOP RATED SERVICE] U.S. POSTAGE
500 Boylston Street PAID
Boston, MA 02116 PERMIT #55638
BOSTON, MA
-------------
[LOGO: M F S(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)]
(C)1996 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116
OTC-2 10/96 19M 83/283/383
