<PAGE>
ANNUAL REPORT FOR
YEAR ENDED
NOVEMBER 30, 1995
[logo] M F S (SM)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) GOLD & NATURAL RESOURCES FUND
Front cover
A photo of computer keyboard.
<PAGE>
MFS(R) GOLD & NATURAL RESOURCES FUND
<TABLE>
<S> <C>
TRUSTEES SECRETARY
A. Keith Brodkin* - Chairman and President Stephen E. Cavan*
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991), ASSISTANT SECRETARY
Massachusetts Financial Services Company; James R. Bordewick, Jr.*
Director, Cambridge Bancorp; Director,
Cambridge Trust Company CUSTODIAN
Marshall N. Cohan - Private Investor State Street Bank and Trust Company
Lawrence H. Cohn, M.D. - Chief of Cardiac
Surgery, Brigham and Women's Hospital; AUDITORS
Professor of Surgery, Harvard Medical School Deloitte & Touche LLP
The Hon. Sir J. David Gibbons, KBE - Chief
Executive Officer, Edmund Gibbons Ltd.; INVESTOR INFORMATION
Chairman, Bank of N.T. Butterfield & Son Ltd. For MFS stock and bond market outlooks,
Abby M. O'Neill - Private Investor; call toll free: 1-800-637-4458 anytime from
Director, Rockefeller Financial Services, Inc. a touch-tone telephone.
(investment adviser) For information on MFS mutual funds,
Walter E. Robb, III - President and Treasurer, call your financial adviser or, for an
Benchmark Advisors, Inc. (corporate financial information kit, call toll free:
consultants); President, Benchmark Consulting 1-800-637-2929 any business day from
Group, Inc. (office services); Trustee, 9 a.m. to 5 p.m. Eastern time (or leave
Landmark Funds (mutual funds) a message anytime).
Arnold D. Scott* - Senior Executive Vice
President, Director and Secretary, INVESTOR SERVICE
Massachusetts Financial Services Company MFS Service Center, Inc.
Jeffrey L. Shames* - President and Director, P.O. Box 2281
Massachusetts Financial Services Company Boston, MA 02107-9906
J. Dale Sherratt - President, Insight Resources, For general information, call toll free:
Inc. (acquisition planning specialists) 1-800-225-2606 any business day from
Ward Smith - Former Chairman (until 1994), 8 a.m. to 8 p.m. Eastern time.
NACCO Industries; Director, Sundstrand For service to speech- or hearing-impaired,
Corporation call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time.
INVESTMENT ADVISER (To use this service, your phone must be
Massachusetts Financial Services Company equipped with a Telecommunications Device for
500 Boylston Street the Deaf.)
Boston, MA 02116-3741 For share prices, account balances and
exchanges, call toll free: 1-800-MFS-TALK
DISTRIBUTOR (1-800-637-8255) anytime from a touch-tone
MFS Fund Distributors, Inc. telephone.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
Constantinos Mokas* ----------------------------------------------------
TOP-RATED SERVICE
TREASURER DALBAR For the second year in a
W. Thomas London* row, MFS earned a
MFS #1 MFS #1 ranking in
ASSISTANT TREASURER DALBAR, Inc.'s
James O. Yost* DALBAR Broker/Dealer Survey,
Main Office Operations
Service Quality category. The firm achieved a 3.49
overall score - on a scale of 1 to 4 - in the 1995
survey. A total of 71 firms responded, offering input
on the quality of service they receive from 36 mutual
fund companies nationwide. The survey contained
questions about service quality in 17 categories,
including "knowledge of phone service contacts,"
"accuracy of transactions processing," and "overall
ease of doing business with the firm."
----------------------------------------------------
</TABLE>
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
For the fiscal year ended November 30, 1995, the Fund's Class A and Class B
shares reported total returns of -2.95% and -3.87%, respectively (including
the reinvestment of distributions but excluding the effects of any sales
charges). This compares to a return of -0.1% for the Financial Times Gold
Mines Index (the Index), an unmanaged index designed to reflect the
performance in international markets of companies engaged primarily in gold
mining.
Economic Outlook
Moderate, but sustainable, growth has been the hallmark of the economic
expansion's fifth year. While initial estimates showed the U.S. economy
growing at an annual rate of 4.2% in the third quarter, this surprisingly
strong growth was mainly driven by a pickup in consumer spending and an
increase in business and government outlays. Although impressive, this growth
rate is not expected to continue in coming months. Recent retail sales have
been disappointing, in part because of rising levels of consumer debt. An
extended period of lower mortgage rates seems to have relieved much of the
pent-up demand for housing. Growth is not expected to get much help from the
manufacturing sector, either, as order flows from manufacturers have
moderated. Export activity, meanwhile, is also expected to remain modest as
continued weakness abroad has limited demand for many U.S. goods. However, the
Federal Reserve Board's consistent and, so far, successful efforts to fight
inflation seem to be giving consumers and businesses enough longer term
confidence to help maintain modest growth in real (adjusted for inflation)
gross domestic product into 1996.
Stock Market
After some volatility late in the third quarter, the stock market continued to
strengthen. Although many companies reported solid third-quarter results,
there was some weakness in the earnings of retail, financial services and even
some technology companies. However, a slowdown in earnings may be a positive
development if it is an indication that the economy is not overheating and
that inflation is under control. While we see a deceleration of corporate
earnings as the inevitable consequence of traditional business cycles, we
remain encouraged by the high absolute level of profitability among U.S.
companies. Also, many companies' increasing emphasis on cost containment and
growing use of technology have helped keep them highly competitive and
reasonably profitable. Looking ahead, we believe that a stabilizing interest
rate environment, coupled with reasonable earnings reports, could justify
current market valuations.
Portfolio Performance and Strategy
During the 12-month period from November 30, 1994 to November 30, 1995, the
Fund and the Index were impacted by dramatically divergent country
performance. Specifically, the North American component of the Index increased
by 16.5%, while Africa and Australia declined by 23% and 3.8%, respectively.
The Fund underperformed the Index because its African weighting, although
underweighted versus the Index, was concentrated in South Africa, where the
Johannesburg Stock Exchange Gold Index underperformed the African component of
the Index. Weakness in Africa was related to labor unrest, which led to lower
production than expected. The strength in North American stocks was driven by
a 1.9% increase in the price of gold and lower production costs.
For the second straight year, gold prices showed little volatility,
reflecting modest inflation. Currently, fundamentals for gold are reasonably
favorable, with increased jewelry demand, especially from China and India. On
the supply side, we believe mine production could decline in 1995 following a
drop in 1994. Production in 1996 should be relatively flat, driven by lower
South African output. The sharp increase in gold-lease rates is a reflection
of the current supply/demand imbalance. Economic characteristics are mixed,
with falling interest rates being offset by modest expectations for inflation.
Reflecting this outlook, the Fund remains fully invested in precious-metal-
related securities.
<PAGE>
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin /s/ Constantinos Mokas
A. Keith Brodkin, Constantinos Mokas,
Chairman and President Portfolio Manager
December 13, 1995
<PAGE>
PORTFOLIO MANAGER PROFILE
A graduate of Dartmouth College and the Amos Tuck School of Business
Administration of Dartmouth College, Constantinos Mokas began his career at
MFS in 1990 as an industry specialist and was named Assistant Vice President
in 1994. He became the Portfolio Manager for MFS Gold & Natural Resources Fund
in December 1994.
OBJECTIVE AND POLICY
The Fund seeks to provide long-term capital appreciation and preservation of
capital. Dividend and interest income from portfolio securities, if any, is
incidental to the Fund's investment objective.
The Fund intends to invest in securities (including common stocks, convertible
debt securities and precious metals and natural resources indexed debt and
equity securities) of companies which are engaged in, or which receive revenue
or income from other companies engaged in: exploring for, developing, pro-
cessing, fabricating, producing, distributing, dealing in or owning gold or
other precious metals, nonprecious metals or minerals or other natural
resources; the development of technologies for the production or use of
natural resources; the furnishing of technology, equipment, supplies or
services to the natural resources industry; or gold mine or other natural
resources finance. The Fund may also invest in gold and other precious metals,
bullion and warrants to purchase such bullion.
TAX FORM SUMMARY
In January 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995.
PERFORMANCE
The information on the following page illustrates the historical performance
of MFS Gold & Natural Resources Fund Class B shares in comparison to various
market indicators. Fund results in the graph do not reflect the deduction of
any contingent deferred sales charge (CDSC) since the CDSC is not applicable
after a six-year period. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. You cannot invest in an index. All results
reflect the reinvestment of all dividends and capital gains.
Please note that effective September 7, 1993, Class A shares were offered.
Information on Class A share performance appears on the next page.
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the Period from August 1, 1988 to November 30, 1995)
Line graph representing the growth of a $10,000 investment for the eight-year
period ended November 30, 1995. The graph is scaled from $5,000 to $30,000 in
$5,000 segments. The years are marked in 12-month segments from 1988 to 1995.
There are three lines drawn to scale. One is a solid line representing MFS Gold
& Natural Resources Fund (Class B), a second line of short dashes represents the
S&P 500, a third line of medium-short dashes represents the Consumer Price
Index.
MFS Gold & Natural Resources Fund (Class B) $ 8,982
S&P 500 $27,956
Consumer Price Index $12,984
AVERAGE ANNUAL TOTAL RETURNS
Life of
Class
through
1 Year 3 Years 5 Years 11/30/95
- ------------------------------------------------------------------------------
MFS Gold & Natural Resources
Fund (Class A)
including 5.75% sales charge - 8.51% -- -- - 1.93%*
- ------------------------------------------------------------------------------
MFS Gold & Natural Resources
Fund (Class A)
at net asset value - 2.95% -- -- + 0.72%*
- ------------------------------------------------------------------------------
MFS Gold & Natural Resources
Fund (Class B)
with CDSC+ - 7.72% + 4.76% + 2.96% - 1.45%++
- ------------------------------------------------------------------------------
MFS Gold & Natural Resources
Fund (Class B)
without CDSC - 3.87% + 5.66% + 3.32% - 1.45%++
- ------------------------------------------------------------------------------
Standard & Poor's 500 Composite
Index(++) +36.93% +15.05% +16.76% +15.05%**
- ------------------------------------------------------------------------------
Consumer Price Index(S) + 2.61% + 2.65% + 2.80% + 3.62%**
- ------------------------------------------------------------------------------
* For the period from the commencement of offering of Class A shares,
September 7, 1993 to November 30, 1995.
+ These returns reflect the applicable Class B CDSC of 4%, 3% and 2% for the
1-, 3- and 5-year periods, respectively, and 0% for the period commencing
August 1, 1988.
++ For the period from the commencement of offering of Class B shares,
August 1, 1988 to November 30, 1995.
(++) The Standard & Poor's 500 Composite Index is a popular, unmanaged index of
common stock performance.
** Benchmark comparisons begin on August 1, 1988.
(S) The Consumer Price Index is a popular measure of change in prices.
All results are historical and, therefore, are not an indication of future
results. The investment return and principal value of an investment in a
mutual fund will vary with changes in market conditions, and shares, when
redeemed, may be worth more or less than their original cost. All Fund results
reflect the applicable expense subsidy which is explained in the Notes to
Financial Statements. Had the subsidy not been in effect, the results would
have been less favorable.
<PAGE>
PORTFOLIO OF INVESTMENTS - November 30, 1995
Common Stocks - 94.0%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
Precious Metals and Minerals - U.S. - 30.5%
Amax Gold, Inc.(+) 185,000 $ 1,179,375
Battle Mountain Gold Co. 120,000 1,065,000
Freeport - McMoRan Copper & Gold, Inc. 40,000 1,080,000
Hecla Mining Co.(+) 90,000 652,500
Homestake Mining Co. 40,000 660,000
Newmont Mining Corp. 55,000 2,371,875
Santa Fe Pacific Gold Co. 60,000 720,000
Stillwater Mining Co.(+) 40,000 685,000
-----------
$ 8,413,750
- -----------------------------------------------------------------------------
Precious Metals and Minerals - Canada - 30.8%
Agnico-Eagle Mines Ltd. 70,000 $ 875,000
Barrick Gold Corp. 80,000 2,110,000
Euro Nevada Mining Corp. Ltd. 40,000 1,486,278
Placer Dome, Inc. 75,000 1,856,250
Southern Africa Minerals Corp.(+) 400,000 294,312
TVX Gold, Inc.(+)* 275,000 1,856,250
-----------
$ 8,478,090
- -----------------------------------------------------------------------------
Precious Metals and Minerals - Australia - 9.4%
Newcrest Mining 150,000 $ 676,228
Nuigini Mining Ltd.(+) 100,000 170,821
Placer Pacific 300,000 641,693
Poseidon Gold Ltd. 300,000 583,762
Western Mining Holding, ADS 75,000 502,994
-----------
$ 2,575,498
- -----------------------------------------------------------------------------
Precious Metals and Minerals - South Africa - 23.3%
Ashanti Goldfields Co.#(+) 32,500 $ 593,125
Driefontein Consolidated, ADR 45,000 472,500
Free State Consolidated Gold Mines Ltd., ADR 100,000 800,000
Hartebeestfontein Gold Mining Co. Ltd., ADR 185,000 462,500
Kloof Gold Mining Ltd., ADR 95,000 908,437
Rustenburg Platinum Holdings Ltd., ADR 15,305 264,011
Vaal Reefs Exploration & Mining Co. Ltd.,
ADR 100,000 656,250
Western Areas Gold Mining Ltd., ADR 100,000 1,625,000
Western Deep Levels Ltd., ADR 20,000 630,000
-----------
$ 6,411,823
- -----------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $27,601,611) $25,879,161
- -----------------------------------------------------------------------------
Short-Term Obligations - 3.2%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
Melville Corp., 5.88%, due 12/01/95, at
Amortized Cost $ 885 $ 885,000
- -----------------------------------------------------------------------------
Total Investments (Identified Cost,
$28,486,611) $26,764,161
Other Assets, Less Liabilities - 2.8% 771,285
=============================================================================
Net Assets - 100.0% $27,535,446
- -----------------------------------------------------------------------------
(+) Non-income producing security.
* Restricted security.
# SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
November 30, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $28,486,611) $26,764,161
Cash 1,591
Receivable for Fund shares sold 970,534
Dividends and interest receivable 18,457
Receivable from investment adviser 64,773
Other assets 475
-----------
Total assets $27,819,991
-----------
Liabilities:
Payable for Fund shares reacquired $ 175,301
Payable to affiliates -
Management fee 554
Shareholder servicing agent fee 151
Distribution fee 9,825
Accrued expenses and other liabilities 98,714
-----------
Total liabilities $ 284,545
-----------
Net assets $27,535,446
===========
Net assets consist of:
Paid-in capital $32,067,047
Unrealized depreciation on investments and translation of
assets
and liabilities in foreign currencies (1,722,456)
Accumulated net realized loss on investments and foreign
currency transactions (2,779,679)
Accumulated net investment loss (29,466)
-----------
Total $27,535,446
===========
Shares of beneficial interest outstanding 5,017,733
===========
Class A shares:
Net asset value and redemption price per share
(net assets of $6,328,189 / 1,131,379 shares of
beneficial interest outstanding) $5.59
=====
Offering price per share (100/94.25) $5.93
=====
Class B shares:
Net asset value and offering price per share
(net assets of $21,207,257 / 3,886,354 shares of
beneficial interest outstanding) $5.46
=====
On sales of $100,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A
and Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended November 30, 1995
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 446,170
Interest 82,455
-----------
Total investment income $ 528,625
-----------
Expenses -
Management fee $ 234,960
Trustees' compensation 41,564
Shareholder servicing agent fee (Class A) 8,174
Shareholder servicing agent fee (Class B) 56,934
Distribution and service fee (Class B) 258,788
Printing 47,979
Auditing fees 33,975
Custodian fee 20,780
Postage 11,911
Legal fees 3,509
Miscellaneous 71,105
-----------
Total expenses $ 789,679
Reduction of expenses by investment adviser (64,773)
-----------
Net expenses $ 724,906
-----------
Net investment loss $ (196,281)
===========
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(1,624,130)
Foreign currency transactions (281)
-----------
Net realized loss on investments and foreign currency
transactions $(1,624,411)
-----------
Change in unrealized appreciation (depreciation) -
Investments $ 417,935
Translation of assets and liabilities in foreign currencies (6)
-----------
Net unrealized gain on investments $ 417,929
-----------
Net realized and unrealized loss on investments and
foreign currency $(1,206,482)
-----------
Decrease in net assets from operations $(1,402,763)
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Year Ended November 30, 1995 1994
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (196,281) $ (257,017)
Net realized loss on investments and foreign
currency transactions (1,624,411) (982,244)
Net unrealized gain (loss) on investments and
foreign
currency translation 417,929 (4,815,973)
------------ ------------
Decrease in net assets from operations $ (1,402,763) $ (6,055,234)
------------ ------------
Distributions declared to shareholders -
From net realized gain on investments and
foreign currency transactions $ -- $ (199,908)
Tax return of capital -- (59,378)
------------ ------------
Total distributions declared to shareholders $ -- $ (259,286)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 70,516,741 $ 77,699,674
Net asset value of shares issued to
shareholders in reinvestment
of distributions -- 231,545
Cost of shares reacquired (73,995,431) (65,177,978)
------------ ------------
Increase (decrease) in net assets from Fund
share transactions $ (3,478,690) $ 12,753,241
------------ ------------
Total increase (decrease) in net assets $ (4,881,453) $ 6,438,721
Net assets:
At beginning of period 32,416,899 25,978,178
------------ ------------
At end of period (including accumulated net
investment loss of $29,466 and $22,892,
respectively) $ 27,535,446 $ 32,416,899
============ ============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------
Year Ended November 30, 1995 1994 1993<F1> 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
Class A Class B
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $ 5.76 $ 6.54 $ 5.55 $ 5.68 $ 6.53 $ 4.67
------ ------ ------ ------ ------ ------
Income from investment
operations<F5> -
Net investment income
(loss)<F6> $ 0.01 $ 0.01 $ 0.01 $(0.04) $(0.06) $(0.02)
Net realized and unrealized
gain (loss) on investments (0.18) (0.73) 0.98 (0.18) (0.73) 1.88
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.17) $(0.72) $ 0.99 $(0.22) $(0.79) $ 1.86
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net realized gain on
investments $ -- $(0.05) $ -- $ -- $(0.05) $ --
Tax return of capital -- (0.01) -- -- (0.01) --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $ -- $(0.06) $ -- $ -- $(0.06) $ --
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 5.59 $ 5.76 $ 6.54 $ 5.46 $ 5.68 $ 6.53
====== ====== ====== ====== ====== ======
Total return<F4> (2.95)% (11.14)% 17.84%<F3> (3.87)% (12.24)% 39.83%
Ratios (to average net assets)/Supplemental data<F6>:
Expenses 1.43% 1.42% 1.43%<F2> 2.50% 2.49% 2.66%
Net investment income (loss) 0.16% 0.14% 0.61%<F2> (0.79)% (0.83)% (0.38)%
Portfolio turnover 33% 142% 188% 33% 142% 188%
Net assets at end of period
(000 omitted) $6,328 $3,695 $1,117 $21,207 $28,722 $24,861
<FN>
<F1> For the period from the commencement of offering of Class A shares, September 7, 1993 to November 30, 1993.
<F2> Annualized.
<F3> Not annualized.
<F4> 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.
<F5> Per share data for the periods subsequent to November 30, 1992 are based on average shares outstanding.
<F6> The investment adviser did not impose a portion of its management fee for the periods indicated. If this fee had been incurred
by the Fund, the net investment income (loss) per share and ratios would have been:
Net investment loss $ -- $(0.02) $ -- $(0.05) $(0.09) $(0.04)
Ratios (to average net assets):
Expenses 1.63% 1.84% 1.93%<F2> 2.71% 2.91% 3.15%
Net investment income (loss) (0.04)% (0.27)% 0.11%<F2> (1.00)% (1.25)% (0.87)%
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Year Ended November 30, 1992 1991 1990 1989 1988<F1>
- ---------------------------------------------------------------------------------------------------
Class B
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $ 4.80 $ 4.68 $ 6.56 $ 5.88 $ 6.16
------ ------ ------ ------ ------
Income from investment
operations -
Net investment income
(loss)(S) $(0.14) $(0.11) $(0.07) $(0.04) $ 0.03
Net realized and
unrealized gain (loss) on
investments 0.01 0.23 (1.81) 0.75 (0.31)
------ ------ ------ ------ ------
Total from investment
operations $(0.13) $ 0.12 $(1.88) $ 0.71 $(0.28)
------ ------ ------ ------ ------
Less distributions declared
to shareholders from net
investment income $ -- $ -- $ -- $(0.03) $ --
------ ------ ------ ------ ------
Net asset value - end of
period $ 4.67 $ 4.80 $ 4.68 $ 6.56 $ 5.88
====== ====== ====== ====== ======
Total return (2.71)% 2.56% (28.66)% 12.06% (13.71)%<F2>
Ratios (to average net assets)/Supplemental data:
Expenses 4.09% 4.11% 3.88% 3.67% 3.00%<F2>
Net investment income
(loss) (2.39)% (2.19)% (2.04)% (1.15)% 0.94%<F2>
Portfolio turnover 189% 135% 114% 92% 12%
Net assets at end of period
(000 omitted) $6,432 $7,056 $7,207 $4,795 $1,778
<FN>
<F1> For the period from the commencement of investment operations, August 1, 1988 to November 30, 1988.
<F2> Annualized.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Gold & Natural Resources Fund (the Fund) is a non-diversified series of
MFS Series Trust II (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
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, 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. Futures contracts, options and options
on futures contracts listed on commodities exchanges are valued at closing
settlement prices. Over-the-counter options are valued by brokers through the
use of a pricing model which takes into account closing bond valuations,
implied volatility and short-term repurchase rates. 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 and income and expenses are converted into
U.S. dollars based upon currency exchange rates prevailing on the respective
dates of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The Fund will enter
into forward contracts for hedging purposes as well as for non-hedging
purposes. For hedging purposes, the Fund may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. It may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded for financial statement purposes as unrealized until
the contract settlement date.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discounts are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. Dividend and interest payments received in additional securities are
recorded on the ex-dividend date in an amount equal to the value of the
security on such date.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
The Fund files a tax return annually using tax accounting methods required
under provisions of the Code which may differ from generally accepted
accounting principles, the basis on which these financial statements are
prepared. Accordingly, the amount of net investment income and net realized
gain reported on these financial statements may differ from that reported on
the Fund's tax return, and consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV. Foreign taxes have been provided
for on interest and dividend income earned on foreign investments in
accordance with the applicable country's tax rates and to the extent
unrecoverable are recorded as a reduction of investment income. Distributions
to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains. During the year ended November 30, 1995, $189,707 and $1,150
were reclassified from accumulated net investment loss and accumulated net
realized loss on investments, respectively, to paid-in capital due to
differences between book and tax accounting for currency transactions. This
change had no effect on the net assets or net asset value per share.
At November 30, 1995, the Fund, for federal income tax purposes, had a capital
loss carryforward of $2,725,073, which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on November 30, 2003 ($1,781,104) and November 30, 2002 ($943,969).
Multiple Classes of Shares of Beneficial Interest - The Fund offers both Class
A and Class B shares. The two classes of shares differ in their respective
shareholder servicing agent, distribution and service fees. All shareholders
bear the common expenses of the Fund pro rata based on average daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. No class has preferential dividend rights;
differences in per share dividend rates are generally due to differences in
separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of average daily net assets. The investment adviser did not impose a portion
of its fee, which is reflected as a reduction of expenses in the Statement of
Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain of the officers
and Trustees of the Fund are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC). The Fund has an
unfunded defined benefit plan for all of its independent Trustees and Mr.
Bailey. Included in Trustees' compensation is a net periodic pension expense
of $7,989 for the year ended November 30, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$3,484 for the year ended November 30, 1995, as its portion of the sales
charge on sales of Class A shares of the Fund. The Trustees have adopted
separate distribution plans for Class A and Class B shares pursuant to Rule
12b-1 of the Investment Company Act of 1940 as follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets
attributable to Class A shares, commissions to dealers and payments to MFD
wholesalers for sales at or above a certain dollar level, and other such
distribution-related expenses that are approved by the Fund. Payments will
commence under the distribution plan on such date that the net assets of the
Fund attributable to Class A shares first equals or exceeds $40 million.
The Class B distribution plan provides that the Fund will pay MFD a monthly
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 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 shares. The
service fee is intended to be additional consideration for services rendered
by the dealer with respect to Class B shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $12,344
for Class B shares for the year ended November 30, 1995. Fees incurred under
the distribution plan during the year ended November 30, 1995 were 1.00% of
average daily net assets attributable to Class B shares on an annualized
basis.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within 12 months following the share purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended November 30, 1995 were $0
and $85,060 for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15% and up to 0.22% attributable to Class A
and Class B shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions and short-term obligations, aggregated
$9,841,830 and $13,047,765, 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 $28,523,114
===========
Gross unrealized depreciation $(4,168,743)
Gross unrealized appreciation 2,409,790
-----------
Net unrealized depreciation $(1,758,953)
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Class A Shares
Year Ended November 1995 1994
30, --------------------------- --------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 5,439,951 $ 31,316,326 2,907,898 $ 19,655,097
Shares issued to
shareholders in
reinvestment of
distributions -- -- 2,239 15,848
Shares reacquired (4,950,704) (28,287,454) (2,438,784) (16,234,794)
--------- ------------ --------- ------------
Net increase 489,247 $ 3,028,872 471,353 $ 3,436,151
========= ============ ========= ============
Class B Shares
Year Ended November 1995 1994
30, --------------------------- --------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 7,007,971 $ 39,200,415 8,675,307 $ 58,044,577
Shares issued to
shareholders in
reinvestment of
distributions -- -- 30,556 215,697
Shares reacquired (8,180,833) (45,707,977) (7,456,173) (48,943,184)
--------- ------------ --------- ------------
Net increase
(decrease) (1,172,862) $ (6,507,562) 1,249,690 $ 9,317,090
=========== ============ =========== ============
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the year ended November
30, 1995 was $381.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options and forward foreign currency
exchange contracts. The notional or contractual amounts of these instruments
represent the investment the Fund has in particular classes of financial
instruments and does not necessarily represent the amounts potentially subject
to risk. The measurement of the risks associated with these instruments is
meaningful only when all related and offsetting transactions are considered.
The Fund did not invest in any such obligations during the year ended November
30, 1995.
(8) Restricted Securities
The Fund may invest not more than 15% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At November 30,
1995, the Fund owned the following restricted securities (constituting 8.90%
of net assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1933 Act). The Fund does not have the right to
demand that such securities be registered. The value of these securities is
determined by valuations supplied by a pricing service or brokers or, if not
available, in good faith by or at the direction of the Trustees. Certain of
these securities may be offered and sold to "qualified institutional buyers"
under Rule 144A of the 1933 Act.
Description Date of Acquisition Shares Cost Value
- ------------------------------------------------------------------------------
Ashanti Goldfields Co. 12/22/94 32,500 $ 698,750 $ 593,125
TVX Gold, Inc. 6/28/93 275,000 2,028,680 1,856,250
----------
$2,449,375
==========
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust II and the Shareholders of
MFS Gold & Natural Resources Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Gold & Natural Resources Fund
(one of the series constituting MFS Series Trust II) as of November 30, 1995,
the related statement of operations for the year then ended, the statement of
changes in net assets for the years ended November 30, 1995 and 1994, and the
financial highlights for each of the years in the eight-year period ended
November 30, 1995. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at November 30, 1995 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Gold & Natural
Resources Fund at November 30, 1995, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 5, 1996
---------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
MFS(R) GOLD &
NATURAL RESOURCES FUND
500 Boylston Street
Boston, MA 02116
[logo]
MFS #1 MFS
[logo] M F S
THE FIRST NAME IN MUTUAL FUNDS
Bulk Rate
U.S. Postage
P A I D
Permit #55638
Boston, MA
MGN-2-1/96/10M 6/206
