<PAGE>
[Logo] MFS(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
[graphic omitted]
MFS(R) MID CAP GROWTH
FUND
ANNUAL REPORT o AUGUST 31, 1998
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DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 30)
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<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 23
Independent Auditors' Report .............................................. 28
Trustees and Officers ..................................................... 33
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HIGHLIGHTS
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o FOR THE 12 MONTHS ENDED AUGUST 31, 1998, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN OF -15.44%, CLASS B SHARES -16.05%, CLASS C SHARES
-16.00%, AND CLASS I SHARES -15.23%. (PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. SEE PERFORMANCE SUMMARY FOR MORE INFORMATION.)
o THE BROADER STOCK MARKET HAS FAVORED THE LARGEST-CAPITALIZATION,
MULTINATIONAL STOCKS AT THE EXPENSE OF SMALL- AND MID-CAP OFFERINGS. WHILE
THIS HAS IMPACTED FUND PERFORMANCE, THE MANAGER IS NOW SEEING A NUMBER OF
COMPELLING VALUES IN THE MARKET.
o THE FUND HAS BENEFITED FROM A NUMBER OF ACQUISITIONS OF PORTFOLIO COMPANIES
AND FROM STRONG PERFORMANCE FROM ITS TOP TWO HOLDINGS.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
In the coming year, MFS will celebrate its 75th anniversary. In 1924, our
Massachusetts Investors Trust, the nation's first mutual fund, opened to the
public and helped launch a revolution in investing that continues today. In
the 75 years since, MFS has grown with its investors not only through bear
markets, economic and political turmoil, wars, and oil shortages, but also
through long periods of growth and prosperity. We are very proud of our record
of investment management and service to shareholders throughout
our history.
One of the best ways for us to serve our shareholders is to help them understand
some of the reasons behind developments in the investment markets and, when
necessary, to take a more cautious outlook. This is particularly important
during periods of market volatility such as we are experiencing this year, when
equity prices do not follow a straight course. In light of this summer's
volatility, it is clear that equity valuations have risen to a point at which
stock prices have become vulnerable to changes in the investment environment
such as a slowing economy, earnings disappointments, and global economic and
political turmoil. While we continue to hold a favorable long-term outlook for
the equity markets, we also believe that this market correction is overdue and
could continue for several months. However, in our view, this is a healthy
near-term event that should rid the financial system of excesses that have
developed.
Currently, equity investors seem to be focused on the slowdown in corporate
earnings and, more recently, on the continuing uncertainty overseas,
particularly in Russia and some of the emerging markets. In the second quarter,
for example, average earnings growth for companies in the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock total
return performance, was about 3%, well below what people were expecting a year
ago. As a result of this and continuing concerns about Asia and emerging
markets, the stock markets pulled back from the record-high levels set in
mid-July. This retreat has helped correct some -- but not all -- of the
overvaluations that have been building in the markets for some time. Prior to
July, equity prices had been rising without a corresponding increase in
corporate earnings. As a result, price-to-earnings (P/E) ratios, or the amount
investors paid for stocks in relation to companies' earnings per share, also
went up. A year ago this July, the average P/E ratio for stocks in the S&P 500
stood at approximately 23; this July, it was at about 28, and it declined to
approximately 25 by early September. If this summer's downturn helps create more
reasonable valuations, we believe it could provide a sounder long-term
foundation for the equity markets. On another positive note, interest rates have
been relatively stable for several months as inflation has remained low. In an
environment of low interest rates, stocks become more attractive than most
fixed-income investments, while low inflation helps control companies' costs.
Internationally, the economic turmoil in Asia continues to be a concern to us,
while Russia is facing political gridlock and economic uncertainty and Latin
American economies are feeling substantial pressure. We believe the United
States has yet to see the full impact of this crisis. There have been brief
periods of improvement in a few countries but, for the most part, most of
these economies are still very weak and the situation could turn worse before
getting better. At the same time, the Asian turmoil has had the beneficial
effect of moderating U.S. growth and keeping inflation in check, which has
helped establish a favorable interest-rate environment.
Countering the situation in Asia has been the growing strength of European
economies, although European equity markets have also seen some volatility
this summer. But as these countries move toward economic union, they are
benefiting from a convergence of interest rates to lower levels, a rapid
expansion of manufacturing and service businesses, and an increasingly strong
consumer sector. This has helped American exporters offset some of their Asian
losses while providing investment opportunities in developed and emerging
European markets.
Given the uncertainty arising from these conflicting developments, we believe
that it is prudent to remind investors of the need to take a long-term view
and to diversify their investments across a range of asset classes. This
includes portfolios that focus on bond and international investments as well
as on the U.S. stock market. At MFS, we also believe our decades-long
commitment to original, company-by-company research gives us an advantage by
helping us find companies that we think can keep growing or gain market share
during periods of turmoil. To help fulfill this commitment and to provide the
broadest possible coverage of industry sectors and individual companies, MFS
continues to increase its number of full-time research analysts, who
thoroughly investigate each company's earnings potential and position in its
industry as well as the overall prospects for that industry.
We also use active portfolio management on the fixed-income side, using our
extensive research and credit analysis to help reduce the potential for price
declines and enhance the opportunity for appreciation. Every year, both fixed-
income and equity managers meet with thousands of credit issuers and
companies. They also attend many presentations, closely follow sources of
industry research, and keep track of competitors.
As we have for 75 years, we will continue to apply this discipline of
thorough, bottom-up research to both the equity and fixed-income markets
because we believe it offers the best potential for providing favorable long-
term performance for our shareholders -- regardless of changes in the overall
market environment.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
September 14, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Mark Regan]
Mark Regan
For the 12 months ended August 31, 1998, Class A shares of the Fund provided a
total return of -15.44%, Class B shares -16.05%, Class C shares -16.00%, and
Class I shares -15.23%. These returns, which include the reinvestment of
distributions but exclude the effects of any sales charges, compare to a
- -19.31% return for the Russell 2000 Total Return Index (the Russell 2000) for
the same period. The Russell 2000 is an unmanaged index comprised 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.
Q. WHAT IS YOUR CORE INVESTMENT PHILOSOPHY FOR THE FUND?
A. The Fund seeks capital appreciation by investing in stocks in the mid-
capitalization range. We look for companies that are at a point in their
corporate life spans at which they may be facing less competition thanks to
the greater success of their products and services relative to their
competitors. These companies also should show improved margins, marketing
synergies, and growth rates.
Q. IT WAS A TOUGH YEAR FOR SMALL- AND MID-CAP STOCKS, AND ALTHOUGH THE FUND
BEAT THE RUSSELL 2000, ITS PERFORMANCE REFLECTS SOME OF THAT TURMOIL.
WHAT WERE SOME OF THE SPECIFIC FACTORS THAT CONTRIBUTED TO THE FUND'S
PERFORMANCE?
A. The market continued to favor by a wide margin stocks in the larger-
capitalization range to the detriment of smaller, faster-growing companies.
We think much of this may be due to overall investor nervousness about the
long-term viability of the U.S. equity market's growth, which has been
driven by strong performances from a narrow range of the largest
multinational companies. Of course, those stocks are the most liquid
available, and in times of uncertain market conditions investors will seek
out liquidity. Sometimes investors will pay for that liquidity with
valuations that are not necessarily supported by a stock's underlying
fundamentals. This phenomenon has created some very compelling values in
the mid-cap portion of the stock spectrum, in which companies growing
faster than those that comprise the Standard & Poor's 500 Composite Index
are trading at low valuations.
Q. CAN YOU DISCUSS THE PERFORMANCE HIGHLIGHTS DURING THE PAST 12 MONTHS FOR A
FEW OF YOUR TOP HOLDINGS?
A. Gemstar International and Ascend Communications, our top two holdings,
performed very well this year and, in fact, are up about 100% since the
beginning of 1998. Ascend plays a key role in helping to build the
infrastructure that underpins the Internet and has benefited from the
growth surge there. Gemstar is also a beneficiary of the Internet boom, but
in a different way. The company manufactures software that, when coupled
with the right consumer electronics devices, allows consumers to interact
with all types of TV broadcast to access program games and other types of
information. It has established business relationships with many of the big
players in the TV and personal computer markets, and we feel that its
growth prospects are good. The Fund's performance also was helped by key
acquisitions of some portfolio companies, including Viking Office Products,
which was acquired by Office Depot, and Giant Foods, which was bought by
Ahold, a large French food distribution company. We liquidated our holdings
in each of these to realize a profit from their acquisitions, rather than
transfer our shares into the new companies. We also saw good performance
from Computer Science Associates (CSC), which did well both before and
after a failed acquisition attempt by Computer Associates.
Q. WHAT STOCKS HAVEN'T PERFORMED IN LINE WITH YOUR EXPECTATIONS SO FAR?
A. The Fund was hurt by poor performance by a few specific holdings, including
Uromed and Microprose (formerly Spectrum Holobyte), as well as by many of
our oil services stocks. Uromed, a maker of women's health products, had
the makings of a successful company: good products that were welcomed by
medical specialists, fast FDA approvals, and an established sales team.
These products, however, demanded a fair amount of education before demand
could be generated from patients and primary care practitioners, and the
company was unable to devote resources to that effort. Sales stalled, and
the stock has performed poorly as a result. Microprose is a small
entertainment software company that showed promise but could never achieve
the scale necessary to attract developer talent and to establish marketing
momentum. The company recently sold out to Hasbro, a large traditional and
interactive toy manufacturer that can provide that scale.
In oil services, we have done an extensive amount of research and have
invested in a number of good companies. In the short term, however, they have
been hurt by the steep decline in oil prices spurred by weak Asian demand and
an abnormally warm winter in the United States. We believe that oil prices
will rebound and that these companies will show improved performance in the
future.
Q. WHAT HAS BEEN THE IMPACT OF THE ASIAN AND RUSSIAN ECONOMIC CRISES ON
THE PORTFOLIO?
A. The Fund has never had any exposure to Russia, so there's been no impact
there. We've seen ripples from the Asian crisis in the stocks of companies
that sell to Asian markets, specifically technology commodity providers such
as semiconductor manufacturers, semiconductor equipment manufacturers,
computer component suppliers, and peripheral device companies. Historically,
the Fund has had very little exposure to these stocks. We sold off whatever
holdings we did have early this year in anticipation of a correction in the
industry. Since we sold the stocks, the technology commodity sector has taken
a harsh beating with most stocks' values cut at least in half.
Q. WHAT WERE SOME OF THE OTHER MAJOR CHANGES IN INDIVIDUAL STOCK HOLDINGS
OVER THE PERIOD?
A. We sold out of our position in Gymboree because the company has had
difficulty positioning itself to serve a wider age and gender range of
consumers and in attracting more buyers of boy's clothing. We've added BJ's
Wholesale Club, which boasts a very attractive growth rate of about 18% per
year but is trading at a valuation close to 15 times its projected earnings.
Synopsys was once a very big holding for the Fund that grew very expensive,
so we sold it. It has recently shown weakness in its share price but is
fundamentally strong, so we are buying back into it again. Heftel
Broadcasting, a fast-growing Spanish language radio broadcaster that is
dominating a growing market niche, is a new holding for us.
Q. WILL A PERIOD OF SLOWING EARNINGS GROWTH AND A MARKET DOWNTURN CHANGE THE
WAY YOU MANAGE THE FUND, OR CHANGE THE TYPES OF STOCKS IN WHICH YOU INVEST?
A. No, although we constantly examine our portfolio based on new data and our
extensive research process at MFS. We view the current market as already
having incorporated a downturn into the prices of small- and mid-cap
companies, sometimes to extreme levels. In a market in which there is low
inflation, low interest rates, and low earnings growth coupled with
depressed commodity prices, companies that can provide growth should trade
at premium valuations. We feel that many of the stocks in this portfolio
represent good growth stories, and we're happy to invest in them in
preparation for the day when the market returns them to favor.
Q. WHAT'S YOUR INVESTMENT OUTLOOK FOR THE MID-CAP GROWTH MARKET FOR THE
BALANCE OF 1998 AND EARLY 1999?
A. The market may continue to show volatility in the future before share
prices stabilize. Therefore, we'll continue to focus on each company's
growth rate and its share price multiple, which will tell us how much, or
how little, we'll have to pay to invest in the growth prospects of these
stocks. And, as always, our research should help us find good companies
that are poised for growth in the mid-stages of their corporate life
cycles.
/s/ Mark Regan
Mark Regan
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
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PORTFOLIO MANAGER'S PROFILE
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MARK REGAN IS A VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R) AND
PORTFOLIO MANAGER OF MFS(R) MID CAP GROWTH FUND AND MFS(R) INSTITUTIONAL
MID CAP GROWTH FUND.
HE JOINED MFS IN 1989 AS A RESEARCH ANALYST. HE WAS NAMED AN INVESTMENT
OFFICER IN 1990; AN ASSISTANT VICE PRESIDENT -- INVESTMENTS IN 1991; A
VICE PRESIDENT -- INVESTMENTS IN 1992 AND A PORTFOLIO MANAGER IN 1993.
MR. REGAN IS A GRADUATE OF CORNELL UNIVERSITY AND THE SLOAN SCHOOL OF
MANAGEMENT AT THE MASSACHUSETTS INSTITUTE OF TECHNOLOGY.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS LONG-TERM GROWTH OF CAPITAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: DECEMBER 1, 1993
CLASS INCEPTION: CLASS A DECEMBER 1, 1993
CLASS B DECEMBER 1, 1993
CLASS C AUGUST 1, 1994
CLASS I JANUARY 2, 1997
SIZE: $99.0 MILLION NET ASSETS AS OF AUGUST 31, 1998
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and
reflect the percentage change in net asset value, including reinvestment of
dividends. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. The performance of other share classes will be greater than or less
than the line shown. (See Notes to Performance Summary for more information.)
It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from December 1, 1993, through August 31, 1998)
MFS Mid Cap Russell 200 Consumer Price
Growth Fund Total Return Index
-- Class A Index -- U.S.
------------------------------------------------------------
12/93 $ 9,420 $10,000 $10,000
8/94 10,450 10,380 10,220
8/95 12,510 12,540 10,490
8/96 13,830 13,900 10,790
8/97 16,630 17,920 11,030
8/98 14,063 14,444 11,207
AVERAGE ANNUAL TOTAL RETURNS THROUGH AUGUST 31, 1998
CLASS A
1 Year 3 Years 10 Years/Life*
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Average Annual Total Return -15.44% + 3.98% + 8.80%
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SEC Results -20.30% + 1.95% + 7.45%
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CLASS B
1 Year 3 Years 10 Years/Life*
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Average Annual Total Return -16.05% + 3.20% + 7.85%
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SEC Results -19.33% + 2.47% + 7.54%
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CLASS C
1 Year 3 Years 10 Years/Life*
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Average Annual Total Return -16.00% + 3.21% + 7.75%
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SEC Results -16.82% + 3.21% + 7.75%
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CLASS I
1 Year 3 Years 10 Years/Life*
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Average Annual Total Return -15.23% + 4.14% + 8.56%
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COMPARATIVE INDICES
1 Year 3 Years 10 Years/Life*
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Average mid-cap index** -12.92% + 7.27% + 9.69%
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Russell 2000 Total Return Index+ -19.31% + 4.83% + 8.05%
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Consumer Price Index+# + 1.61% + 2.24% + 2.43%
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* For the period from the commencement of the Fund's investment operations,
December 1, 1993, through August 31, 1998.
+ Source: CDA/Wiesenberger.
** Source: Lipper Analytical Services, Inc.
# The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 5.75% sales charge. Class
B share ("B") SEC results reflect the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C shares
("C") have no initial sales charge but, like B, have higher annual fees and
expenses than A. C SEC results reflect the 1% CDSC applicable to shares
redeemed within 12 months. Class I shares ("I") have no sales charge or Rule
12b-1 fees and are only available to certain institutional investors.
C results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of B for periods prior to the inception of C. Operating expenses of C
are not significantly different than those of B. The B performance included in
the C SEC performance has been adjusted to reflect the CDSC generally
applicable to C rather than the CDSC generally applicable to B.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of I. Because operating expenses
of A are greater than those of I, I performance generally would have been
higher than A performance. The A performance included in the I performance has
been adjusted to reflect the fact that I have no initial sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. 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.
<PAGE>
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1998
FIVE LARGEST STOCK SECTORS
Technology 24.8%
Leisure 18.7%
Conglomerates/Special Products & Services 10.3%
Health Care 8.7%
Retailing 8.5%
<TABLE>
TOP 10 STOCK HOLDINGS
<S> <C>
GEMSTAR INTERNATIONAL GROUP 9.5% CONCENTRA MANAGED CARE 2.9%
Audio/video products company Managed health care provider
ASCEND COMMUNICATIONS 6.4% SYNOPSYS, INC. 2.4%
Telecommunications systems and products company Computer software and systems company
SIPEX CORP. 3.4% FRED MEYER, INC. 2.3%
High-performance analog integrated circuit Northwestern U.S. supermarket chain
manufacturer
CYTYC CORP. 2.2%
CABLE DESIGN TECHNOLOGY 3.3% Medical diagnostic products developer
Electronic data transmission cable manufacturer
COOPER CAMERON 2.2%
BJ'S WHOLESALE CLUB 3.1% Oil and gas production equipment manufacturer
Discount retail chain
</TABLE>
Portfolio information is as of August 31, 1998. The portfolio is actively
managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS -- August 31, 1998
<TABLE>
<CAPTION>
Stocks - 98.7%
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ISSUER SHARES VALUE
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<S> <C> <C>
U.S. Stocks - 94.1%
Banks and Credit Companies - 2.6%
Compass Bancshares, Inc. 28,800 $ 950,400
First Security Corp. 34,900 540,950
Regions Financial Corp. 9,800 339,325
Washington Mutual, Inc. 22,500 720,000
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$ 2,550,675
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Biotechnology - 0.9%
IDEXX Laboratories, Inc.* 49,800 $ 871,500
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Business Machines - 1.4%
Affiliated Computer Services, Inc., "A"* 41,700 $ 1,363,069
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Business Services - 9.1%
BISYS Group, Inc.* 15,000 $ 555,000
Computer Learning Centers, Inc.* 109,200 518,700
Computer Sciences Corp. 10,700 605,219
DST Systems, Inc.* 10,200 576,300
Fiserv, Inc.* 48,900 1,907,100
Learning Tree International, Inc.* 96,500 1,037,375
Lycos, Inc. 5,000 108,438
Paymentech, Inc.* 64,700 740,006
Policy Management Systems Corp.* 38,000 1,586,500
SPS Transaction Services, Inc.* 16,200 505,237
Technology Solutions Co.* 81,225 929,011
------------
$ 9,068,886
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Chemicals - 1.0%
Cambrex Corp. 42,200 $ 965,325
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Computer Software - Personal Computers - 1.2%
Autodesk, Inc. 31,000 $ 724,625
Intuit, Inc.* 12,800 437,600
------------
$ 1,162,225
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Computer Software - Systems - 11 8%
Aspen Technology, Inc.* 22,700 $ 537,706
BMC Software, Inc.* 32,800 1,387,850
Cadence Design Systems, Inc.* 52,540 1,109,907
Cambridge Technology Partners, Inc.* 21,600 702,000
Compuware Corp.* 11,200 508,900
Discreet Logic, Inc.* 110,000 1,223,750
Edify Corp.* 360,200 1,936,075
Oracle Corp.* 51,350 1,023,791
Rational Software Corp.* 38,700 430,538
Synopsys, Inc.* 89,759 2,344,954
Vantive Corp.* 56,400 458,250
------------
$ 11,663,721
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Consumer Goods and Services - 1.7%
LoJack Corp.* 100,000 $ 1,137,500
Sportsline USA, Inc.* 28,280 562,065
------------
$ 1,699,565
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Containers - 1.5%
Sealed Air Corp.* 25,600 $ 921,600
Stone Container Corp.* 53,100 554,231
------------
$ 1,475,831
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Electronics - 6.6%
Cable Design Technologies Corp.* 229,000 $ 3,220,312
SIPEX Corp.* 184,500 3,309,469
------------
$ 6,529,781
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Energy - 1.0%
BJ Services Co.* 77,700 $ 980,963
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Entertainment - 13.5%
Cox Radio, Inc., "A"* 2,500 $ 106,719
Gemstar International Group Ltd.* 268,700 9,320,531
Heftel Broadcasting Corp., "A"* 52,900 1,600,225
Jacor Communications, Inc.* 13,100 772,900
MediaOne Group, Inc.* 38,500 1,578,500
------------
$ 13,378,875
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Financial Institutions - 1.4%
ARM Financial Group, Inc., "A" 4,500 $ 65,250
Finova Group, Inc. 10,400 464,100
Union Planters Corp. 21,600 869,400
------------
$ 1,398,750
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Financial Services - 0.5%
Enhance Financial Services Group, Inc. 19,200 $ 482,400
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Food and Beverage Products - 1.2%
McCormick & Co., Inc. 30,000 $ 871,875
Tootsie Roll Industries, Inc. 10,510 354,713
------------
$ 1,226,588
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Insurance - 0.4%
Life Re Corp. 4,000 $ 359,000
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Medical and Health Products - 1.1%
PSS World Medical, Inc.* 74,400 $ 1,143,900
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Medical and Health Technology and Services - 6.9%
Concentra Managed Care, Inc.* 222,655 $ 2,852,767
Cytyc Corp.* 272,700 2,181,600
HBO & Co. 22,900 486,625
HCIA, Inc.* 57,700 389,475
Total Renal Care Holdings, Inc.* 49,543 941,317
------------
$ 6,851,784
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Oil Services - 6.3%
Cooper Cameron Corp.* 100,200 $ 2,129,250
Diamond Offshore Drilling, Inc. 34,300 716,012
Global Industries, Inc.* 137,200 1,286,250
National Oilwell, Inc.* 10,000 77,500
Noble Drilling Corp.* 148,400 1,632,400
Transocean Offshore, Inc. 18,400 451,950
------------
$ 6,293,362
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Pharmaceuticals - 0.1%
Cytoclonal Pharmaceutics, Inc.* 19,500 $ 78,000
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Pollution Control - 0.5%
Allied Waste Industries, Inc.* 28,900 $ 549,100
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Printing and Publishing - 2.4%
Scholastic Corp.* 44,700 $ 1,732,125
Scripps (E.W.) Howard, Inc. 13,500 637,031
------------
$ 2,369,156
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Restaurants and Lodging - 0.8%
Promus Hotel Corp.* 25,800 $ 793,350
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Stores - 6.1%
BJ's Wholesale Club, Inc.* 89,800 $ 3,030,750
CompUSA, Inc.* 80,700 958,312
Petco Animal Supplies, Inc.* 49,200 347,475
Rite Aid Corp. 44,400 1,606,725
The Elder-Beerman Stores Corp.* 8,900 139,063
------------
$ 6,082,325
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Supermarkets - 2.3%
Meyer (Fred), Inc.* 57,090 $ 2,244,351
- --------------------------------------------------------------------------------------------------------
Telecommunications - 11.8%
Aerial Communications, Inc.* 177,100 $ 608,781
Ascend Communications, Inc.* 177,700 6,252,819
Aspect Telecommunications Corp.* 69,600 1,657,350
Cellular Communications International* 7,050 373,650
Crown Castle International Corp.* 23,900 194,187
Intermedia Communications, Inc.* 28,800 716,400
Lightbridge, Inc.* 91,300 456,500
Qwest Communications International, Inc.* 56,443 1,411,075
------------
$ 11,670,762
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Total U.S. Stocks $ 93,253,244
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Foreign Stocks - 4.6%
Bermuda - 2.6%
Ace Ltd. (Insurance) 39,200 $ 1,136,800
ESG Re Ltd. (Insurance) 34,100 592,487
EXEL Ltd. (Insurance) 5,543 370,342
Global Crossing Ltd. (Telecommunications)* 1,200 21,300
Mutual Risk Management Ltd. (Insurance) 16,300 489,000
------------
$ 2,609,929
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Canada - 0.5%
Southern Africa Minerals Corp. (Diversified Minerals) 794,600 $ 466,041
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Netherlands - 1.4%
Elsag Bailey Process Automation N.V. (Machinery)* 66,300 $ 1,413,019
- --------------------------------------------------------------------------------------------------------
United Kingdom - 0.1%
Taylor Nelson Sofres PLC (Market Research) 22,400 $ 42,042
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Total Foreign Stocks $ 4,531,031
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $121,902,627) $ 97,784,275
- --------------------------------------------------------------------------------------------------------
Short-Term Obligations - 1.5%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 9/01/98 $ 1,490 $ 1,490,000
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $123,392,627) $ 99,274,275
Other Assets, Less Liabilities - (0.2)% (231,032)
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 99,043,243
- --------------------------------------------------------------------------------------------------------
* Non-income producing security.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
AUGUST 31, 1998
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $123,392,627) $ 99,274,275
Cash 12,011
Receivable for Fund shares sold 343,359
Receivable for investments sold 2,583,847
Dividends receivable 14,691
Other assets 1,781
-------------
Total assets $ 102,229,964
-------------
Liabilities:
Payable for Fund shares reacquired $ 1,051,230
Payable for investments purchased 1,957,954
Payable to affiliates -
Management fee 6,819
Shareholder servicing agent fee 1,014
Distribution and service fee 70,842
Administrative fee 135
Accrued expenses and other liabilities 98,727
-------------
Total liabilities $ 3,186,721
-------------
Net assets $ 99,043,243
=============
Net assets consist of:
Paid-in capital $ 110,042,073
Unrealized depreciation on investments (24,118,352)
Accumulated undistributed net realized gain on
investments and foreign currency transactions 13,134,433
Accumulated net investment loss (14,911)
-------------
Total $ 99,043,243
=============
Shares of beneficial interest outstanding 12,965,098
==========
Class A shares:
Net asset value per share
(net assets of $36,413,042 / 4,721,661 shares of
beneficial interest outstanding) $7.71
=====
Offering price per share (100 / 94.25) $8.18
=====
Class B shares:
Net asset value and offering price per share
(net assets of $56,097,875 / 7,379,075 shares of
beneficial interest outstanding) $7.60
=====
Class C shares:
Net asset value and offering price per share
(net assets of $5,607,014 / 744,654 shares of
beneficial interest outstanding) $7.53
=====
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $925,312 / 119,708 shares of beneficial
interest outstanding) $7.73
=====
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
- ------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1998
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 272,188
Interest 188,054
Foreign taxes withheld (63)
-------------
Total investment income $ 460,179
-------------
Expenses -
Management fee $ 972,215
Trustees' compensation 22,748
Shareholder servicing agent fee 152,959
Distribution and service fee (Class A) 115,711
Distribution and service fee (Class B) 760,129
Distribution and service fee (Class C) 64,890
Administrative fee 18,411
Custodian fee 37,754
Interest expense 2,101
Printing 46,724
Postage 33,054
Auditing fees 29,245
Legal fees 3,582
Miscellaneous 213,455
-------------
Total expenses $ 2,472,978
Fees paid indirectly (12,574)
-------------
Net expenses $ 2,460,404
-------------
Net investment loss $ (2,000,225)
-------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 18,745,624
Foreign currency transactions (48)
-------------
Net realized gain on investment and foreign currency
transactions $ 18,745,576
-------------
Change in unrealized depreciation on investments - $ (35,717,948)
-------------
Net realized and unrealized loss on investments
and foreign currency $ (16,972,372)
-------------
Decrease in net assets from operations $ (18,972,597)
=============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (2,000,225) $ (1,839,697)
Net realized gain on investment and foreign currency
transactions 18,745,576 2,976,813
Net unrealized gain (loss) on investments and foreign
currency translation (35,717,948) 19,823,645
------------- --------------
Increase (decrease) in net assets from operations $ (18,972,597) $ 20,960,761
------------- --------------
Distributions declared to shareholders -
From net realized gain on investment and foreign currency
transactions (Class A) $ (1,274,408) $ (5,360,182)
From net realized gain on investment and foreign currency
transactions (Class B) (1,589,641) (9,603,644)
From net realized gain on investment and foreign currency
transactions (Class C) (131,365) (727,466)
From net realized gain on investment and foreign currency
transactions (Class I) (38,088) --
------------- --------------
Total distributions declared to shareholders $ (3,033,502) $ (15,691,292)
------------- --------------
Net increase (decrease) in net assets from Fund share
transactions $ (1,808,418) $ 8,587,016
------------- --------------
Total increase (decrease) in net assets $ (23,814,517) $ 13,856,485
Net assets:
At beginning of period 122,857,760 109,001,275
------------- --------------
At end of period (including accumulated net investment loss
of $14,911 and $9,435, respectively) $ 99,043,243 $ 122,857,760
============= ==============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
------------------------------------------------------------ AUGUST 31,
1998 1997 1996 1995 1994*
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 9.42 $ 9.06 $10.08 $ 8.68 $ 7.83
------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.11) $(0.09) $(0.10) $(0.03) $(0.05)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (1.31) 1.77 0.96 1.69 0.90
------ ------ ------ ------ ------
Total from investment operations $(1.42) $ 1.68 $ 0.86 $ 1.66 $ 0.85
------ ------ ------ ------ ------
Less distributions declared to shareholders
from net realized gain on investment and
foreign currency transactions $(0.29) $(1.32) $(1.88) $(0.26) $ --
------ ------ ------ ------ ------
Net asset value - end of period $ 7.71 $ 9.42 $ 9.06 $10.08 $ 8.68
====== ====== ====== ====== ======
Total return(+) (15.44)% 20.26% 10.55% 19.77% 10.86%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.43% 1.41% 1.28% 1.29% 1.50%+
Net investment loss (1.07)% (1.09)% (1.08)% (0.40)% (0.87)%+
Portfolio turnover 168% 170% 157% 218% 82%
Net assets at end of period (000 omitted) $36,413 $41,737 $35,098 $30,194 $17,776
* For the period from the commencement of the Fund's investment operations, December 1, 1993, through 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 are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
(S) The investment adviser did not impose a portion of its management fee for the period 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)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
------------------------------------------------------------ AUGUST 31,
1998 1997 1996 1995 1994*
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 9.27 $ 8.93 $ 9.94 $ 8.59 $ 7.83
------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.18) $(0.16) $(0.17) $(0.13) $(0.12)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (1.28) 1.75 0.95 1.69 0.88
------ ------ ------ ------ ------
Total from investment operations $(1.46) $ 1.59 $ 0.78 $ 1.56 $ 0.76
------ ------ ------ ------ ------
Less distributions declared to shareholders
from net realized gain on investment and
foreign currency transactions $(0.21) $(1.25) $(1.79) $(0.21) $ --
------ ------ ------ ------ ------
Net asset value - end of period $ 7.60 $ 9.27 $ 8.93 $ 9.94 $ 8.59
====== ====== ====== ====== ======
Total return (16.05)% 19.36% 9.67% 18.75% 9.71%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 2.18% 2.20% 2.13% 2.29% 2.57%+
Net investment loss (1.82)% (1.87)% (1.81)% (1.44)% (2.02)%+
Portfolio turnover 168% 170% 157% 218% 82%
Net assets at end of period (000 omitted) $56,098 $73,940 $67,043 $61,742 $36,849
* For the period from the commencement of the Fund's investment operations, December 1, 1993, through August 31, 1994.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
(S) The investment adviser did not impose a portion of its management fee for the period 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)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, PERIOD ENDED
--------------------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994*
- -----------------------------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.19 $ 8.85 $ 9.91 $ 8.61 $ 7.80
------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.18) $(0.16) $(0.17) $(0.14) $(0.04)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (1.26) 1.74 0.94 1.69 0.85
------ ------ ------ ------ ------
Total from investment operations $(1.44) $ 1.58 $ 0.77 $ 1.55 $ 0.81
------ ------ ------ ------ ------
Less distributions declared to shareholders
from net realized gain on investment and
foreign currency transactions
$(0.22) $(1.24) $(1.83) $(0.25) $ --
------ ------ ------ ------ ------
Net asset value - end of period $ 7.53 $ 9.19 $ 8.85 $ 9.91 $ 8.61
====== ====== ====== ====== ======
Total return (16.00)% 19.44% 9.60% 18.63% 10.38%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 2.18% 2.16% 2.17% 2.30% 2.50%+
Net investment loss (1.82)% (1.79)% (1.90)% (1.55)% (2.22)%+
Portfolio turnover 168% 170% 157% 218% 82%
Net assets at end of period (000 omitted) $5,607 $5,796 $6,860 $3,209 $87
* For the period from the inception of Class C, August 1, 1994, through August 31, 1994.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
(S) The investment adviser did not impose a portion of its management fee for the period 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>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
1998 1997*
- ----------------------------------------------------------------------------------------------------------
CLASS I
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.44 $ 8.50
------ ------
Income from investment operations# -
Net investment loss $(0.08) $(0.05)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (1.32) 0.99
------ ------
Total from investment operations $(1.40) $ 0.94
------ ------
Less distributions declared to shareholders from net realized gain
on investments and foreign currency transactions $(0.31) $ --
------ ------
Net asset value - end of period $ 7.73 $ 9.44
====== ======
Total return (15.23)% 11.06%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.18% 1.03%+
Net investment loss (0.82)% (0.74)%+
Portfolio turnover 168% 170%
Net assets at end of period (000 omitted) $925 $1,384
* For the period from the inception of Class I, January 2, 1997, through August 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Mid Cap Growth Fund (the Fund) is a 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 reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend 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 custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported
on these financial statements may differ from that reported on the Fund's tax
return and, consequently, the character of distributions to shareholders
reported in the financial highlights may differ from that reported to
shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. During
the year ended August 31, 1998, $1,994,749 was reclassified from accumulated
undistributed net realized gain on investments and foreign currency transactions
to accumulated net investment loss due to differences between book and tax
accounting for the offset of short-term capital gains against accumulated net
investment loss. 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 multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on 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. Class B shares will convert to Class A
shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
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 officers and
Trustees of the Fund are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Fund has an unfunded
defined benefit plan for all of its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of $5,476
for the year ended August 31, 1998.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee
at the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$44,488 for the year ended August 31, 1998, as its portion of the sales charge
on sales of Class A shares of the Fund. The Trustees have adopted a
distribution plan for Class A, Class B, and Class C shares pursuant to Rule
12b-1 of the Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
paid to each securities dealer that enters into a sales agreement with MFD of
up to 0.25% per annum of the Fund's average daily net assets attributable to
Class A shares which are attributable to that securities dealer and a
distribution fee to MFD of up to 0.10% per annum of the Fund's average daily
net assets attributable to Class A shares. Payment of the 0.10% per annum
Class A distribution fee will be implemented on such date as the Trustees of
the Fund may determine. MFD retains the service fee for accounts not
attributable to a securities dealer, which amounted to $13,896 for the year
ended August 31, 1998. Fees incurred under the distribution plan during the
year ended August 31, 1998, were 0.25% of average daily net assets
attributable to Class A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per
annum, of the Fund's average daily net assets attributable to Class B and
Class C shares. MFD will pay to securities dealers that enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class B
and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended
to be consideration for services rendered by the dealer with respect to Class
B and Class C shares. MFD retains the service fee for accounts not
attributable to a securities dealer, which amounted to $11,003 and $225 for
Class B and Class C shares, respectively, for the year ended August 31, 1998.
Fees incurred under the distribution plan during the year ended August 31,
1998, were 1.00% of average daily net assets attributable to both Class B and
Class C shares.
Certain Class A shares and Class C shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months
following purchase. A contingent deferred sales charge is imposed on
shareholder redemptions of Class B shares in the event of a shareholder
redemption within six years of purchase. MFD receives all contingent deferred
sales charges. Contingent deferred sales charges imposed during the year ended
August 31, 1998, were $3,036, $109,015, and $3,111 for Class A, Class B, and
Class C shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Fund's average daily net assets at an effective annual
rate of 0.1125%. Prior to January 1, 1998, the fee was calculated as a
percentage of the average daily net assets at an effective annual rate of
0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$210,013,250 and $211,551,322, 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 $ 124,106,969
-------------
Gross unrealized depreciation $ (33,244,593)
Gross unrealized appreciation 8,411,899
-------------
Net unrealized depreciation $ (24,832,694)
=============
(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, 1998 YEAR ENDED AUGUST 31, 1997
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,064,610 $ 31,014,067 3,045,715 $ 27,193,349
Shares issued to shareholders in
reinvestment of distributions 136,735 1,206,006 589,985 4,958,075
Shares transferred to Class I -- -- (265,865) (2,259,849)
Shares reacquired (2,908,810) (29,471,262) (2,816,583) (25,053,752)
---------- ------------- ---------- ------------
Net increase 292,535 $ 2,748,811 553,252 $ 4,837,823
========== ============= ========== ============
<CAPTION>
Class B Shares
YEAR ENDED AUGUST 31, 1998 YEAR ENDED AUGUST 31, 1997
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,317,869 $ 33,017,562 4,632,366 $ 40,232,895
Shares issued to shareholders in
reinvestment of distributions 160,209 1,398,805 1,017,100 8,502,410
Shares reacquired (4,071,465) (39,885,321) (5,182,228) (44,830,300)
---------- ------------- ---------- ------------
Net increase (decrease) (593,387) $ (5,468,954) 467,238 $ 3,905,005
========== ============= ========== ============
<CAPTION>
Class C Shares
YEAR ENDED AUGUST 31, 1998 YEAR ENDED AUGUST 31, 1997
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 529,840 $ 5,257,980 555,743 $ 4,850,217
Shares issued to shareholders in
reinvestment of distributions 13,332 115,323 81,725 674,616
Shares reacquired (428,913) (4,191,955) (782,083) (6,947,620)
---------- ------------- ---------- ------------
Net increase (decrease) 114,259 $ 1,181,348 (144,615) $ (1,422,787)
========== ============= ========== ============
<CAPTION>
Class I Shares
YEAR ENDED AUGUST 31, 1998 PERIOD ENDED AUGUST 31, 1997*
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 18,237 $ 183,027 12,016 $ 95,935
Shares issued to shareholders in
reinvestment of distributions 4,318 38,087 -- --
Shares transferred from Class A -- -- 265,865 2,259,849
Shares reacquired (49,523) (490,737) (131,205) (1,088,809)
---------- ------------- ---------- ------------
Net increase (decrease) (26,968) $ (269,623) 146,676 $ 1,266,975
========== ============= ========== ============
*For the period form the inception of Class I, January 2, 1997, through August 31, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $805 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
year ended August 31, 1998, was $817.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust IV and Shareholders of MFS Mid Cap Growth
Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Mid Cap Growth Fund as of August 31, 1998,
the related statement of operations for the year then ended, the statement of
changes in net assets for the years ended August 31, 1998 and 1997, and the
financial highlights for each of the years in the five-year period ended August
31, 1998. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
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 securities
owned at August 31, 1998, 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, the financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Mid Cap Growth
Fund at August 31, 1998, 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 9, 1998
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 1999, SHAREHOLDERS WILL BE MAILED A FORM 1099 REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR
1998.
FOR THE YEAR ENDED AUGUST 31, 1998, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS RECEIVED DEDUCTION FOR
CORPORATIONS CAME TO 49.27%.
<PAGE>
MFS(R) Mid Cap Growth Fund
<TABLE>
<S> <C>
Trustees Custodian
Richard B. Bailey* - Private Investor; State Street Bank and Trust Company
Former Chairman and Director (until 1991),
MFS Investment Management Auditors
Deloitte & Touche LLP
Peter G. Harwood - Private Investor
Investor Information
J. Atwood Ives - Chairman and Chief Executive For MFS stock and bond market outlooks,
Officer, Eastern Enterprises (diversified services call toll free: 1-800-637-4458 anytime from
company) a touch-tone telephone.
Lawrence T. Perera - Partner, Hemenway For information on MFS mutual funds, call your
& Barnes (attorneys) financial adviser or, for an information kit, call
toll free: 1-800-637-2929 any business day from 9
William J. Poorvu - Adjunct Professor, Harvard a.m. to 5 p.m. Eastern time (or leave a message
University Graduate School of Business anytime).
Administration
Investor Service
Charles W.Schmidt - Private Investor MFS Service Center, Inc.
P.O. Box 2281
Arnold D. Scott* - Senior Executive Boston, MA 02107-9906
Vice President, Director, and Secretary,
MFS Investment Management For general information, call toll free:
1-800-225-2606 any business day from
Jeffrey L. Shames* - Chairman, Chief 8 a.m. to 8 p.m. Eastern time.
Executive Officer, and Director,
MFS Investment Management For service to speech- or hearing-impaired, call
toll free: 1-800-637-6576 any business day from 9
Elaine R. Smith - Independent Consultant a.m. to 5 p.m. Eastern time. (To use this service,
your phone must be equipped with a
David B. Stone - Chairman and Director, Telecommunications Device for the Deaf.)
North American Management Corp.
(investment advisers) For share prices, account balances, and exchanges,
call toll free: 1-800-MFS-TALK (1-800-637-8255)
Investment Adviser anytime from a touch-tone telephone.
Massachusetts Financial Services Company
500 Boylston Street World Wide Web
Boston, MA 02116-3741 www.mfs.com
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
Portfolio Manager
Mark Regan*
Treasurer
W. Thomas London*
Assistant Treasurers
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
</TABLE>
*Affiliated with the Investment Adviser
<PAGE>
----------------
MFS(R) MID CAP GROWTH FUND Bulk Rate
U.S. Postage
Paid
MFS
[Logo] MFS(R) ----------------
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MMC-2 10/98 33M 83/283/383/883
