<PAGE>
[LOGO: M F S(SM)] Semiannual Report
INVESTMENT MANAGEMENT February 28, 1997
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MFS(R) OTC FUND
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[Graphic Omitted]
LEARNING FINANCIAL BASICS THE EASY WAY (see page 23)
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TABLE OF CONTENTS
Letter from the Chairman ................................................... 1
Portfolio Manager's Overview ............................................... 2
Portfolio Manager's Profile ................................................ 3
Fund Facts ................................................................. 4
Performance Summary ........................................................ 4
Portfolio Concentration .................................................... 6
Portfolio of Investments ................................................... 7
Financial Statements .......................................................11
Notes to Financial Statements ..............................................17
The ABCs of Investing ......................................................23
The MFS Family of Funds(R) .................................................24
Trustees and Officers ......................................................25
HIGHLIGHTS
o FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 4.04%, CLASS B SHARES 3.65%,
CLASS C SHARES 3.71%, AND CLASS I SHARES 4.04%.
o THE STRENGTH OF U.S. LARGE-COMPANY STOCKS OVER THE PAST SIX MONTHS HAS LEFT
BEHIND MANY OF THE SMALLER, LESS-LIQUID STOCKS IN WHICH THE FUND INVESTS.
o THE FUND WAS HELPED BY THE PERFORMANCE OF COMPANIES IN THE SEMICONDUCTOR,
LONG- DISTANCE TELEPHONE, AND HEALTH CARE INFORMATION INDUSTRIES.
o PERFORMANCE WAS HINDERED BY SOME OF THE FUND'S NETWORKING AND
TELECOMMUNICATIONS HOLDINGS, AS PRODUCT TRANSITIONS AND MORE COMPETITION
REDUCED VALUATIONS IN THIS INDUSTRY.
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders:
[Photo of A. Keith Brodkin]
After more than six years of expansion, the U.S. economy appears to be
experiencing another year of moderate growth in 1997, although a few signs point
to the possibility of a modest rise in inflation during the year. On the
positive side, the pattern of moderate growth and inflation set over the past
few years now seems fairly well entrenched in the economy and, short of a major
international or domestic crisis, appears to have enough momentum to remain on
track for some time. Also, gains in such important sectors as housing,
automobiles, industrial production, and exports indicate a fair amount of
underlying strength in the economy. However, some reason for caution can be seen
in the continuing high levels of consumer debt and rising personal bankruptcies,
as well as in the ongoing tightness in labor markets, which could add some
inflationary pressures to the economy. Given these somewhat conflicting
indicators, we expect real (inflation-adjusted) growth to revolve around 2% in
1997, which would represent a modest decline from 1996.
We continue to urge U.S. equity investors to lower their expectations for 1997
and to point out that the impressive gains of the past two years are not
sustainable. Just as the slowdown in corporate earnings growth and increases in
interest rates in 1996 raised some near-term concerns, further interest rate
increases and an acceleration of inflation could negatively affect the stock
market in 1997. To the extent that some slowdown in earnings means that the
economy is not overheating, this could be beneficial for the equity market in
the long run. Also, we believe 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 reasonably positive about the long-term viability
of the equity market.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
March 11, 1997
<PAGE>
PORTFOLIO MANAGER'S OVERVIEW
[Photo of Mark Regan]
Mark Regan
For the six months ended February 28, 1997, Class A shares of the Fund provided
a total return of 4.04%, Class B shares 3.65%, and Class C shares 3.71%, and
Class I shares 4.04%. All of the Fund's returns include the reinvestment of
distributions but exclude the effects of any sales charges. These returns
compare to a 7.80% return for the Russell 2000 Total Return Index (the Russell
Index), an unmanaged index of 2,000 of the smallest U.S.- domiciled company
common stocks that are traded on the New York Stock Exchange, the American Stock
Exchange, and NASDAQ, and a 22.50% return for the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock total
return performance.
The strength of U.S. large-capitalization stocks over the past six months has
left behind the smaller, less-liquid stocks in NASDAQ, a phenomenon that can be
seen in the outperformance of the S&P 500 versus the Russell 2000, as well as
versus the NASDAQ industrials, which were up only 4.3%. NASDAQ and the Fund's
portfolio are not represented in some areas that have performed exceptionally
well, including pharmaceutical manufacturers, tobacco companies, and the larger
financial institutions. As a result, the Fund's performance has been roughly in
line with the small-capitalization indices, although it has lagged the broad
market.
However, we continue to believe that the smaller and mid-sized companies offer
greater potential relative to the broader market. The companies in which we are
invested have very high earnings growth rates, and we expect this growth to help
drive up stock prices over time.
The Fund's performance over the past six months has been helped by its
holdings in semiconductor companies such as Intel, LSI, Lattice, and KLA.
Performance was also aided by long-distance telephone holdings such as MCI
Communications, as well as by health care information companies such as HBO and
Company, HCIA Inc., and IDX Systems.
Additionally, many of the specialty finance companies performed well into the
end of December, and those positions were trimmed as interest rates rose and
loan losses increased.
The Fund's performance was hindered by such networking and telecommunications
holdings as Cisco, Cabletron, Glenayre, and Cable Design and Technology. In
particular, product transitions and more competition in the networking area have
hurt valuations in this industry. Specialty stores also underperformed during
this period, as poor "same-store sales" resulted in underperformance by a number
of companies, including Gymboree and Viking Office Products.
Looking forward, the Fund remains positioned in growth companies, with
technology and health care being two of our largest sectors. We see tremendous
opportunities in these areas and are always trying to find investment
opportunities that we believe have the potential for high growth at reasonable
valuations.
Respectfully,
/s/ Mark Regan
Mark Regan
Portfolio Manager
PORTFOLIO 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.
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: CLASS A AND CLASS B: DECEMBER 1, 1993
CLASS C: AUGUST 1, 1994
CLASS I: JANUARY 2, 1997
SIZE: $108.2 MILLION NET ASSETS AS OF FEBRUARY 28, 1997
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 Class A, Class B, Class C, and Class I shares for the applicable
time periods.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
CLASS A INVESTMENT RESULTS
(net asset value change including
reinvested distributions)
Life of
6 Months 1 Year Fund*
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Cumulative Total Return + 4.04% +5.44% +52.71%
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Average Annual Total Return -- +5.44% +13.93%
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SEC Results -- -0.67% +11.86%
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CLASS B INVESTMENT RESULTS
(net asset value change including
reinvested distributions)
Life of
6 Months 1 Year Fund*
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Cumulative Total Return + 3.65% +4.59% +48.11%
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Average Annual Total Return -- +4.59% +12.86%
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SEC Results -- +0.95% +12.15%
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CLASS C INVESTMENT RESULTS
(net asset value change including
reinvested distributions)
Life of
6 Months 1 Year Fund*
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Cumulative Total Return + 3.71% +4.66% +48.28%
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Average Annual Total Return -- +4.66% +12.90%
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SEC Results -- +3.75% +12.90%
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CLASS I INVESTMENT RESULTS
(net asset value change including
reinvested distributions)
Life of
6 Months 1 Year Fund*
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Cumulative Total Return + 4.04% +5.44% +52.71%
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Average Annual Total Return -- +5.44% +13.93%
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SEC Results -- -0.67% +11.86%
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* For the period from the commencement of the Fund's investment operations
December 1, 1993 through February 28, 1997.
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
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 have higher annual fees and expenses than Class A
shares. Class C SEC results reflect the 1% CDSC applicable to shares redeemed
within 12 months of purchase. Class I shares, which became available on January
2, 1997, have no sales load or 12b-1 fees and are only available to certain
institutional investors.
Class C share results include the performance and operating expenses (e.g., Rule
12b-1 fees) of the Fund's Class B shares for periods prior to commencement of
offering of Class C shares. Operating expenses attributable to Class C shares
are not significantly different than those of Class B. The Class B share
performance included in the Class C share performance has been adjusted to
reflect the CDSC generally applicable to Class C shares rather than the CDSC
generally applicable to Class B shares.
Class I share results include the performance and operating expenses (e.g., Rule
12b-1 fees) of Class A shares, for periods prior to the commencement of offering
of Class I shares. Because operating expenses attributable to Class A shares are
greater than those of Class I shares, Class I share performance would have been
higher had Class I shares been outstanding during the entire period.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Current subsidies and
waivers may be discontinued at any time.
PORTFOLIO CONCENTRATION
TOP 10 EQUITY HOLDINGS
STARSIGHT TELECAST, INC. MCI COMMUNICATIONS CORP.
Developer of interactive television Telecommunications company
guide and VCR services
ASCEND COMMUNICATIONS, INC.
SPECTRUM HOLOBYTE INDUSTRIES Developer of telecommunications
Developer of entertainment and systems and products
educational software
ORACLE SYSTEMS CORP.
UROMED CORP. Developer and manufacturer of
Medical products company database software
HCIA, INC. INTEL CORP.
Medical information systems company Semiconductor manufacturer
SHOWBOAT, INC. ZOLL MEDICAL CORP.
Las Vegas and Atlantic City casino Medical products company
operator
LARGEST SECTORS
Technology 42.3%
Leisure 15.4%
Health Care 14.0%
Retailing 8.2%
Utilities & Communications 7.5%
Miscellaneous 12.6%*
*For a more complete breakdown, refer to Portfolio of Investments.
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED) - February 28, 1997
Stocks and Warrants - 100.9%
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Issuer Shares Value
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Apparel and Textiles - 0.4%
Nine West Group, Inc.* 8,000 $ 376,000
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Biotechnology
Perseptive Biosystems* 45 $ 337
Perseptive Biosystems, Warrants 25 0
------------
$ 337
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Business Machines - 2.0%
Affiliated Computer Co. 19,300 $ 398,062
Seagate Technology, Inc.* 5,500 258,500
Sun Microsystems, Inc. 52,100 1,608,588
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$ 2,265,150
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Business Services - 2.1%
Administaff, Inc.* 600 $ 14,325
ADT Ltd 26,300 572,025
Claremont Technology Group* 25,300 534,462
DST Systems, Inc.* 35,600 1,170,350
Sabre Group Holding, Inc., "A"* 1,000 28,250
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$ 2,319,412
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Cellular Telephones - 2.1%
Telephone & Data Systems, Inc. 58,400 $ 2,336,000
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Chemicals - 0.5%
Betzdearborn, Inc. 8,700 $ 564,412
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Computer Software - Personal Computers - 9.0%
Activision, Inc.* 58,200 $ 778,425
Electronic Arts, Inc. 70,400 2,200,000
Microsoft Corp. 16,500 1,608,750
Spectrum Holobyte Industries 628,500 5,185,125
------------
$ 9,772,300
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Computer Software - Systems - 16.4%
Adobe Systems, Inc. 61,800 $ 2,255,700
BMC Software, Inc.* 41,500 1,776,719
Cadence Design Systems, Inc. 23,800 877,625
Cascade Communications Corp.* 10,900 336,538
Compaq Computer Corp. 4,100 324,925
Computer Associates International, Inc. 24,700 1,074,450
Compuware Corp.* 11,700 714,110
Cooper & Chyan Technology, Inc.* 78,400 2,405,900
E Trade Group, Inc.* 1,800 43,200
Edify Corp.* 154,100 1,637,313
IA Corporation I* 76,400 506,150
Metro Information Services* 200 3,675
Oracle Systems Corp. 70,500 2,767,125
Premier Research Worldwide* 400 8,850
Pure Atria Corp.* 22,200 425,964
Sybase, Inc.* 42,400 696,802
Synopsys, Inc.* 51,400 1,834,338
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$ 17,689,383
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Consumer Goods and Services - 0.1%
Silgan Holdings, Inc.* 1,600 $ 40,800
U S Rentals, Inc.* 1,400 26,600
------------
$ 67,400
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Electronics - 4.7%
Analog Devices, Inc. 23,250 $ 540,564
Atmel Corp.* 11,300 422,337
Intel Corp. 19,300 2,738,187
KLA Instruments Corp.* 10,300 429,381
Kulicke & Soffa Industries* 17,000 450,500
Lattice Semiconductor Corp.* 11,500 549,125
------------
$ 5,130,094
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Entertainment - 14.0%
Harrah's Entertainment, Inc.* 70,600 $ 1,306,100
Heritage Media Corp. 128,900 1,450,125
Jacor Communications, Inc., "A" 55,000 1,619,064
LIN Television Corp.* 24,000 996,000
Showboat, Inc. 153,000 3,136,500
Starsight Telecast, Inc. 813,800 6,713,850
------------
$ 15,221,639
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Financial Institutions - 1.8%
Delta Financial Corp.* 600 $ 12,600
Franklin Resources, Inc. 18,300 1,070,550
Green Tree Financial Corp. 23,200 870,000
------------
$ 1,953,150
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Food and Beverage Products - 1.1%
Smith's Food & Drug Centers, "B" 35,000 $ 1,150,625
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Insurance - 1.2%
Compdent Corp.* 41,300 $ 1,244,162
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Medical and Health Products - 5.4%
Uromed Corp. 403,100 $ 3,275,187
Zoll Medical Corp. 234,200 2,517,650
------------
$ 5,792,837
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Medical and Health Technology and Services - 13.2%
Access Health, Inc.* 32,100 $ 754,350
AmeriSource Health Corp. "A"* 16,800 846,300
HBO & Company 18,600 1,071,825
HCIA, Inc 91,700 3,140,725
IDX Systems Corp.* 14,400 453,600
Mariner Health Group, Inc. 159,500 1,555,125
Owen Healthcare, Inc.* 38,600 1,061,500
Pacificare Health Systems, Inc., "A"* 13,200 1,056,000
Renal Treatment Centers, Inc. 4,900 127,400
Riscorp, Inc., "A"* 59,900 149,750
Safeguard Health Enterprises* 33,700 497,075
St. Jude Medical, Inc. 26,900 1,062,550
Trigon Healthcare, Inc.* 53,200 950,950
United Healthcare Corp. 20,079 1,001,440
Vivra, Inc.* 20,100 597,975
------------
$ 14,326,565
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Oil Services - 1.2%
Cooper Cameron Corp.* 8,300 $ 543,650
Diamond Offshore Drilling* 6,500 383,500
Global Industries, Ltd. 12,200 222,650
National Oilwell, Inc.* 3,000 92,250
Offshore Energy Development* 100 1,225
------------
$ 1,243,275
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Oils - 1.9%
Carbo Ceramics, Inc 104,100 $ 1,977,900
Titan Exploration, Inc.* 3,300 34,650
------------
$ 2,012,550
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Precious Metals and Minerals - 0.5%
Southern Africa Minerals Corp. 810,000 $ 532,899
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Railroad - 1.5%
Wisconsin Central Transportation Corp. 46,100 $ 1,653,838
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Restaurants and Lodging - 1.5%
Applebee's International, Inc. 45,000 $ 1,136,250
Coldwater Creek, Inc.* 300 5,512
Prime Hospitality Corp.* 28,600 471,900
Renaissance Hotel Group* 1,000 29,625
------------
$ 1,643,287
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Stores - 6.8%
Ann Taylor Stores Corp.* 71,800 $ 1,436,000
General Nutrition Cos., Inc. 40,000 720,000
Gymboree Corp. 90,800 2,235,950
Rite Aid Corp. 37,700 1,588,113
Viking Office Products 59,800 1,412,775
------------
$ 7,392,838
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Telecommunications - 10.2%
ADC Telecommunications, Inc.* 20,600 $ 558,775
Aerial Communications, Inc.* 98,700 555,187
Ascend Communications, Inc.* 55,100 2,878,975
Cable Design Technology* 90,600 2,400,900
Cabletron Systems, Inc. 33,000 990,000
Glenayre Technologies, Inc. 96,200 1,274,650
Rogers Cantel Mobile Co. 138,700 2,323,225
West Teleservices Corp.* 1,200 20,400
------------
$ 11,002,112
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Utilities - Gas - 0.5%
Energy Ventures, Inc.* 10,700 $ 545,700
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Utilities - Telephone 2.8%
MCI Communications Corp. 83,400 $ 2,981,550
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Total Stocks and Warrants (Identified
Cost, $112,975,282) $109,217,513
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Short-Term Obligations - 1.7%
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Principal Amount
(000 Omitted)
- -------------------------------------------------------------------------------
General Electric Capital Corp., 5.38s, due 3/03/97, $ 1,869,162
at Amortized Cost $1,870
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Total Investments (Identified Cost, $114,844,444) $111,086,675
Other Assets, Less Liabilities - (2.6)% (2,904,252
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Net Assets - 100.0% $108,182,423
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*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- ------------------------------------------------------
February 28, 1997
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $114,844,444) $111,086,675
Cash 3,701
Receivable for Fund shares sold 70,819
Receivable for investments sold 13,341,677
Interest and dividends receivable 2,623
Other assets 969
------------
Total assets $124,506,464
------------
Liabilities:
Payable for Fund shares reacquired $ 511,619
Payable for investments purchased 15,666,635
Payable to affiliates -
Management fee 2,273
Shareholder servicing agent fee 394
Distribution fee 1,397
Accrued expenses and other liabilities 141,723
------------
Total liabilities $ 16,324,041
------------
Net assets $108,182,423
============
Net assets consist of:
Paid-in capital $113,858,891
Unrealized depreciation on investments (3,757,769)
Accumulated net realized loss on investments (873,128)
Accumulated net investment loss (1,045,571)
------------
Total $108,182,423
============
Shares of beneficial interest outstanding 13,387,639
============
Class A shares:
Net asset value per share (net assets of
$34,764,480 / 4,265,751 shares of beneficial
interest outstanding) $8.15
=====
Offering price per share (100 / 94.25) $8.65
=====
Class B shares:
Net asset value and offering price per share
(net assets of $66,553,204 / 8,265,268
shares of beneficial interest outstanding) $8.05
=====
Class C shares:
Net asset value and offering price per share
(net assets of $5,371,193 / 673,385
shares of beneficial interest outstanding) $7.98
=====
Class I shares:
Net asset value, offering price and redemption
price per share (net assets of
$1,493,546 / 183,235 shares of beneficial
interest outstanding) $8.15
=====
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>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- ------------------------------------------------------------------------------
Six Months Ended February 28, 1997
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 52,557
Dividends 92,512
-----------
Total investment income $ 145,069
-----------
Expenses -
Management fee $ 445,574
Trustees' compensation 6,649
Shareholder servicing agent fee (Class A) 19,320
Shareholder servicing agent fee (Class B) 53,443
Shareholder servicing agent fee (Class C) 3,228
Shareholder servicing agent fee 26,113
Distribution and service fee (Class A) 47,068
Distribution and service fee (Class B) 362,759
Distribution and service fee (Class C) 31,062
Printing 52,716
Auditing fees 24,523
Postage 22,443
Custodian fee 12,615
Legal fees 2,224
Miscellaneous 78,245
-----------
Total expenses $ 1,187,982
Fees paid indirectly (3,000)
-----------
Net expenses $ 1,184,982
-----------
Net investment loss $(1,039,913)
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 837,225
Foreign currency transactions (325)
-----------
Net realized gain on investments and foreign currency
transactions $ 836,900
Net unrealized gain on investments 4,466,280
-----------
Net realized and unrealized gain on investments and
foreign currency $ 5,303,180
-----------
Increase in net assets from operations $ 4,263,267
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Six Months Ended Year Ended
February 28, 1997 August 31,
(Unaudited) 1996
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (1,039,913) $ (1,585,695)
Net realized gain on investments and
foreign currency transactions 836,900 20,722,363
Net unrealized gain (loss) on investments
and foreign currency translation 4,466,280 (12,184,307)
------------- ------------
Increase in net assets from operations $ 4,263,267 $ 6,952,361
------------- ------------
Distributions declared to shareholders -
From net realized gain on investments and
foreign currency transactions (Class A) $ (5,060,126) $ (5,350,459)
From net realized gain on investments and
foreign currency transactions (Class B) (9,057,331) (10,344,167)
From net realized gain on investments and
foreign currency transactions (Class C) (686,950) (756,617)
In excess of net realized gain on
investments and foreign currency
transactions (Class A) (298,434) --
In excess of net realized gain on
investments and foreign currency
transactions (Class B) (534,179) --
In excess of net realized gain on
investments and foreign currency
transactions (Class C) (40,515) --
------------- ------------
Total distributions declared to
shareholders $ (15,677,535) $(16,451,243)
------------- ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 43,876,753 $ 80,419,295
Net asset value of shares issued to
shareholders in reinvestment
of distributions 14,113,814 14,791,845
Cost of shares reacquired (47,395,151) (71,855,199)
------------- ------------
Increase in net assets from Fund share
transactions $ 10,595,416 $ 23,355,941
------------- ------------
Total increase (decrease) in net
assets $ (818,852) $ 13,857,059
Net assets:
At beginning of period 109,001,275 95,144,216
------------- ------------
At end of period (including accumulated
net investment loss of $1,045,571 and
$5,658, respectively) $ 108,182,423 $109,001,275
============= ============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- -------------------------------------------------------------------------------
Period Ended Year Ended August 31,
February 28, 1997 ------------------------------
(Unaudited) 1996 1995 1994*
- -------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period
$ 9.06 $10.08 $ 8.68 $ 7.83
------ ------ ------ ------
Income from investment operations# -
Net investment income
(loss) $(0.06) $ 0.10 $(0.03) $(0.05)
Net realized and
unrealized gain on
investments and foreign
currency transactions 0.47 0.76 1.69 0.90
------ ------ ------ ------
Total from investment
operations $ 0.41 $ 0.86 $ 1.66 $ 0.85
------ ------ ------ ------
Less distributions declared to shareholders -
From net realized gain
on investments and
foreign currency transactions $(1.25) $(1.88) $(0.26) $ --
In excess of net realized
gain on investments and
foreign currency transactions (0.07) -- -- --
------ ------ ------ ------
Total distributions
declared to shareholders $(1.32) $(1.88) $(0.26) $ --
------ ------ ------ ------
Net asset value - end of
period $ 8.15 $ 9.06 $10.08 $ 8.68
====== ====== ====== ======
Total return(++) 4.04%++ 10.55% 19.77% 10.86%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.49%+ 1.28% 1.29% 1.50%+
Net investment loss (1.23)%+ (1.08)% (0.40)% (0.87)%+
Portfolio turnover 101% 157% 218% 82%
Average commission rate### $0.0317 $0.0422 -- --
Net assets at end of
period (000 omitted) $34,764 $35,098 $30,194 $17,774
* 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)%+
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- ------------------------------------------------------------------------------
Period Ended Year Ended August 31,
February 28, 1997 -----------------------------
(Unaudited) 1996 1995 1994*
- ------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $ 8.93 $ 9.94 $ 8.59 $ 7.83
------ ------ ------ ------
Income from investment operations# -
Net investment income
(loss) $(0.09) $ 0.17 $(0.13) $(0.12)
Net realized and
unrealized gain (loss)
on investments and
foreign currency transactions 0.46 0.61 1.69 0.88
------ ------ ------ ------
Total from investment
operations $ 0.37 $ 0.78 $ 1.56 $ 0.76
------ ------ ------ ------
Less distributions declared to shareholders -
From net realized gain
on investments and
foreign currency transactions $(1.18) $(1.79) $(0.21) $ --
In excess of net realized
gain on investments and
foreign currency transactions (0.07) -- -- --
------ ------ ------ ------
Total distributions
declared to shareholders $(1.25) $(1.79) $(0.21) $ --
------ ------ ------ ------
Net asset value - end of
period $ 8.05 $ 8.93 $ 9.94 $ 8.59
====== ====== ====== ======
Total return 3.65%++ 9.67% 18.75% 9.71%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.30%+ 2.13% 2.29% 2.57%+
Net investment loss (2.03)%+ (1.81)% (1.44)% (2.02)%+
Portfolio turnover 101% 157% 218% 82%
Average commission rate### $0.0317 $0.0422 -- --
Net assets at end of
period (000 omitted) $66,553 $67,043 $61,742 $36,849
* 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)%
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Period Ended Year Ended August 31, Period Ended
February 28, 1997 ---------------------------------------- February 28, 1997
(Unaudited) 1996 1995 1994* (Unaudited)**
- -----------------------------------------------------------------------------------------------------------------------------------
Class C Class I
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 8.85 $ 9.91 $ 8.61 $ 7.80 $ 8.63
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.09) $ 0.17 $(0.14) $(0.04) $(0.01)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.46 0.60 1.69 0.85 (0.47)
------ ------ ------ ------ ------
Total from investment operations $ 0.37 $ 0.77 $ 1.55 $ 0.81 $(0.48)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net realized gain on investments and
foreign currency transactions $(1.17) $(1.83) $ (0.25) $ -- $ --
In excess of net realized gain on investments
and foreign currency transactions (0.07) -- -- -- --
------ ------ ------ ------ ------
Total distributions declared to shareholders $(1.24) $(1.83) $(0.25) $ -- $ --
------ ------ ------ ------ ------
Net asset value - end of period $ 7.98 $ 8.85 $ 9.91 $ 8.61 $ 8.15
====== ====== ====== ====== ======
Total return 3.71% 9.60% 18.63% 10.38%++ (5.89)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.24% 2.17% 2.30% 2.50%+ 1.35%+
Net investment loss (1.97)% (1.90)% (1.55)% (2.22)%+ (1.18)%+
Portfolio turnover 101% 157% 218% 82% 101%
Average commission rate### $0.0317 $0.0422 -- -- $0.0317
Net assets at end of period (000 omitted) $5,371 $6,860 $3,209 $87 $1,494
* For the period from the commencement of the offering of Class C shares, August 1, 1994 to August 31, 1994.
** For the period from the commencement of the offering of Class I shares, January 2, 1997.
+ 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)%+ --
</TABLE>
See notes to financial statements
<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
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. The Fund 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.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B, Class C and Class I shares. The four classes of shares differ in their
respective 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 effective 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 $1,017 for the period ended February 28, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$12,749 for the period months ended February 28, 1997, 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. MFD retains the service fee for accounts
not attributable to a securities dealer which amounted to $10,867 for the period
ended February 28, 1997. Payment of the 0.10% per annum Class A distribution fee
will commence on such date as the Trustees of the Trust may determine. Fees
incurred under the distribution plan during the period ended February 28, 1997
were 0.25% 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 $10,142 and $211 for Class B and Class C
shares, respectively, for the period ended February 28, 1997. Fees incurred
under the distribution plans for the period ended February 28, 1997 were 1.00%
of average daily net assets attributable to Class B and Class C shares on an
annualized basis.
Purchases over $1 million of class A shares and certain purchases by retirement
plans 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 six months ended February
28, 1997 were $125, $64,316 and $2,022 for Class A, Class B, and Class C shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate of
0.13%. Prior to January 1, 1997, the fee was calculated as a percentage of
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
$112,264,267 and $117,127,775, 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 $114,844,444
============
Gross unrealized depreciation $ (7,991,848)
Gross unrealized appreciation 4,234,079
------------
Net unrealized depreciation $ (3,757,769)
============
(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
Period Ended
February 28, 1997
(Unaudited) Year Ended August 31, 1996
--------------------------- ---------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,647,550 $ 15,170,127 2,953,233 $ 28,054,414
Shares issued to
shareholders in
reinvestment of
distributions 588,869 4,959,533 609,434 4,991,266
Shares transferred
to Class I (265,876) (2,150,280) -- --
Shares reacquired (1,580,665) (14,376,655) (2,683,072) (24,825,437)
----------- ------------- ----------- -------------
Net increase 389,878 $ 3,602,725 879,595 $ 8,220,243
=========== ============= =========== =============
Class B Shares
Period Ended
February 28, 1997
(Unaudited) Year Ended August 31, 1996
--------------------------- ---------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,548,951 $ 23,205,354 3,674,349 $ 33,978,577
Shares issued to
shareholders in
reinvestment of
distributions 1,016,924 8,481,140 1,119,205 9,076,592
Shares reacquired (2,805,832) (25,083,859) (3,501,980) (31,963,123)
----------- ------------- ----------- -------------
Net increase 760,043 $ 6,602,635 1,291,574 $ 11,092,046
=========== ============= =========== =============
Class C Shares
Period Ended
February 28, 1997
(Unaudited) Year Ended August 31, 1996
--------------------------- ---------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 374,992 $ 3,350,992 2,005,344 $ 18,386,304
Shares issued to
shareholders in
reinvestment of
distributions 81,648 673,141 89,936 723,987
Shares reacquired (558,265) (5,092,701) (1,644,089) (15,066,639)
----------- ------------- ----------- -------------
Net increase
(decrease) (101,625) $ (1,068,568) 451,191 $ 4,043,652
=========== ============= =========== =============
Class I Shares
Period Ended
February 28, 1997
(Unaudited)
-------------------------
Shares Amount
- -----------------------------------------------
Shares transferred
from Class A 265,876 $2,150,280
Shares reacquired (82,641) (691,656)
------ ---------
Net increase 183,235 $1,458,624
=========== =============
(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 period ended February
28, 1997 was $914.
----------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
MFS(R) OTC FUND
<TABLE>
<C> <C>
TRUSTEES INVESTOR INFORMATION
A. Keith Brodkin* - Chairman and President For MFS stock and bond market outlooks, call
toll free: 1-800-637-4458 anytime from a
Richard B. Bailey* - Private Investor; touch-tone telephone.
Former Chairman and Director (until For information on MFS mutual funds, call your
1991), Massachusetts Financial Services financial adviser or, for an information kit,
Company; Director, Cambridge Bancorp; call toll free: 1-800-637-2929 any business
Director, Cambridge Trust Company day from 9 a.m. to 5 p.m. Eastern time (or
leave a message anytime).
Peter G. Harwood - Private Investor
INVESTOR SERVICE
J. Atwood Ives - Chairman and Chief Executive MFS Service Center, Inc.
Officer, Eastern Enterprises P.O. Box 2281
Lawrence T. Perera - Partner, Hemenway & Barnes Boston, MA 02107-9906
William J. Poorvu - Adjunct Professor, For general information, call toll free:
Harvard University Graduate School of 1-800-225-2606 any business day from
Business Administration 8 a.m. to 8 p.m. Eastern time.
Charles W. Schmidt - Private Investor For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business
Arnold D. Scott* - Senior Executive Vice day from 9 a.m. to 5 p.m. Eastern time. (To
President, Director and Secretary, use this service, your phone must be equipped
Massachusetts Financial Services Company with a Telecommunications Device for the
Deaf.)
Jeffrey L. Shames* - President and Director,
Massachusetts Financial Services Company For share prices, account balances, and
exchanges, call toll free: 1-800-MFS-TALK
Elaine R. Smith - Independent Consultant (1-800-637-8255) anytime from a touch-tone
telephone.
David B. Stone - Chairman, North American
Management Corp. (investment advisers) WORLD WIDE WEB
www.mfs.com
INVESTMENT ADVISER
Massachusetts Financial Services Company --------------------------------------------
500 Boylston Street
Boston, MA 02116-3741 [DALBAR For the third year in a row,
LOGO] MFS earned a #1 ranking in the
DISTRIBUTOR TOP RATED DALBAR, Inc. Broker/Dealer
MFS Fund Distributors, Inc. SERVICE Survey, Main Office Operations
500 Boylston Street Service Quality Category. The firm
Boston, MA 02116-3741 achieved a 3.48 overall score on a scale of 1
to 4 in the 1996 survey. A total of 110 firms
PORTFOLIO MANAGER responded, offering input on the quality of
Mark Regan* service they received from 29 mutual fund
companies nationwide. The survey contained
TREASURER questions about service quality in 15
W. Thomas London* categories, including "knowledge of phone
service contacts," "accuracy of transaction
ASSISTANT TREASURER processing," and "overall ease of doing
James O. Yost* business with the firm."
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
CUSTODIAN
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
PAID
PERMIT #55638
BOSTON, MA
-------------
500 Boylston Street
Boston, MA 02116-3741
[LOGO: M F S(SM)]
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
OTC-3 4/97 26M 83/283/383
