<PAGE>
[Logo]
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) EQUITY
INCOME FUND
SEMIANNUAL REPORT o FEBRUARY 28, 1998
<PAGE>
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
[Photo of A. Keith Brodkin] 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.
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.
<PAGE>
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 ............................................. 23
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 15.89%, CLASS B AND CLASS C
SHARES 15.58%, AND CLASS I SHARES 16.05%. (SEE PERFORMANCE SUMMARY FOR MORE
INFORMATION.)
o THE FUND HAS BEEN SOMEWHAT IMPACTED BY ROTATION AMONG SECTORS, WITH
INDUSTRIES THAT HAD BEEN PERFORMING WELL, SUCH AS UTILITIES AND ENERGY,
SHOWING SOME WEAKNESS, AND OTHER INDUSTRIES, SUCH AS FINANCIAL SERVICES,
GAINING STRENGTH.
o THE FUND IS A CONSERVATIVE EQUITY FUND FOCUSED ON TOTAL RETURN, WITH INCOME
AN IMPORTANT COMPONENT OF ITS OBJECTIVE.
o THE FUND HAS SOUGHT TO AVOID FALLOUT FROM THE ASIAN CRISIS, EITHER DIRECT OR
INDIRECT, BY TRYING TO FOCUS ON COMPANIES THAT ARE LARGELY DOMESTIC AND BY
PARING BACK ON INDUSTRIES IN WHICH WE SEE ASIAN EXPOSURE, SUCH AS CYCLICALS
AND INDUSTRIAL GOODS AND SERVICES.
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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:
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 L. 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.
<PAGE>
A DISCUSSION WITH THE PORTFOLIO MANAGER
[Photo of Lisa B. Nurme]
Lisa B. Nurme
For the six months ended February 28, 1998, Class A shares of the Fund provided
a total return of 15.89%, Class B and Class C shares 15.58%, and Class I shares
16.05%. These returns, which include the reinvestment of distributions but
exclude the effects of any sales charges, compare to a 17.62% return for the
Standard & Poor's 500 Composite Index (the S&P 500) for the same period. The S&P
500 is a popular, unmanaged index of common stock total return performance.
Q. WHAT DO YOU SEE AS SOME OF THE MAJOR REASONS FOR THE FUND'S PERFORMANCE OVER
THE PAST SIX MONTHS?
A. The Fund did better in the last four months of 1997 than it has in the first
two months of 1998. There has been a lot of rotation among sectors, with
industries that had been performing well showing some weakness, and other
industries gaining strength. In the fourth quarter, utilities, particularly
electric utilities, came back to life, but they have given up some of those
gains so far this year. Energy stocks peaked in the fourth quarter and have
underperformed from that point as a result of commodity weakness, a
combination of too much supply and weakening demand due to the crisis in
Asia. Financial services companies have been a mixed bag year to date, but
we continue our shift out of banks into more of an insurance weighting. The
insurance industry is somewhat behind the banks in terms of redeploying
excess capital and consolidation.
Q. HOW WOULD YOU DESCRIBE THE OVERALL BUSINESS AND INVESTMENT ENVIRONMENT OF
THE PAST SIX MONTHS OR SO?
A. It's been tricky due to the sector rotation I mentioned earlier. Also, the
market isn't getting any cheaper and that's making it much harder to find
good value.
Q. COULD YOU TALK ABOUT THE FUND'S INVESTMENT PHILOSOPHY AND STRATEGY?
A. It's an extremely conservative equity fund focused on total return. Income
is an important component of the Fund's objective as well as of my
investment philosophy. I'm certainly not changing course because the market
is so strong. The thing that's interesting about this Fund is that in 1996
and 1997 we had a very strong market, yet the Fund more than kept up. That's
a bit unusual. Going forward, the strength of the equity market may leave
this Fund behind. For example, the Fund owns no technology stocks except for
IBM. This Fund is more conservative than a growth-and-income fund; it is
positioned for the conservative investor who wants to be fully invested in
the equity market, but with possible downside protection.
Q. CAN YOU GIVE US SOME EXAMPLES OF COMPANIES THAT MEET YOUR STANDARDS FOR THE
FUND?
A. Bristol-Myers Squibb and American Home Products are two examples. They're
both lower-priced drug stocks with very solid franchises. In insurance, we
have Lincoln National, Transamerica, and Equitable. In energy, we own
British Petroleum and Exxon. J.C. Penney is another name that fits well and
has a good yield, too.
Q. HOW DO YOU GO ABOUT CHOOSING STOCKS FOR THE FUND?
A. We use a yield screen, and we like to see companies with a long-term history
of paying dividends and with growth in that dividend. As a result, the
stocks in the Fund are companies that almost everybody would recognize.
There's nothing exotic here. We also look for reasonable value, that is,
companies that are underearning relative to their potential and therefore
are not yet highly valued in the market.
Q. COULD YOU TALK A LITTLE MORE ABOUT THE UTILITIES AND COMMUNICATIONS SECTOR?
A. We break that sector into three distinct groups: electric, telephone, and
natural gas utilities. The interesting thing is that all three are seeing
deregulation and increasing competition and, as a result, more
consolidation. This creates a lot of opportunities, but it can also be
tricky to find the best companies in this new environment because it's no
longer the predictable business that it was. These companies are coming
together because the markets are opening up and they have to be able to
provide a full complement of services.
Q. HAS THE TURMOIL IN EMERGING MARKETS HAD ANY EFFECT ON THE FUND'S HOLDINGS OR
HOW YOU MANAGE THE FUND?
A. We have tried to avoid any fallout from the Asian crisis, either direct or
indirect, by trying to focus on companies that are largely domestic. We have
pared back where we see Asian exposure, in industries such as cyclicals and
industrial goods and services.
Q. DO YOU SEE THE ASIAN TURMOIL HAVING ANY EFFECT GOING FORWARD?
A. We would hope it would have very little impact. There are no Asian stocks in
the Fund, but any economic fallout in the West would be tough to escape. A
slowdown in the economy is possible as the weakness in Asia spreads to
Europe and the United States. That would be tough to avoid because, even if
a company is domestically focused, it can still suffer from a slower
economy. The Fund's cyclical weighting is very low, so that's another way we
have tried to be positioned for potential secondary fallout from Asia.
Q. COULD YOU TALK ABOUT SOME SECTORS OR STOCKS THAT PERFORMED BETTER THAN
EXPECTED?
A. Health care, specifically the drug stocks, has done well. Here, we've had
extremely strong fundamentals and, on top of that, talk of consolidation. We
knew the fundamentals were very strong, but we didn't anticipate the level
of consolidation activity. Consolidation has also helped in financial
services. The Fund owns Beneficial Corp., for example, which has done quite
well. Also, the strength of some of the European holdings has been a
surprise, with good performance from companies like Akzo Nobel, Sanofi, and
Henkel.
Q. WHAT ABOUT STOCKS OR SECTORS THAT DID NOT PERFORM AS WELL AS YOU WOULD HAVE
LIKED?
A. One negative has been in utilities, specifically electric and natural gas
companies. They're being hurt by poor demand based on the weather, but that
comes and goes. The weather will have an impact in this quarter, but we
could have a hot summer, in which case the second and third quarters would
be strong. Also, weak energy pricing has hurt the pipeline and local gas
distribution companies. REITs (real estate investment trusts) also have been
weak, whereas they were strong in the fourth quarter of 1997. We think
people are getting a little concerned that the property cycle is aging, and
we're seeing that on the office and industrial sides, in which the Fund has
some exposure. But REITs are coming out of a period of two strong years of
above-average returns back to their more normal, low-teens returns, with at
least half of those returns coming from dividends.
/s/ Lisa B. Nurme
Lisa B. Nurme
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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LISA B. NURME JOINED MFS IN 1987 AS A RESEARCH ANALYST AND WAS NAMED INVESTMENT
OFFICER IN 1990, ASSISTANT VICE PRESIDENT -- INVESTMENTS IN 1991, VICE PRESIDENT
- -- INVESTMENTS IN 1992, AND SENIOR VICE PRESIDENT IN 1998. A GRADUATE OF THE
UNIVERSITY OF NORTH CAROLINA, SHE HAS MANAGED MFS(R) EQUITY INCOME FUND SINCE
ITS INCEPTION.
<PAGE>
FUND FACTS
OBJECTIVE: PRIMARILY SEEKS REASONABLE INCOME, WITH A SECONDARY
OBJECTIVE OF CAPITAL APPRECIATION.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JANUARY 2, 1996
CLASS INCEPTION: CLASS A JANUARY 2, 1996
CLASS B NOVEMBER 4, 1997
CLASS C NOVEMBER 4, 1997
CLASS I JANUARY 2, 1997
SIZE: $11.3 MILLION NET ASSETS AS OF FEBRUARY 28, 1998
PERFORMANCE SUMMARY
Because mutual funds like MFS Equity Income 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 +15.89% +33.04% +77.10%
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Average Annual Total Return -- +33.04% +30.31%
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SEC Results -- +26.76% +27.40%
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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 +15.58% +32.68% +76.63%
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Average Annual Total Return -- +32.68% +30.15%
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SEC Results -- +28.68% +29.12%
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*For the period from the commencement of the Fund's investment operations,
January 2, 1996, 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 +15.58% +32.68% +76.63%
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Average Annual Total Return -- +32.68% +30.15%
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SEC Results -- +31.68% +29.12%
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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 +16.05% +33.23% +77.22%
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Average Annual Total Return -- +33.23% +30.35%
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* For the period from the commencement of the Fund's investment operations,
January 2, 1996, 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.
<PAGE>
PORTFOLIO CONCENTRATION AS OF FEBRUARY 28, 1998
LARGEST EQUITY SECTORS
Financial Services ........................................... 27.3%
Utilities & Communications ................................... 23.0%
Miscellaneous ................................................ 21.9%
(Conglomerates, special products/services)
Energy ....................................................... 9.8%
Consumer Staples ............................................. 9.6%
Health care .................................................. 8.4%
For a more complete breakdown, refer to the Portfolio of Investments.
TOP 10 EQUITY HOLDINGS
<TABLE>
<S> <C>
AKZO NOBEL N.V. 2.2% AMERICAN HOME PRODUCTS CORP. 1.7%
Diversified Dutch chemical company Pharmaceutical and health products company
CENTURY TELEPHONE ENTERPRISES, INC. 2.1% TRANSAMERICA CORP. 1.6%
Integrated telephone company Life insurance company
BRITISH PETROLEUM PLC 2.0% J.C. PENNEY, INC. 1.6%
International oil and gas company Retailer and financial services company
EXXON CORP. 1.8% LINCOLN NATIONAL CORP. 1.5%
International oil and gas company Life insurance and financial services company
BRISTOL-MYERS SQUIBB CO. 1.8% EQUITABLE COS., INC. 1.5%
Pharmaceutical products company Life insurance and financial services company
</TABLE>
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- February 28, 1998
Stocks - 94.9%
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ISSUER SHARES VALUE
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U.S. Stocks - 82.6%
Aerospace - 3.2%
Allied Signal, Inc. 1,880 $ 80,017
General Dynamics Corp. 514 44,590
Lockheed Martin Corp. 726 84,715
Raytheon Co. 2,606 151,148
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$ 360,470
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Automotive - 1.0%
TRW, Inc. 2,029 $ 111,215
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Banks and Credit Companies - 7.5%
Bank of New York, Inc. 1,401 $ 82,046
Comerica, Inc. 816 82,263
Compass Bancshares, Inc. 2,110 97,060
Corestates Financial Corp. 1,305 110,191
Firstar Corp. 1,961 81,994
Fleet Financial Group, Inc. 593 46,736
National City Corp. 2,316 151,119
Northern Trust Corp. 1,144 87,016
PNC Bank Corp. 2,011 111,610
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$ 850,035
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Building - 0.9%
Sherwin Williams Co. 3,146 $ 105,194
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Business Machines - 1.4%
International Business Machines Corp. 1,472 $ 153,732
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Chemicals - 0.7%
Air Products & Chemicals, Inc. 929 $ 77,978
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Conglomerates - 1.0%
Tyco International Ltd. 2,294 $ 116,421
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Consumer Goods and Services - 2.3%
Philip Morris Cos., Inc. 3,376 $ 146,645
Rubbermaid, Inc. 3,722 107,938
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$ 254,583
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Electrical Equipment - 2.8%
Cooper Industries, Inc. 1,036 $ 58,145
General Electric Co. 1,575 122,456
Hubbell, Inc. 2,626 132,285
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$ 312,886
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Entertainment - 1.0%
Viacom, Inc., "B"* 2,400 $ 115,200
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Financial Institutions - 2.2%
Beneficial Corp. 1,193 $ 140,774
Federal Home Loan Mortgage Corp. 2,179 102,958
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$ 243,732
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Food and Beverage Products - 2.4%
Archer-Daniels-Midland Co. 3,548 $ 79,608
Hormel Foods Corp. 2,767 102,725
Smucker (J M) Co. 3,608 93,808
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$ 276,141
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Forest and Paper Products - 2.0%
Kimberly-Clark Corp. 2,116 $ 117,835
Union Camp Corp. 1,717 102,591
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$ 220,426
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Insurance - 10.3%
Allstate Corp. 879 $ 81,967
Chubb Corp. 1,806 144,141
CIGNA Corp. 282 53,862
Equitable Cos., Inc. 3,188 166,772
Hartford Financial Services Group, Inc. 1,215 119,374
Jefferson Pilot Corp. 1,517 127,238
Lincoln National Corp. 2,017 168,924
Torchmark Corp. 2,766 128,792
Transamerica Corp. 1,515 176,403
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$ 1,167,473
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Medical and Health Products - 4.1%
American Home Products Corp. 1,944 $ 182,250
Bristol-Myers Squibb Co. 1,924 192,760
Pharmacia & Upjohn, Inc. 2,222 87,908
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$ 462,918
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Oils - 6.6%
Atlantic Richfield Co. 1,517 $ 117,947
Exxon Corp. 3,145 200,887
Mobil Corp. 762 55,197
Texaco, Inc. 1,052 58,715
Unocal Corp. 3,513 132,396
USX-Marathon Group 3,430 118,549
Valero Energy Corp. 1,597 56,694
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$ 740,385
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Real Estate Investment Trusts - 5.8%
Federal Realty Investment Trust 4,000 $ 90,931
Highwood Properties, Inc. 2,381 82,889
Kilroy Realty Corp. 3,717 97,803
Mid-America Apartment Communities, Inc. 2,868 81,200
Post Propertys Inc. 1,400 54,600
Sovran Self Storage, Inc. 2,956 87,202
Tower Realty Trust, Inc. 2,696 63,356
TriNet Corporate Realty Trust, Inc. 2,653 102,804
-----------
$ 660,785
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Stores - 2.5%
Penney (J.C.) Co., Inc. 2,427 $ 171,558
Rite Aid Corp. 3,311 107,194
-----------
$ 278,752
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Supermarkets - 2.3%
Kroger Co.* 3,338 $ 141,030
Meyer (Fred), Inc.* 2,774 123,270
-----------
$ 264,300
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Utilities - Electric - 5.6%
Carolina Power & Light Co. 570 $ 23,798
Cinergy Corp. 2,898 100,887
Florida Progress Corp. 3,046 117,842
New Century Energies, Inc. 2,187 101,969
Pinnacle West Capital Corp. 2,713 110,724
Scana Corp. 3,622 104,132
Sierra Pacific Resources 1,992 71,463
-----------
$ 630,815
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Utilities - Gas - 7.2%
Agl Resources, Inc. 5,012 $ 101,806
Coastal Corp. 1,893 120,442
Columbia Gas System, Inc. 1,673 127,671
Keyspan Energy Corp. 2,967 105,514
KN Energy, Inc. 989 51,366
National Fuel Gas Co. 2,290 106,771
Questar Corp. 2,254 95,795
UGI Corp. 3,671 105,083
-----------
$ 814,448
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Utilities - Telephone - 9.8%
AT&T Corp. 2,374 $ 144,517
Bell Atlantic Corp. 1,203 107,969
Century Telephone Enterprises, Inc. 3,824 233,264
GTE Corp. 2,730 147,761
LCI International, Inc.* 3,659 120,747
MCI Communications Corp. 2,251 107,626
SBC Communications, Inc. 1,345 101,716
Sprint Corp. 2,175 143,550
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$ 1,107,150
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Total U.S. Stocks $ 9,325,039
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Foreign Stocks - 12.3%
Austria - 0.6%
Austria Tabak AG (Tobacco)* 1,224 $ 65,501
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Canada - 0.7%
Canadian National Railway Co. (Railroads) 1,306 $ 81,135
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France - 1.2%
Sanofi (Medical and Health Products) 1,216 $ 137,875
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Germany - 0.9%
Henkel KGaA (Chemicals) 1,620 $ 104,917
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Netherlands - 3.9%
Akzo Nobel N.V. (Chemicals) 1,190 $ 241,666
Benckiser N.V. (Consumer Goods and Services)* 2,693 115,621
Ing Groep N.V. (Financial Services) 1,648 87,276
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$ 444,563
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Switzerland - 0.4%
Novartis AG (Pharmaceuticals) 22 $ 40,228
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United Kingdom - 4.6%
British Petroleum PLC, ADR (Oils) 2,692 $ 222,595
Glaxo Wellcome PLC, ADR (Pharmaceuticals) 1,974 107,213
SmithKline-Beecham PLC, ADR
(Medical and Health Products) 845 52,284
Zeneca Group (Pharmaceuticals) 2,872 125,457
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$ 507,549
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Total Foreign Stocks $ 1,381,768
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Total Stocks (Identified Cost, $9,945,055) $10,706,807
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Convertible Bond - 0.5%
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PRINCIPAL AMOUNT
(000 OMITTED)
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Automotive - 0.5%
Tower Automotive, Inc., 5s, 2004
(Identified Cost, $53,564) $ 51 $ 55,718
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Convertible Preferred Stock - 2.2%
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SHARES
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Aerospace - 0.2%
Loral Space & Communications 316 $ 21,962
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Consumer Goods and Services - 1.1%
Newell Financial Trust Co.* 2,211 $ 121,052
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Utilities - Telephone - 0.9%
Cincinnati Bell 1,613 $ 99,603
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Total Convertible Preferred Stock
(Identified Cost, $229,366) $ 242,617
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Short-Term Obligations - 3.8%
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PRINCIPAL AMOUNT
(000 OMITTED)
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Federal Home Loan Mortgage Corp., due 3/02/98,
at Amortized Cost $ 430 $ 429,933
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Total Investments (Identified Cost, $10,657,918) $11,435,075
Other Assets, Less Liabilities - (1.4)% (155,494)
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Net Assets - 100.0% $11,279,581
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* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
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FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $10,657,918) $11,435,075
Cash 1,944
Receivable for Fund shares sold 425,189
Receivable for investments sold 189,774
Interest and dividends receivable 16,592
Deferred organization expenses 1,676
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Total assets $12,070,250
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Liabilities:
Payable for investments purchased $ 748,572
Payable for Fund shares reacquired 35,734
Payable to affiliates -
Management fee 449
Distribution and service fee 3,876
Accrued expenses and other liabilities 2,038
-----------
Total liabilities $ 790,669
-----------
Net assets $11,279,581
-----------
Net assets consist of:
Paid-in capital $10,380,327
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 777,097
Accumulated undistributed net realized gain on investments
and foreign currency transactions 108,840
Accumulated undistributed net investment income 13,317
-----------
Total $11,279,581
===========
Shares of beneficial interest outstanding 747,396
=======
Class A shares:
Net asset value per share
(net assets of $2,979,691 / 197,157 shares of beneficial
interest outstanding) $15.11
======
Offering price per share (100 / 94.25) $16.03
======
Class B shares:
Net asset value and offering price per share
(net assets of $5,810,477 / 385,353 shares of beneficial
interest outstanding) $15.08
======
Class C shares:
Net asset value and offering price per share
(net assets of $1,322,208 / 87,718 shares of beneficial
interest outstanding) $15.07
======
Class I shares:
Net asset value, offering price, and redemption price
per share (net assets of $1,167,205 / 77,168 shares of
beneficial interest outstanding) $15.13
======
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 $ 46,169
Interest 5,075
--------
Total investment income $ 51,244
--------
Expenses -
Management fee $ 14,953
Shareholder servicing agent fee 1,961
Distribution and service fee Class A 1,971
Distribution and service fee Class B 7,361
Distribution and service fee Class C 1,753
Administrative fee 253
Registration fees 43,896
Printing 16,595
Postage 9,593
Auditing fees 7,750
Custodian fee 1,551
Legal fees 942
Amortization of organization expenses 217
--------
Total expenses $108,796
Fees paid indirectly (489)
Preliminary reduction of expenses by investment adviser (73,806)
--------
Net expenses $ 34,501
--------
Net investment income $ 16,743
--------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $154,810
Foreign currency transactions (265)
--------
Net realized gain on investments and foreign currency
transactions $154,545
--------
Change in unrealized appreciation (depreciation) -
Investments $617,124
Translation of assets and liabilities in foreign currencies (54)
--------
Net unrealized gain on investments and foreign currency
translation $617,070
--------
Net realized and unrealized gain on investments and
foreign currency $771,615
--------
Increase in net assets from operations $788,358
========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment income $ 16,743 $ 15,256
Net realized gain on investments and foreign currency
transactions 154,545 130,154
Net unrealized gain on investments and foreign currency
translation 617,070 134,058
----------- ----------
Increase in net assets from operations $ 788,358 $ 279,468
----------- ----------
Distributions declared to shareholders -
From net investment income (Class A) $ (4,960) $ (9,552)
From net investment income (Class I) (9,040) --
From net realized gain on investments and foreign currency
transactions (Class A) (60,087) (13,524)
From net realized gain on investments and foreign currency
transactions (Class I) (109,502) --
----------- ----------
Total distributions declared to shareholders $ (183,589) $ (23,076)
----------- ----------
Net increase in net assets from Fund share transactions $ 9,200,759 $ 740,281
----------- ----------
Total increase in net assets $ 9,805,528 $ 996,673
Net assets:
At beginning of period 1,474,053 477,380
----------- ----------
At end of period (including accumulated undistributed net
investment income of $13,317 and $10,574, respectively) $11,279,581 $1,474,053
=========== ==========
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
1998 1997 1996*
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 14.82 $ 11.07 $ 10.00
------- ------- -------
Income from investment operations# -
Net investment income(S) $ 0.07 $ 0.22 $ 0.13
Net realized and unrealized gain on investments and
foreign currency transactions 2.07 3.91 0.94
------- ------- -------
Total from investment operations $ 2.14 $ 4.13 $ 1.07
------- ------- -------
Less distributions declared to shareholders -
From net investment income $ (0.14) $ (0.16) $ --
From net realized gain on investments and foreign
currency transactions (1.71) (0.22) --
------- ------- -------
Total distributions declared to shareholders $ (1.85) $ (0.38) $ --
------- ------- -------
Net asset value - end of period $ 15.11 $ 14.82 $ 11.07
======= ======= =======
Total return(+) 15.89%++ 38.05% 10.70%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.50%+ 1.50% 1.50%+
Net investment income 1.07%+ 1.75% 1.83%+
Portfolio turnover 46% 118% 56%
Average commission rate $0.0414 $0.0393 $0.0331
Net assets at end of period (000 omitted) $ 2,980 $ 510 $ 477
*For the period from the commencement of the Fund's investment operations, January 2, 1996, through August 31,
1996.
+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 0.40% 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) $ (0.20) $ 0.02 $ (0.06)
Ratios (to average net assets):
Expenses## 5.62%+ 3.40% 4.67%+
Net investment loss (3.05)%+ (0.15)% (0.78)%+
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights -- continued
- --------------------------------------------------------------------------------
PERIOD ENDED
FEBRUARY 28,
1998*
(UNAUDITED)
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 13.64
-------
Income from investment operations# -
Net investment income(S) $ 0.03
Net realized and unrealized gain on investments and
foreign currency transactions 1.41
-------
Total from investment operations $ 1.44
-------
Net asset value - end of period $ 15.08
=======
Total return 10.51%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 2.15%+
Net investment income 0.46%+
Portfolio turnover 46%
Average commission rate $0.0414
Net assets at end of period (000 omitted) $ 5,810
*For the period from the inception of Class B, November 4, 1997, through
February 28, 1998.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid
indirectly.
(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 0.40% of average daily net
assets. To the extent actual expenses were over/under this limitation, the
net investment loss per share and the ratios would have been:
Net investment loss $ (0.25)
Ratios (to average net assets):
Expenses## 6.20%+
Net investment loss (3.59)%+
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights -- continued
- -----------------------------------------------------------------------------
PERIOD ENDED
FEBRUARY 28,
1998*
(UNAUDITED)
- -----------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 13.60
-------
Income from investment operations# -
Net investment income(S) $ 0.03
Net realized and unrealized gain on investments and
foreign currency transactions 1.44
-------
Total from investment operations $ 1.47
-------
Net asset value - end of period $ 15.07
=======
Total return 10.34%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 2.15%+
Net investment income 0.36%+
Portfolio turnover 46%
Average commission rate $0.0414
Net assets at end of period (000 omitted) $ 1,322
*For the period from the inception of Class C, November 4, 1997, through
February 28, 1998.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid
indirectly.
(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 0.40% of average daily net
assets. To the extent actual expenses were over/under this limitation, the
net investment loss per share and the ratios would have been:
Net investment loss $ (0.26)
Ratios (to average net assets):
Expenses## 6.20%+
Net investment loss (3.69)%+
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights -- continued
- -----------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS PERIOD
ENDED ENDED
FEBRUARY 28, AUGUST 31,
1998 1997**
(UNAUDITED)
- -----------------------------------------------------------------------------------------------
CLASS I
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 14.81 $ 12.20
------- -------
Income from investment operations# -
Net investment income(S) $ 0.06 $ 0.15
Net realized and unrealized gain on investments and foreign
currency transactions 2.11 2.46
------- -------
Total from investment operations $ 2.17 $ 2.61
------- -------
Less distributions declared to shareholders -
From net investment income $ (0.14) $ --
From net realized gain on investments and foreign currency
transactions (1.71) --
------- -------
Total distributions declared to shareholders $ (1.85) $ --
------- -------
Net asset value - end of period $ 15.13 $ 14.81
======= =======
Total return 16.05%++ 21.39%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.15%+ 1.50%+
Net investment income 0.84%+ 1.51%+
Portfolio turnover 46% 118%
Average commission rate $0.0414 $0.0393
Net assets at end of period (000 omitted) $ 1,167 $ 964
**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.
##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 0.40% 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) $ (0.24) $ 0.03
Ratios (to average net assets):
Expenses## 5.55%+ 2.67%+
Net investment income (loss) (3.21)%+ 0.35%+
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Equity Income 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. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations which mature in 60 days or less), including listed
issues, forward contracts, and interest rate swaps, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. Securities
for which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that result from fluctuations in foreign currency exchange rates is not
separately disclosed.
Deferred Organizational Expenses Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of the
Fund's operations.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund will enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized until the
contract settlement date. On contract settlement date the gains or losses are
recorded as realized foreign currency transactions.
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 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 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 a tax earnings and profits, which result in temporary
over-distributions for financial statements 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
the average daily net assets of each class, without distinction between share
classes. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate of
0.75% of average daily net assets.
The Fund 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 of not greater than 0.40% 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 $78,342.
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 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 Trustees are currently not receiving any
payments for the services to the Fund.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$8,575 for the period 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 $220 for the
period ended February 28, 1998. Fees incurred under the distribution plan during
the period 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 $2 and $0 for Class B and Class C shares, respectively, for
the period ended February 28, 1998. Fees incurred under the distribution plan
during the period 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, $459 and $387 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 purchased option transactions and
short-term obligations, aggregated $10,850,281 and $2,022,690, 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 $10,657,918
-----------
Gross unrealized appreciation $ 802,883
Gross unrealized depreciation (25,726)
-----------
Net unrealized appreciation $ 777,157
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Fund permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Class A Shares
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28, 1998 YEAR ENDED AUGUST 31, 1997
---------------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 179,790 $2,562,865 28,321 $ 354,214
Shares issued to shareholders in
reinvestment of distributions 4,879 65,038 1,898 23,074
Shares reacquired (21,946) (307,820) (38,910) (473,850)
------- ---------- ------- ---------
Net increase (decrease) 162,723 $2,320,083 (8,691) $ (96,562)
======= ========== ====== =========
</TABLE>
Class B Shares
PERIOD ENDED FEBRUARY 28, 1998*
-------------------------------
SHARES AMOUNT
- -----------------------------------------------------------------
Shares sold 408,767 $5,806,459
Shares reacquired (23,414) (337,389)
------- ----------
Net increase 385,353 $5,469,070
======= ==========
Class C Shares
PERIOD ENDED FEBRUARY 28, 1998*
-------------------------------
SHARES AMOUNT
- -----------------------------------------------------------------
Shares sold 95,446 $1,360,366
Shares reacquired (7,728) (112,464)
------- ----------
Net increase 87,718 $1,247,902
======= ==========
Class I Shares
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28, 1998 YEAR ENDED AUGUST 31, 1997
---------------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,600 $ 81,846 65,078 $ 836,895
Shares issued to shareholders in
reinvestment of distributions 8,892 118,535 -- --
Shares reacquired (2,398) (36,677) (4) (52)
------- ---------- ------- ---------
Net increase 12,094 $ 163,704 65,074 $ 836,843
======= ========== ======= =========
</TABLE>
*For the period from the inception of Class B and Class C, November 4, 1997,
through February 28, 1998.
(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
period ended February 28, 1998, was $10.
--------------------------------------------
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) EQUITY INCOME FUND
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until
1991), MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Marshall N. Cohan - Private Investor
CUSTODIAN
Lawrence H. Cohn, M.D. - Chief of State Street Bank and Trust Company
Cardiac Surgery, Brigham and Women's
Hospital; Professor of Surgery, Harvard INVESTOR INFORMATION
Medical School For MFS stock and bond market
outlooks, call toll free:
The Hon. Sir J. David Gibbons, KBE - 1-800-637-4458 anytime from a
Chief Executive Officer, Edmund Gibbons touch-tone telephone. For
Ltd. information on MFS mutual funds,
call your financial adviser or, for
Abby M. O'Neill - Private Investor an information kit, call toll free:
1-800-637-2929 any business day from
Walter E. Robb, III - President and 9 a.m. to 5 p.m. Eastern time (or
Treasurer, Benchmark Advisors, Inc. leave a message anytime).
(corporate financial consultants);
President, Benchmark Consulting Group, INVESTOR SERVICE
Inc. (office services) MFS Service Center, Inc.
P.O. Box 2281
Arnold D. Scott* - Senior Executive Vice Boston, MA 02107-9906
President, Director, and Secretary, MFS
Investment Management For general information, call toll
free: 1-800-225-2606 any business
Jeffrey L. Shames* - Chairman, Chief day from 8 a.m. to 8 p.m. Eastern
Executive Officer, and Director, MFS time.
Investment Management
For service to speech- or
J. Dale Sherratt - President, Insight hearing-impaired, call toll free:
Resources, Inc. (acquisition planning 1-800-637-6576 any business day from
specialists) 9 a.m. to 5 p.m. Eastern time. (To
use this service, your phone must be
Ward Smith - Former Chairman (until equipped with a Telecommunications
1994), NACCO Industries (holding Device for the Deaf.)
company)
For share prices, account balances,
INVESTMENT ADVISER and exchanges, call toll free:
Massachusetts Financial Services Company 1-800-MFS-TALK (1-800-637-8255)
500 Boylston anytime from a touch-tone telephone.
Street Boston, MA 02116-3741 World Wide Web www.mfs.com
DISTRIBUTOR
MFS Fund Distributors, Inc. [graphic omitted]
500 Boylston Street For the fourth year in a row, MFS
Boston, MA 02116-3741 earned a #1 ranking in the DALBAR,
Inc. Broker/Dealer Survey, Main
PORTFOLIO MANAGER Office Operations Service Quality
Lisa B. Nurme* Category. The firm achieved a 3.42
overall score on a scale of 1 to 4
TREASURER in the 1997 survey. A total of 111
W. Thomas London* firms responded, offering input on
the quality of service they received
ASSISTANT TREASURERS from 29 mutual fund companies
Mark E. Bradley* nationwide. The survey contained
Ellen Moynihan* questions about service quality in
James O. Yost* 11 categories, including "knowledge
of operations contact," "keeping you
informed," and "ease of doing
business" with the firm.
*Affiliated with the Investment Adviser
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MFS(R) Equity Income 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
MEI-3 4/98 7M 93/293/393/893
