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[Logo]
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) NEW
DISCOVERY FUND
SEMIANNUAL REPORT o FEBRUARY 28, 1998
THE ROTH IRA IS NOW AVAILABLE (see page 27)
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IN MEMORIAM
A. KEITH BRODKIN
1935 - 1998
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MFS INVESTMENT MANAGEMENT(SM)
On February 2, 1998, Keith Brodkin, a friend and
leader to everyone at MFS, died unexpectedly at
age 62. His thoughtful letters to shareholders on
the markets and economy have been an integral
part of MFS shareholder reports like this one for
many years.
[Photo of A. Keith Brodkin]
Keith joined MFS in 1970 as the firm's first
fixed-income manager, managing the
bond portion of MFS(R) Total Return Fund. He went on to manage our first pure
bond fund, MFS(R) Bond Fund, when it was introduced in 1974, and he was
considered a pioneer in the art of active bond management.
Keith was named President and Chief Investment Officer of MFS in 1987 and
four years later became Chairman and Chief Executive Officer. During his
stewardship, MFS has achieved significant growth in total assets under
management, rising from some $25 billion in 1991 to the over $70 billion
today entrusted to us by three million individual and institutional investors
worldwide. Under Keith's leadership, MFS has carefully but steadily built its
domestic and international investment capabilities through the introduction
of a range of new products and a still-growing staff that now numbers over
100 equity and fixed-income professionals.
Throughout his career, Keith was very active in a wide range of charitable
endeavors. He is survived by his wife and three children.
His leadership, friendship, and wise counsel will be sorely missed.
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TABLE OF CONTENTS
Letter from the Chairman .................................................. 2
A Discussion with the Portfolio Manager ................................... 4
Portfolio Manager's Profile ............................................... 7
Fund Facts ................................................................ 8
Performance Summary ....................................................... 8
Portfolio Concentration ................................................... 10
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 21
Roth IRA .................................................................. 27
The MFS Family of Funds(R) ................................................ 28
Trustees and Officers ..................................................... 29
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HIGHLIGHTS
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o FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 19.69%, CLASS B SHARES 19.42%,
CLASS C SHARES 19.51%, AND CLASS I SHARES 19.78%. (SEE PERFORMANCE SUMMARY
FOR MORE INFORMATION.)
o THE FUND FOCUSES ON EMERGING-GROWTH COMPANIES THAT WE BELIEVE CAN GROW INTO
LARGE ENTERPRISES OVER THE COURSE OF THREE TO FIVE YEARS. THIS MEANS 20%
EARNINGS GROWTH PER YEAR FOR THREE TO FIVE YEARS.
o THE FUND HAS BENEFITED FROM OUR EMPHASIS ON COMPANIES THAT WE BELIEVE CAN
POST SUSTAINABLE, ANNUAL UNIT, REVENUE, AND EARNINGS GROWTH AND EVENTUALLY
BECOME LARGE ENTERPRISES.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders:
As investment managers we take a long-term view of the world's economies, as
well as of the stock and bond markets, and try to avoid getting caught up in
short-term fluctuations. However, it is hard to ignore unexpected events such as
the Asian economic turmoil or closely watched companies that miss their
quarterly earnings estimates. Given the potential for these events and their
possible impact on major market indices, we think it's important to offer some
perspective about recent market behavior and to let you know what MFS is doing
in an effort to provide you with favorable long-term investment performance.
The most notable recent event affecting investment markets has been the Asian
turmoil, which began in the summer of 1997 as a result of slowing growth rates
in the region and excess speculation in real estate markets. Since then, most
countries in the region have begun to implement the economic and regulatory
restructuring needed to put themselves on a stronger financial foundation. While
it may be a few years before some of these countries return to solid economic
footing, and while there will probably be a relatively short-term impact on the
U.S. economy, we believe the long-term outlook for the region is quite positive.
The Asian situation has brought home the lesson that major events can quickly
impact investment markets around the world, including those of the United
States. Although U.S. equities have enjoyed a bull market lasting more than 15
years and have continued to set records in the first several weeks of 1998,
there have been brief bouts of volatility associated with the Asian turmoil, as
well as with perceived downturns for certain industries such as technology.
While we believe the long-term outlook for the equity markets is favorable,
other, unforeseen events can trigger fairly extended periods during which prices
decline or remain relatively flat. Since no one can predict market cycles, that
makes it that much more important to find companies that can keep growing in the
face of the occasional downturn and even gain market share. For us, this means
using original, bottom-up research to examine each company's earnings potential
and position as well as the overall prospects for its industry. To that end, MFS
continues to increase the research support available to portfolio managers of
MFS funds.
On the fixed-income side, MFS uses active portfolio management based on
extensive research and credit analysis to reduce the potential for price
declines and enhance the opportunity for price appreciation. For both equity and
fixed-income managers, this means visiting and meeting with thousands of
companies and issuers of credit every year, as well as attending many
presentations and closely following sources of industry research.
We believe this approach, based on thorough research, teamwork, innovative
thinking, and the free exchange of ideas, is the best way to get the most
performance for shareholders in MFS funds -- in any market environment.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management
March 16, 1998
JEFFREY L. SHAMES, A GRADUATE OF WESLEYAN UNIVERSITY AND THE MASSACHUSETTS
INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT, JOINED MFS IN 1983. AFTER
FOUR YEARS AS AN INDUSTRY ANALYST AND PORTFOLIO MANAGER, HE WAS NAMED CHIEF
EQUITY OFFICER IN 1987 AND PRESIDENT AND A MEMBER OF THE BOARD OF DIRECTORS IN
1993. MR. SHAMES WAS APPOINTED CHAIRMAN AND CHIEF EXECUTIVE OFFICER IN FEBRUARY
1998.
A DISCUSSION WITH THE PORTFOLIO MANAGER
[Photo of Brian E. Stack]
Brian E. Stack
For the six months ended February 28, 1998, Class A shares of the Fund provided
a total return of 19.69%, Class B shares 19.42%, Class C shares 19.51%, and
Class I shares 19.78%. These returns, which include the reinvestment of
distributions but exclude the effects of any sales charges, compare to a 9.64%
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 DO YOU SEE AS SOME OF THE REASONS FOR THE FUND'S STRONG PERFORMANCE
VERSUS ITS BENCHMARK OVER THE PAST SIX MONTHS?
A. The Fund has benefited from our emphasis on companies in which we have great
conviction about both near- and long-term earnings growth. We have favored
early life-cycle companies that do most of their business in the United
States and don't have significant overseas revenue, specifically from the
troubled Pacific Rim.
Q. HOW WOULD YOU DESCRIBE THE RECENT INVESTMENT ENVIRONMENT FOR SMALLER
COMPANIES?
A. As a class, small-company stocks have largely continued to lag large-
company stocks. This is somewhat in defiance of the fundamental
underpinnings of the market for a couple of important reasons. First, large
companies do, in fact, have substantial Asian revenue, which implies a
higher risk profile. Second, compared to emerging-growth companies, which
are growing at 20% to 30% annual rates, large-company stocks have relatively
modest unit and revenue growth outlooks. It is surprising, then, that both
the large and small classes of stocks sport roughly equivalent
price-to-earnings (P/E) multiples, even though small-company earnings growth
is substantially higher and, arguably, less risky.
Q. COULD YOU DISCUSS THE FUND'S OVERALL INVESTMENT STRATEGY?
A. We focus on emerging-growth companies that we believe can grow into large
enterprises over the course of three to five years. This means 20% earnings
growth per year, not just for one year, but for three to five years. We look
closely at a company's market opportunities, as well as at the products or
services it offers. We also ask, how savvy is its management, and how much
of an investment in the company does management have? Hopefully, what
results is a portfolio of companies that are building defensible franchises
and that have enough compelling attributes to give us great conviction about
their near-term earnings outlooks and long-term growth rates. We also try to
buy these companies somewhat early so we can get the benefit of their
earnings-per-share growth year after year and of upgrades in their P/E
multiples.
Q. CAN YOU MENTION SOME COMPANIES THAT FIT THOSE STANDARDS?
A. One of the biggest positions in the portfolio is Affiliated Computer
Services. The company is engaged in the computer services business, which is
burgeoning as technology continues to become more complex and pervasive.
It's a very predictable company, with a high level of recurring year-to-year
revenues and good internal cash flow. It uses lots of technology as a cost
of doing business and, because the cost of that technology is continually
falling, it has the opportunity to maintain and even expand profit margins.
Also, management owns a significant percentage of the company, so its
interests are very much in line with our own, and we think there is a more
or less open-ended market opportunity into which the company can grow.
Q. TECHNOLOGY IS THE FUND'S LARGEST SECTOR. COULD YOU TALK ABOUT WHY YOU LIKE
THIS SECTOR AND SOME COMPANIES IN IT?
A. In a world in which economic growth is in the low single digits, a good
strategy for achieving investment success is to emphasize companies that are
seeing unit growth many times that of the overall economy. If we can
identify companies with this characteristic, and our research confirms that
they are building growth businesses whose pricing and margins can be
sustained, we believe we can have a high likelihood of success. Technology
is the economy's hotbed of innovation, and the best companies are growing by
25% or better per year. For example, the Fund is a long-time holder of
PMC-Sierra, which provides mixed-signal integrated circuits to the
networking and communications markets. We also like Aspen Technology, which
makes highly sophisticated software that helps process-oriented companies in
the chemical, petrochemical, and pharmaceutical areas plan and optimize
their manufacturing activities.
Q. THE NEXT LARGEST SECTOR IS MISCELLANEOUS. WHAT KINDS OF COMPANIES DO YOU
HAVE THERE?
A. These are mainly business and consumer services companies that feature a
common bond in that their services build upon applications of technology.
This is an extraordinarily attractive business model with predictable
revenues and long product life cycles. At the same time, the major expense
for these companies is technology, the cost of which continues to fall,
giving these companies above-average opportunities to improve margins in a
low-inflation environment. DST Systems, which provides processing services
to the mutual fund industry, is a good example of this model. Another is
Technology Solutions Company, which helps large, blue-chip organizations
design and implement next generation computer systems.
Q. WHAT ABOUT LEISURE?
A. Here, we're talking about broadcasting and lodging. In broadcasting there's
been a lot of consolidation involving companies like American Radio Systems
and Jacor. We expect that trend to continue. Also, thanks to the strong
economy and these companies' increasing economies of scale, they have been
experiencing very strong cash-flow growth. The lodging industry is something
of a cyclical growth business in which the supply/demand balance currently
is very tight. That means the hotels are filled, which gives the companies
pricing power. There's also been a significant consolidation wave in this
business, and a number of portfolio holdings have been acquired recently.
Q. HAS THE ASIAN CRISIS HAD MUCH IMPACT ON THE FUND?
A. The main impact has been in the realm of investor psychology. At the depths
of the Pacific Rim scare, stocks of many blue-chip companies went down in
price, and those of small companies followed suit. As noted earlier,
however, most of the companies in the portfolio are focused on selling
products and services to the domestic U.S. economy. So the damage to the
portfolio was more a reflection of sympathy with the blue chips than of any
real fundamental change. We bought on this weakness, and the stocks have
recovered as subsequent earnings releases have shown that earnings growth
will remain resilient.
Q. WHAT WOULD YOU SAY IS THE BIGGEST RISK TO THE SMALL-COMPANY MARKET AND THE
FUND NOW?
A. One risk would be rising interest rates, since P/E multiples would move
inversely. Based on our conversations with hundreds of companies, however,
that does not appear to be in the offing, as labor productivity gains appear
adequate to offset an admittedly tight labor market. The other risk would be
a sharp economic slowdown. We do expect a modest slowdown reflecting some
weakness in Asia, but all evidence points to sustained growth domestically
and elsewhere. So we believe the investment climate should remain relatively
hospitable during the year ahead.
/s/ Brian E. Stack
Brian E. Stack
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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BRIAN E. STACK JOINED MFS IN 1993 AS VICE PRESIDENT -- INVESTMENTS. A GRADUATE
OF BOSTON COLLEGE AND OF THE DARDEN SCHOOL OF BUSINESS AT THE UNIVERSITY OF
VIRGINIA, HE HAS WORKED AS AN EQUITY ANALYST SINCE 1987 AND HAS MANAGED MFS(R)
NEW DISCOVERY FUND SINCE ITS INCEPTION.
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FUND FACTS
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OBJECTIVE: SEEKS CAPITAL APPRECIATION.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JANUARY 2, 1997
CLASS INCEPTION: CLASS A JANUARY 2, 1997
CLASS B NOVEMBER 3, 1997
CLASS C NOVEMBER 3, 1997
CLASS I JANUARY 2, 1997
SIZE: $74.6 MILLION NET ASSETS AS OF FEBRUARY 28, 1998
PERFORMANCE SUMMARY
Because mutual funds like MFS New Discovery 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
AS OF FEBRUARY 28, 1998
CLASS A INVESTMENT RESULTS
(net asset value change including reinvested distributions)
6 Months 1 Year Life of Fund*
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Cumulative Total Return +19.69% +55.04% +56.43%
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Average Annual Total Return -- +55.04% +47.26%
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SEC Results -- +47.72% +41.17%
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CLASS B INVESTMENT RESULTS
(net asset value change including reinvested distributions)
6 Months 1 Year Life of Fund*
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Cumulative Total Return +19.42% +54.69% +56.08%
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Average Annual Total Return -- +54.69% +46.97%
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SEC Results -- +50.69% +43.71%
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*For the period from the commencement of the Fund's investment operations,
January 2, 1997, through February 28, 1998.
CLASS C INVESTMENT RESULTS
(net asset value change including reinvested distributions)
6 Months 1 Year Life of Fund*
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Cumulative Total Return +19.51% +54.80% +56.20%
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Average Annual Total Return -- +54.80% +47.07%
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SEC Results -- +53.80% +43.80%
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CLASS I INVESTMENT RESULTS
(net asset value change including reinvested distributions)
6 Months 1 Year Life of Fund*
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Cumulative Total Return +19.78% +55.27% +56.67%
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Average Annual Total Return -- +55.27% +47.45%
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*For the period from the commencement of the Fund's investment operations,
January 2, 1997, through February 28, 1998.
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.
B and C results include the performance and the operating expenses (e.g., Rule
12b-1 fees) of A for periods prior to the inception of B and C. Because
operating expenses of B and C are higher than those of A, B and C performance
generally would have been lower than A performance. The A performance included
in the B and C SEC performance has been adjusted to reflect the CDSC generally
applicable to B and C rather than the initial sales charge generally applicable
to A.
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.
PORTFOLIO CONCENTRATION AS OF FEBRUARY 28, 1998
LARGEST EQUITY SECTORS
Technology 30.3%
Miscellaneous 22.3%
(Conglomerates, special products/services)
Other Sectors 18.1%
Leisure 13.7%
Health Care 8.0%
Retailing 7.6%
For a more complete breakdown, refer to the Portfolio of Investments.
TOP 10 EQUITY HOLDINGS
AFFILIATED COMPUTER SERVICES, INC. 3.0% SUNGARD DATA SYSTEMS, INC. 1.5%
Information technology services company Health care information company
CADENCE DESIGN SYSTEMS, INC. 3.0% DST SYSTEMS, INC. 1.5%
Computer software and systems company Financial information services
company
GEMSTAR INTERNATIONAL GROUP LTD. 2.2%
Audio/video products company STERLING SOFTWARE, INC. 1.4%
Data processing and management
SYNOPSYS, INC. 1.5% company
Computer software and systems company
IDEXX LABORATORIES, INC. 1.4%
ASPECT TELECOMMUNICATIONS CORP. 1.5% Medical instruments company
Telecommunications equipment manufacturer
BISYS GROUP, INC. 1.3%
Banking computer services company
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PORTFOLIO OF INVESTMENTS (Unaudited) -- February 28, 1998
Stocks - 93.1%
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ISSUER SHARES VALUE
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U.S. Stocks - 92.7%
Advertising - 0.7%
TMP Worldwide, Inc.* 22,700 $ 544,800
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Airlines - 0.4%
Skywest, Inc. 7,700 $ 300,300
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Biotechnology - 1.3%
IDEXX Laboratories, Inc.* 60,000 $ 941,250
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Building - 0.8%
Newport News Shipbuilding, Inc. 22,400 $ 610,400
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Business Machines - 2.8%
Affiliated Computer Services, Inc., "A"* 65,559 $ 2,110,180
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Business Services - 17.7%
AccuStaff, Inc.* 32,400 $ 915,300
BISYS Group, Inc.* 24,800 920,700
Catalina Marketing Corp.* 14,500 700,531
Cendant Corp.* 19,100 716,250
Ceridian Corp.* 10,300 479,594
Comdisco, Inc. 9,550 398,116
Corestaff, Inc.* 6,500 202,719
Dendrite International, Inc.* 12,700 347,662
DST Systems, Inc.* 19,300 1,020,487
Fine Host Corp.* 7,100 28,400
First Consulting Group, Inc.* 100 1,875
Fiserv, Inc.* 12,800 700,800
Galileo International, Inc. 18,300 722,850
Global Directmail Corp.* 24,700 534,137
Interim Services, Inc.* 18,300 530,700
International Network Services* 10,400 289,900
Learning Tree International, Inc.* 30,650 670,469
May & Speh, Inc.* 36,700 451,869
Memberworks, Inc.* 23,500 705,000
Meta Group, Inc.* 12,900 387,000
NOVA Corp.* 6,400 172,800
Paymentech, Inc.* 30,600 504,900
PMT Services, Inc.* 23,200 411,800
Robert Half International, Inc.* 11,900 538,475
Technology Solutions Co.* 21,200 689,000
Teletech Holdings, Inc.* 16,400 156,825
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$13,198,159
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Chemicals - 0.9%
Sigma-Aldrich Corp. 17,800 $ 703,100
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Computer Software - Personal Computers - 0.4%
America Online, Inc.* 2,700 $ 327,038
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Computer Software - Systems - 17.6%
American Business Information, Inc., "A"* 18,700 $ 212,713
American Business Information, Inc., "B"* 12,200 155,550
Aspen Technology, Inc.* 22,400 890,400
Black Box Corp.* 8,000 286,000
BMC Software, Inc.* 1,400 107,100
Cadence Design Systems, Inc.* 59,570 2,081,227
Cambridge Technology Partners, Inc.* 13,800 627,900
Compuware Corp.* 21,400 901,475
Comverse Technology, Inc.* 12,300 575,025
Edify Corp.* 19,600 301,350
Harbinger Corp.* 14,800 488,400
Scopus Technology, Inc.* 11,300 159,613
Security Dynamics Technologies, Inc.* 12,400 441,750
Simulation Sciences, Inc.* 85,400 875,350
Smart Modular Technologies, Inc.* 14,500 406,000
Sterling Software, Inc.* 18,600 979,987
Summit Design, Inc.* 27,700 387,800
SunGard Data Systems, Inc.* 30,336 1,037,112
Synopsys, Inc.* 30,700 1,072,581
Transaction System Architects, Inc., "A"* 12,000 522,000
USCS International, Inc.* 12,900 274,125
Vantive Corp.* 13,300 364,087
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$ 13,147,545
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Construction Services - 0.4%
Martin Marietta Materials, Inc. 7,300 $ 277,856
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Consumer Goods and Services - 1.0%
Revlon, Inc., "A"* 12,400 $ 582,025
Schweitzer-Mauduit International, Inc. 4,150 137,988
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$ 720,013
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Containers - 0.3%
AptarGroup, Inc. 3,700 $ 213,444
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Electrical Equipment - 0.9%
Cable Design Technologies Corp.* 22,400 $ 651,000
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Electronics - 7.5%
Anadigics, Inc.* 16,800 $ 262,500
Analog Devices, Inc.* 25,700 828,825
BMC Industries, Inc. 16,900 328,494
Burr-Brown Corp.* 16,350 672,394
DuPont Photomasks, Inc.* 5,400 237,600
Integrated Process Equipment Corp.* 11,800 218,300
Lattice Semiconductor Corp.* 3,300 176,756
Level One Communications, Inc.* 10,000 449,375
Microchip Technology, Inc.* 15,100 365,231
Photronics, Inc.* 21,700 637,437
PMC-Sierra, Inc.* 19,400 698,400
Triquint Semiconductor, Inc.* 7,500 180,938
VLSI Technology, Inc.* 11,200 216,300
Xilinx, Inc.* 6,800 298,350
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$ 5,570,900
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Entertainment - 7.2%
American Radio Systems Corp., "A"* 7,600 $ 454,100
Clear Channel Communications, Inc.* 5,700 516,562
Cox Radio, Inc., "A"* 5,900 253,700
Gemstar International Group Ltd.* 50,800 1,562,100
Hearst-Argyle Television, Inc.* 9,100 319,638
Heftel Broadcasting Corp.* 14,900 705,887
Jacor Communications, Inc.* 9,550 552,706
LIN Television Corp.* 7,900 435,488
Univision Communications, Inc., "A"* 15,000 575,625
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$ 5,375,806
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Financial Institutions - 2.7%
Conning Corp.* 14,100 $ 264,375
Financial Federal Corp.* 7,700 168,438
Franklin Resources, Inc. 14,500 739,500
Pioneer Group, Inc. 6,600 197,175
Student Loan Corp. 10,100 487,325
TCF Financial Corp. 5,700 188,456
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$ 2,045,269
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Food and Beverage Products - 2.0%
Corn Products International, Inc.* 21,300 $ 708,225
Earthgrains Co. 12,200 528,412
Tootsie Roll Industries, Inc. 3,200 238,800
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$ 1,475,437
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Insurance - 0.4%
Executive Risk, Inc. 4,100 $ 279,569
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Machinery - 0.2%
Manitowoc, Inc. 4,300 $ 169,581
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Medical and Health Products - 0.6%
NCS Healthcare, Inc.* 14,900 $ 434,894
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Medical and Health Technology and Services - 6.3%
Concentra Managed Care, Inc.* 18,207 $ 624,728
Cytyc Corp.* 4,500 103,500
HEALTHSOUTH Corp.* 33,543 905,661
Hologic, Inc.* 8,750 200,156
IDX Systems Corp.* 12,100 500,638
Province Healthcare Co.* 17,100 354,825
Quorum Health Group, Inc.* 20,525 568,927
Steris Corp.* 11,650 689,534
Total Renal Care Holdings, Inc.* 23,713 763,262
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$ 4,711,231
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Oil Services - 1.5%
Camco International, Inc. 3,900 $ 228,150
Diamond Offshore Drilling, Inc. 6,400 290,000
Global Industries, Inc.* 21,700 374,325
Weatherford Enterra, Inc.* 6,700 231,988
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$ 1,124,463
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Printing and Publishing - 0.8%
Applied Graphics Technologies, Inc.* 5,500 $ 325,188
Scholastic Corp.* 6,000 237,750
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$ 562,938
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Railroads - 0.7%
Kansas City Southern Industries, Inc. 14,700 $ 546,656
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Real Estate Investment Trusts - 0.4%
Kilroy Realty Corp. 10,000 $ 263,125
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Restaurants and Lodging - 3.1%
Buffets, Inc.* 44,000 $ 464,750
Capstar Hotel Co.* 19,700 664,875
Four Seasons Hotels, Inc. 11,500 414,000
Interstate Hotels Co.* 10,050 344,212
Outback Steakhouse, Inc.* 11,800 421,850
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$ 2,309,687
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Special Products and Services - 0.2%
Equity Corp. International* 8,900 $ 186,900
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Stores - 5.4%
AnnTaylor Stores Corp.* 23,700 $ 336,244
BJ's Wholesale Club, Inc.* 16,000 542,000
Corporate Express, Inc.* 21,900 221,737
Costco Cos., Inc.* 12,400 606,050
Duane Reade, Inc.* 8,100 181,238
General Nutrition Cos., Inc.* 9,100 361,725
Petco Animal Supplies, Inc.* 33,200 475,175
Regis Corp. 4,300 116,100
Rite Aid Corp. 21,400 692,825
Viking Office Products, Inc.* 23,900 525,800
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$ 4,058,894
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Supermarkets - 1.0%
Meyer (Fred), Inc.* 16,014 $ 711,622
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Telecommunications - 7.5%
Ascend Communications, Inc.* 20,100 $ 752,494
Aspect Telecommunications Corp.* 39,400 1,039,175
Ciena Corp.* 5,800 243,238
Corsair Communications, Inc.* 16,000 328,000
Global TeleSystems Group, Inc.* 400 14,650
Intermedia Communications, Inc.* 10,100 771,387
Lightbridge, Inc.* 24,100 337,400
Metromedia Fiber Network, Inc., "A"* 20,600 757,050
Natural Microsystems Corp.* 9,700 418,312
Nextlink Communications, Inc., "A"* 18,200 548,275
Transaction Network Services, Inc.* 18,400 363,400
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$ 5,573,381
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Total U.S. Stocks $69,145,438
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Foreign Stocks - 0.4%
Netherlands
Brunel International N.V. (Human Resources)* 13,500 $ 330,074
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $61,154,014) $69,475,512
- -------------------------------------------------------------------------------
Short-Term Obligations - 7.4%
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -------------------------------------------------------------------------------
Federal Home Loan Bank, due 3/02/98 $ 3,500 $ 3,499,457
Federal Home Loan Mortgage Corp., due 3/18/98 1,000 997,412
Student Loan Marketing Assn., due 3/06/98 1,000 999,237
- -------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 5,496,106
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $66,650,120) $74,971,618
- -------------------------------------------------------------------------------
Securities Sold Short - (0.9)%
- -------------------------------------------------------------------------------
SHARES
- -------------------------------------------------------------------------------
Medaphis Corp.* (20,000) $ (207,500)
Oxford Health Plans, Inc.* (25,400) (436,563)
- -------------------------------------------------------------------------------
Total Securities Sold Short (Proceeds Received, $658,060) $ (644,063)
- -------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.4% 275,932
- -------------------------------------------------------------------------------
Net Assets - 100.0% $74,603,487
- -------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- ------------------------------------------------------------------------------
FEBRUARY 28, 1998
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $66,650,120) $74,971,618
Cash 33,130
Receivable for Fund shares sold 3,569,703
Receivable for investments sold 1,230,302
Interest and dividends receivable 8,161
-----------
Total assets $79,812,914
-----------
Liabilities:
Securities sold short, at value (proceeds received,
$658,060) $ 644,063
Payable for Fund shares repurchased 43,202
Payable for investments purchased 4,488,142
Payable to affiliates -
Management fee 3,572
Distribution and service fee 30,448
-----------
Total liabilities $ 5,209,427
-----------
Net assets $74,603,487
===========
Net assets consist of:
Paid-in capital $66,706,885
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 8,335,495
Accumulated net realized loss on investments and foreign
currency transactions (379,499)
Accumulated distributions in excess of net investment
income (59,394)
-----------
Total $74,603,487
===========
Shares of beneficial interest outstanding 5,575,151
=========
Class A shares:
Net asset value per share
(net assets of $27,389,735 / 2,044,369 shares of
beneficial interest outstanding) $13.40
======
Offering price per share (100 / 94.25) $14.22
======
Class B shares:
Net asset value and offering price per share
(net assets of $34,112,274 / 2,551,999 shares of
beneficial interest outstanding) $13.37
======
Class C shares:
Net asset value and offering price per share
(net assets of $10,019,128 / 749,122 shares of
beneficial interest outstanding) $13.37
======
Class I shares:
Net asset value, offering price, and redemption price
per share (net assets of $3,082,350 / 229,661 shares
of beneficial interest outstanding) $13.42
======
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, 1998
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 109,006
Interest 71,116
Foreign taxes withheld (171)
----------
Total investment income $ 179,951
----------
Expenses -
Management fee $ 117,299
Shareholder servicing agent fee 14,547
Distribution and service fee (Class A) 17,305
Distribution and service fee (Class B) 55,822
Distribution and service fee (Class C) 14,830
Administrative fee 1,598
Registration fees 55,923
Printing 20,330
Auditing fees 7,250
Custodian fee 6,468
Postage 3,565
Legal fees 601
Miscellaneous 7,729
----------
Total expenses $ 323,267
Fees paid indirectly (4,434)
Preliminary reduction of expenses by investment
adviser and distributor (80,937)
----------
Net expenses $ 237,896
----------
Net investment loss $ (57,945)
----------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $ (258,842)
Foreign currency transactions (958)
----------
Net realized loss on investments and foreign
currency transactions $ (259,800)
----------
Change in unrealized appreciation -
Investments $8,143,097
Securities sold short 13,997
----------
Net unrealized gain on investments $8,157,094
----------
Net realized and unrealized gain on investments
and foreign currency $7,897,294
----------
Increase in net assets from operations $7,839,349
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997*
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income (loss) $ (57,945) $ 145,131
Net realized gain (loss) on investments and foreign
currency transactions (259,800) 126,577
Net unrealized gain on investments 8,157,094 178,401
----------- ----------
Increase in net assets from operations $ 7,839,349 $ 450,109
----------- ----------
Distributions declared to shareholders -
From net investment income (Class A) $ (41,463) $ --
From net investment income (Class I) (105,117) --
From net realized gain on investments and foreign currency
transactions (Class A) (70,363) --
From net realized gain on investments and foreign currency
transactions (Class I) (175,913) --
----------- ----------
Total distributions declared to shareholders $ (392,856) $ --
----------- ----------
Net increase in net assets from Fund share
transactions $65,127,131 $1,579,754
----------- ----------
Total increase in net assets $72,573,624 $2,029,863
Net assets:
At beginning of period 2,029,863 --
----------- ----------
At end of period (including accumulated undistributed
(distributions in excess of) net investment income of
$(59,394) and $145,131, respectively) $74,603,487 $2,029,863
=========== ==========
* For the period from the commencement of the Fund's investment operations, January 2, 1997, through
August 31, 1997.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED PERIOD ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997* FEBRUARY 28, 1998**
(UNAUDITED) (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $13.07 $10.00 $11.81
------ ------ ------
Income from investment operations# -
Net investment income (loss)(S) $
-- *** $ 0.98 $(0.03)
Net realized and unrealized gain on investments and
foreign currency transactions 2.28 2.09 1.59
------ ------ ------
Total from investment operations $ 2.28 $ 3.07 $ 1.56
------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.72) $ -- $ --
From net realized gain on investments and foreign
currency transactions (1.23) -- --
------ ------ ------
Total distributions declared to shareholders $(1.95) $ -- $ --
------ ------ ------
Net asset value - end of period $13.40 $13.07 $13.37
====== ====== ======
Total return(+) 19.69%++ 30.70%++ 19.42%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.50%+ 1.50%+ 2.15%+
Net investment income (loss) (0.07)%+ 12.41%+ (0.82)%+
Portfolio turnover 132% 887% 132%
Average commission rate $0.0398 $0.0250 $0.0398
Net assets at end of period (000 omitted) $27,390 $ 536 $34,112
* For the period from the commencement of the Fund's investment operations, January 2, 1997, through August 31, 1997.
** For the period from the inception of Class B, November 3, 1997, through February 28, 1998.
*** The per share net investment loss was $(0.0048).
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
(+) 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.
(S) Subject to reimbursement by the Fund, the investment adviser voluntarily agreed to maintain the expenses of the Fund, exclusive
of management, distribution, and service fees, at not more than 0.25% of average daily net assets effective November 1, 1997.
Prior to November 1, 1997, subject to reimbursement by the Fund, the investment adviser voluntarily agreed to maintain the
expenses of the Fund at not more than 1.50% of the Fund's average daily net assets, and the investment adviser, distributor,
and shareholder servicing agent did not impose any of their fees. If these fees had been incurred by the Fund and/or if actual
expenses had been over/under this limitation, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.03) $ 0.89 $(0.06)
Ratios (to average net assets):
Expenses## 2.01%+ 3.10%+ 2.92%+
Net investment income (loss) (0.58)%+ 10.81%+ (1.59)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED SIX MONTHS ENDED PERIOD ENDED
FEBRUARY 28, 1998** FEBRUARY 28, 1998 AUGUST 31, 1997*
(UNAUDITED) (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS C CLASS I
- ----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $11.81 $13.08 $10.00
------ ------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.03) $ 0.02 $ 1.01
Net realized and unrealized gain on investments and
foreign currency transactions 1.59 2.27 2.07
------ ------ ------
Total from investment operations $ 1.56 $ 2.29 $ 3.08
------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.72) $ --
From net realized gain on investments and foreign
currency transactions -- (1.23) --
------ ------ ------
Total distributions declared to shareholders $ -- $(1.95) $ --
------ ------ ------
Net asset value - end of period $13.37 $13.42 $13.08
====== ====== ======
Total return 19.51%++ 19.78%++ 30.80%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 2.15%+ 1.22%+ 1.50%+
Net investment income (loss) (0.88)%+ 0.39%+ 12.65%+
Portfolio turnover 132% 132% 887%
Average commission rate $0.0398 $0.0398 $0.0250
Net assets at end of period (000 omitted) $10,019 $ 3,082 $ 1,494
* For the period from the commencement of the Fund's investment operations, January 2, 1997, through August 31, 1997.
** For the period from the inception of Class C, November 3, 1997, through February 28, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Subject to reimbursement by the Fund, the Fund's expenses are calculated without reduction for fees paid indirectly.
(S) The investment adviser voluntarily agreed to maintain the expenses of the Fund, exclusive of management, distribution, and
service fees, at not more than 0.25% of average daily net assets effective November 1, 1997. Prior to November 1, 1997,
subject to reimbursement by the Fund, the investment adviser voluntarily agreed to maintain the expenses of the Fund at not
more than 1.50% of the Fund's average daily net assets, and the investment adviser, distributor, and shareholder servicing
agent did not impose any of their fees. If these fees had been incurred by the Fund and/or if actual expenses had been
over/under this limitation, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.06) $(0.01) $ 0.92
Ratios (to average net assets):
Expenses## 2.95%+ 1.76%+ 2.52%+
Net investment income (loss) (1.68)%+ (0.15)%+ 11.63%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS New Discovery Fund (the Fund) is a diversified series of MFS Series Trust I
(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.
Short Sales - The Fund may enter into short sales. A short sale transaction
involves selling a security which the Fund does not own with the intent of
purchasing it later at a lower price. The Fund will realize a gain if the
security price decreases and a loss if the security price increases between the
date of the short sale and the date on which the Fund must replace the borrowed
security. Losses can exceed the proceeds from short sales and can be greater
than losses from the actual purchase of a security. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of the
premium, dividends, or interest the Fund may be required to pay in connection
with a short sale. Whenever the Fund engages in short sales, its custodian
segregates cash or marketable securities in an amount that, when combined with
the amount of collateral deposited with the broker in connection with the short
sale, at least equals the current market value of the security sold short.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium
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 and interest payments received in
additional securities are recorded on the ex-dividend or ex-interest date in an
amount equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's average daily net assets. The fee is reduced according to a fee
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 Funds' 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 accumulated net realized
gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares. The classes of shares 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.
(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 0.90% of
average daily net assets. Prior to November 1, 1997, the investment adviser did
not impose any of its fee, which is reflected as a preliminary reduction of
expenses in the Statement of Operations. The Fund has a temporary expense
reimbursement agreement whereby MFS has voluntarily agreed to pay some of the
Fund's operating expenses, exclusive of management, distribution, and service
fees. The Fund in turn will pay MFS an expense reimbursement fee not greater
than 0.25% of average daily net assets. Prior to November 1, 1997, the expense
reimbursement fee was 1.50% of average daily net assets. To the extent that the
expense reimbursement fee exceeds the Fund's actual expenses, the excess will be
applied to amounts paid by MFS in prior years. At February 28, 1998, the
aggregate unreimbursed expenses owed to MFS by the Fund amounted to $78,908.
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%
The Fund pays no compensation directly to their 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 Trustees are currently not receiving
any payments for their services to the Fund.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$105,865 for the six months ended February 28, 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 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. Prior to November 1, 1997, distribution and service fees
under the Class A distribution plan were waived. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $508 for the
six months ended February 28, 1998. Fees incurred under the distribution plan
during the six months ended February 28, 1998, were 0.35% 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 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 $125 and $23 for Class B and Class C shares, respectively, for
the six months ended February 28, 1998. Fees incurred under the distribution
plan during the six months ended February 28, 1998, were 1.00% and 1.00% of
average daily net assets attributable to Class B and Class C shares on an
annualized basis, respectively.
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 purchase. MFD receives
all contingent deferred sales charges. Contingent deferred sales charges imposed
during the six months ended February 28, 1998, were $0, $3,600, and $630 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
Fund's 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
$93,392,828 and $34,376,397, 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 $66,650,120
-----------
Gross unrealized appreciation $ 9,061,296
Gross unrealized depreciation (739,798)
-----------
Net unrealized appreciation $ 8,321,498
===========
(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
SIX MONTHS ENDED FEBRUARY 28, 1998 PERIOD ENDED AUGUST 31, 1997*
---------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,055,497 $24,718,350 46,587 $483,036
Shares issued to shareholders in
reinvestment of distributions 9,648 112,508 -- --
Shares reacquired (61,784) (756,020) (5,579) (56,315)
--------- ----------- ------ --------
Net increase 2,003,361 $24,074,838 41,008 $426,721
========= =========== ====== ========
<CAPTION>
Class B Shares
PERIOD ENDED FEBRUARY 28, 1998**
--------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------
<S> <C> <C>
Shares sold 2,689,011 $32,238,965
Shares reacquired (137,012) (1,632,251)
--------- -----------
Net increase 2,551,999 $30,606,714
========= ===========
* For the period from the commencement of the Fund's investment operations, January 2, 1997, through August 31, 1997.
** For the period from the inception of Class B, November 3, 1997, through February 28, 1998.
</TABLE>
<TABLE>
<CAPTION>
Class C Shares
PERIOD ENDED FEBRUARY 28, 1998***
---------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------
<S> <C> <C>
Shares sold 769,271 $ 9,266,318
Shares reacquired (20,149) (244,272)
------- -----------
Net increase 749,122 $ 9,022,046
======= ===========
<CAPTION>
Class I Shares
SIX MONTHS ENDED FEBRUARY 28, 1998 PERIOD ENDED AUGUST 31, 1997*
---------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 94,805 $ 1,188,612 144,634 $1,452,530
Shares issued to shareholders in
reinvestment of distributions 24,101 281,020 -- --
Shares reacquired (3,483) (46,099) (30,396) (299,497)
------- ----------- ------- ----------
Net increase 115,423 $ 1,423,533 114,238 $1,153,033
======= =========== ======= ==========
* For the period from the commencement of the Fund's investment operations, January 2, 1997, through August 31, 1997.
*** For the period from the inception of Class C, November 3, 1997, through February 28, 1998.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $400 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 six
months ended February 28, 1998, was $119.
--------------------------------------------
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) NEW DISCOVERY FUND
TRUSTEES CUSTODIAN
Richard B. Bailey* - Private Investor; State Street Bank and Trust Company
Former Chairman and Director (until
1991), MFS Investment Management INVESTOR INFORMATION
For MFS stock and bond market
Marshall N. Cohan - Private Investor outlooks, call toll free:
1-800-637-4458 anytime from a
Lawrence H. Cohn, M.D. - Chief of touch-tone telephone.
Cardiac Surgery, Brigham and Women's For information on MFS mutual funds,
Hospital; Professor of Surgery, Harvard call your financial adviser or, for
Medical School an information kit, call toll free:
1-800-637-2929 any business day from
The Hon. Sir J. David Gibbons, KBE - 9 a.m. to 5 p.m. Eastern time (or
Chief Executive Officer, Edmund Gibbons leave a message anytime).
Ltd.
INVESTOR SERVICE
Abby M. O'Neill - Private Investor MFS Service Center, Inc.
P.O. Box 2281
Walter E. Robb, III - President and Boston, MA 02107-9906
Treasurer, Benchmark Advisors, Inc.
(corporate financial consultants); For general information, call toll
President, Benchmark Consulting Group, free: 1-800-225-2606 any business
Inc. (office services) day from 8 a.m. to 8 p.m. Eastern
time.
Arnold D. Scott* - Senior Executive Vice
President, Director, and Secretary, MFS For service to speech- or Investment
Management hearing-impaired, call toll free:
1-800-637-6576 any business day from
Jeffrey L. Shames* - Chairman, Chief 9 a.m. to 5 p.m. Eastern time. (To
Executive Officer, and Director, MFS use this service, your phone must be
Investment Management equipped with a Telecommunications
Device for the Deaf.)
J. Dale Sherratt - President, Insight
Resources, Inc. (acquisition planning For share prices, account balances,
specialists) and exchanges, call toll free:
1-800-MFS-TALK (1-800-637-8255)
Ward Smith - Former Chairman (until anytime from a touch-tone telephone.
1994), NACCO Industries (holding
company) World Wide Web
www.mfs.com
INVESTMENT ADVISER [graphic omitted]
Massachusetts Financial Services Company For the fourth year in a row, MFS
500 Boylston Street earned a #1 ranking in the DALBAR,
Boston, MA 02116-3741 Inc. Broker/Dealer Survey, Main
Office Operations Service Quality
DISTRIBUTOR Category. The firm achieved a 3.42
MFS Fund Distributors, Inc. overall score on a scale of 1 to 4
500 Boylston Street in the 1997 survey. A total of 111
Boston, MA 02116-3741 firms responded, offering input on
the quality of service they received
PORTFOLIO MANAGER from 29 mutual fund companies
Brian E. Stack* nationwide. The survey contained
questions about service quality in
TREASURER 11 categories, including "knowledge
W. Thomas London* of operations contact," "keeping you
informed," and "ease of doing
ASSISTANT TREASURERS business" with the firm.
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
<PAGE>
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MFS(R) NEW DISCOVERY FUND Bulk Rate
U.S. Postage
Paid
[Logo] MFS
INVESTMENT MANAGEMENT ----------------
We invented the mutual fund(SM)
500 Boylston Street
Boston, MA 02116-3741
[Dalbar Logo]
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MND-3 4/98 16M 97/297/397/897
