<PAGE>
[LOGO] Semiannual Report
THE FIRST NAME IN MUTUAL FUNDS May 31, 1996
MFS(R) VALUE FUND
A PICTURE OF TWO MEN IN A WINDOW.
<PAGE>
MFS(R) VALUE FUND
<TABLE>
<CAPTION>
<S> <C>
TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and President Investors Bank and Trust Company
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991), INVESTOR INFORMATION
Massachusetts Financial Services Company; For MFS stock and bond market outlooks,
Director, Cambridge Bancorp; Director, call toll free: 1-800-637-4458 anytime from
Cambridge Trust Company a touch-tone telephone.
Peter G. Harwood - Private Investor For information on MFS mutual funds,
J. Atwood Ives - Chairman and Chief Executive call your financial adviser or, for an
Officer, Eastern Enterprises information kit, call toll free:
Lawrence T. Perera - Partner, 1-800-637-2929 any business day from
Hemenway & Barnes 9 a.m. to 5 p.m. Eastern time (or leave
William J. Poorvu - Adjunct Professor, a message anytime).
Harvard University Graduate School of
Business Administration INVESTOR SERVICE
Charles W. Schmidt - Private Investor MFS Service Center, Inc.
Arnold D. Scott* - Senior Executive Vice P.O. Box 2281
President, Director and Secretary, Boston, MA 02107-9906
Massachusetts Financial Services Company
Jeffrey L. Shames* - President and Director, For general information, call toll free:
Massachusetts Financial Services Company 1-800-225-2606 any business day from
Elaine R. Smith - Independent Consultant 8 a.m. to 8 p.m. Eastern time.
David B. Stone - Chairman, North American
Management Corp. (investment advisers) For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business
INVESTMENT ADVISER day from 9 a.m. to 5 p.m. Eastern time.
Massachusetts Financial Services Company (To use this service, your phone must be
500 Boylston Street equipped with a Telecommunications Device for
Boston, MA 02116-3741 the Deaf.)
DISTRIBUTOR For share prices, account balances and
MFS Fund Distributors, Inc. exchanges, call toll free: 1-800-MFS-TALK
500 Boylston Street (1-800-637-8255) anytime from a touch-tone
Boston, MA 02116-3741 telephone.
PORTFOLIO MANAGER
John F. Brennan, Jr.* TOP RATED SERVICE
For the second year in a row,
TREASURER [DALBAR MFS earned a #1 ranking in
W. Thomas London* LOGO] DALBAR, Inc.'s Broker/Dealer
Survey, Main Office Operations
ASSISTANT TREASURER Service Quality category. The
James O. Yost* firm achieved a 3.49 overall score - on a
scale of 1 to 4 - in the 1995 survey. A total
SECRETARY of 71 firms responded, offering input on the
Stephen E. Cavan* quality of service they receive from 36
mutual fund companies nationwide. The survey
ASSISTANT SECRETARY contained questions about service quality in
James R. Bordewick, Jr.* 17 categories, including "knowledge of phone
service contracts," "accuracy of transaction
processing," and "overall ease of doing
*Affiliated with the Investment Adviser business with the firm."
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
For the six months ended May 31, 1996, Class A shares of the Fund provided a
total return of 16.28%, while Class B shares had a total return of 15.87%.
Class C shares, which became available on April 1, 1996, had a total return of
6.38%. These returns, which include the reinvestment of distributions but
exclude the effects of any sales charges, compare to an 11.78% return over the
six-month period for the Standard & Poor's 500 Composite Index (the S&P 500),
a popular, unmanaged index of common stock performance. A discussion of the
Fund's performance may be found in the Portfolio Performance and Strategy
section of this letter.
Economic Environment
Real (inflation-adjusted) economic growth in the first quarter of 1996 was
2.3% on an annualized basis, and it appears that second-quarter growth could
be even stronger. Thus, real growth in gross domestic product has started the
year at a rate exceeding our expectations. While we continue to believe that
growth from quarter to quarter will be uneven, it is now our expectation that
growth for all of 1996 could exceed 2.5%. Although individual consumers appear
to be carrying an excessive debt load, the consumer sector itself, which
represents two-thirds of the economy, continues to be impressive as the auto
and housing markets remain resilient. Consumer spending has also been
positively impacted by widespread job growth. At the same time, the economies
of Europe and Japan continue to be in the doldrums, weakening U.S. export
markets while subduing the capital spending plans of American corporations.
Finally, due to the pickup in economic activity and increasing job growth, it
appears that inflation may accelerate slightly this year, and the Federal
Reserve Board is expected to continue its diligent anti-inflationary stance.
Stock Market
While we do not expect the U.S. stock market to match the extraordinary
performance of 1995, we continue to be positive about the equity market this
year. Although we believe the equity market represents fair value at current
levels, the expected slowdown in the growth of corporate earnings and the
increases in interest rates experienced so far this year raise near-term
concerns. Further increases in interest rates and an acceleration of
inflation, coupled with an additional slowdown in corporate earnings growth,
could have a negative effect on the stock market. However, to the extent that
some earnings disappointments are taken as a sign that the economy is not
overheating, this may prove beneficial for the longer-term health of the
equity market. We continue to believe that many of the technology-driven
productivity gains that U.S. companies have made in recent years will continue
to enhance corporate America's competitiveness and profitability. Therefore,
while we have some near-term concerns, we remain quite constructive on the
long-term viability of the equity market.
Portfolio Performance and Strategy
The Fund's overperformance relative to the S&P 500 can be attributed to three
factors: exposure to domestic equities, relative sector weightings, and stock
selection. Our exposure to domestic equities during the past six months
averaged 78% of total net assets, cash averaged 10.5%, and international
equities comprised the remaining 11.5%. Given the strong performance of both
U.S. and international markets over the past six months, our exposure to cash
somewhat impeded performance.
The best-performing sector of the S&P 500 during the past six months was
retailing which advanced 21.1%. The Fund was underweighted in this sector at
about 3% of net assets. However, one of our holdings - Office Depot - showed
significant overperformance gaining 33%.
Industrial goods and services was the second best performing sector, up
17.5%, and the Fund's position of 7.5% of net assets in this sector was
approximately market weighted versus the S&P 500. Our exposure to agriculture-
equipment stocks was particularly rewarding, with both AGCO and Case showing
strong performance during the period.
Gaming and lodging had a very strong period and, given our substantial
overweighting at 12% of net assets, provided strong overperformance. Two of
the Fund's largest holdings, Harrah's Entertainment and Promus Hotel Corp.,
gained significantly, up 35% and 24%, respectively.
Our current outlook remains cautious. While business prospects appear good
and inflation remains low, the recent rise in long-term interest rates,
coupled with strong year-to-date stock market performance, has made it
increasingly difficult to find undervalued U.S. equities.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
[Photo of A. Keith Brodkin, [Photo of John F. Brennan, Jr.,
Chairman and President] Portfolio Manager]
/s/ A. Keith Brodkin /s/ John F. Brennan, Jr.
A. Keith Brodkin John F. Brennan, Jr.
Chairman and President Portfolio Manager
June 10, 1996
PORTFOLIO MANAGER PROFILE
John Brennan has been a member of the MFS investment staff since 1985. A
graduate of the University of Rhode Island and the Stanford University
Graduate School of Business Administration, he began his career at MFS as an
industry specialist and was promoted to Assistant Vice President - Investments
in 1987. In 1988, he was named Vice President - Investments, and in 1995
Senior Vice President - Investments. He became Portfolio Manager of MFS Value
Fund in September 1991.
PERFORMANCE SUMMARY
Because mutual funds like MFS Value Fund are designed for investors with long-
term goals, we have provided cumulative results as well as the average annual
total returns for Class A and Class B shares for the applicable time periods.
Please note that effective April 1, 1996, Class C shares were offered. Class C
shares have no initial sales charge but, along with Class B shares, have
higher annual fees and expenses than Class A shares. Class C shares purchased
on or after April 1, 1996, will be subject to a 1% contingent deferred sales
charge (CDSC) if redeemed within 12 months of purchase.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
Class A Investment Results
(net asset value change including reinvested distributions)
6 Months 1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------
Cumulative Total Return* +16.28% +42.93% +153.38% +278.78%
- ------------------------------------------------------------------------------
Average Annual Total Return* -- +42.93% + 20.44% + 14.24%
- ------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the
most recent calendar quarter as required by the Securities and Exchange
Commission (the SEC), with all distributions reinvested and reflecting the
maximum sales charge of 5.75% on the initial investment for the 1-, 5- and 10-
year periods ended March 31, 1996, were +33.02%, +17.87% and +13.35%,
respectively.
Class B Investment Results
(net asset value change including reinvested distributions)
9/07/93# -
6 Months 1 Year 5/31/96
- ------------------------------------------------------------------------------
Cumulative Total Return## +15.87% +41.78% +67.51%
- ------------------------------------------------------------------------------
Average Annual Total Return## -- +41.78% +20.79%
- ------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the
most recent calendar quarter as required by the SEC, with all distributions
reinvested and reflecting the CDSC of 4% for the 1-year period ended March 31,
1996, and 3% for the period from September 7, 1993# to March 31, 1996, were
+35.93% and +18.24%, respectively.
All results represent past performance and are not an indication of future
results. Investment return and principal value will fluctuate, and shares,
when redeemed, may be worth more or less than their original cost.
# Commencement of offering of this class of shares.
* These results do not include the sales charge. If the charge had been
included, the results would have been lower.
## These results do not include any CDSC. If the charge had been included, the
results would have been lower.
OBJECTIVE AND POLICIES
The Fund's investment objective is to seek capital appreciation. Dividend
income, if any, is incidental to the investment objective.
The Fund's investment policy is to invest primarily in common stocks, but when
relative values make it appear attractive, the Fund may seek appreciation in
other types of securities such as fixed-income securities (which may be
unrated), convertible bonds, convertible preferred stocks and warrants. The
Fund may also hold cash, commercial paper or other forms of debt securities.
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED) - May 31, 1996
Common Stocks - 87.4%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
U.S. Common Stocks - 76.1%
Aerospace - 2.0%
General Dynamics Corp. 66,600 $ 4,104,225
Raytheon Co. 82,400 4,387,800
Rockwell International 20,300 1,162,175
-------------
$ 9,654,200
- -----------------------------------------------------------------------------
Agricultural Products - 2.0%
AGCO Corp. 172,600 $ 5,199,575
Case Corp. 91,300 4,576,412
-------------
$ 9,775,987
- -----------------------------------------------------------------------------
Airlines - 0.7%
Midwest Express Holding Co.* 99,900 $ 3,184,313
- -----------------------------------------------------------------------------
Automotive - 2.1%
General Motors Corp. 74,600 $ 4,112,325
Harvard Industries, Inc., "B"++* 360,000 5,940,000
-------------
$ 10,052,325
- -----------------------------------------------------------------------------
Banks and Credit Companies - 1.7%
Wells Fargo & Co. 33,333 $ 8,033,253
- -----------------------------------------------------------------------------
Business Services - 3.9%
ADT Ltd.* 288,300 $ 5,549,775
ALCO Standard Corp. 213,300 13,331,250
-------------
$ 18,881,025
- -----------------------------------------------------------------------------
Chemicals - 1.5%
AT Plastics, Inc. 109,350 $ 1,107,169
Dexter Corp. 212,700 6,088,537
-------------
$ 7,195,706
- -----------------------------------------------------------------------------
Computer Software - Systems - 3.7%
Adobe Systems, Inc. 185,300 $ 6,879,262
Cerner Corp.* 196,000 4,900,000
Sybase, Inc.* 260,200 6,017,125
-------------
$ 17,796,387
- -----------------------------------------------------------------------------
Consumer Goods and Services - 4.0%
Philip Morris Cos., Inc. 50,000 $ 4,968,750
Revlon, Inc., "A"* 3,000 94,125
Tyco International Ltd. 360,000 14,220,000
-------------
$ 19,282,875
- -----------------------------------------------------------------------------
Defense Electronics - 0.5%
Loral Space & Communications Corp.* 144,700 $ 2,315,200
- -----------------------------------------------------------------------------
Electrical Equipment - 0.8%
Honeywell, Inc. 75,000 $ 3,806,250
- -----------------------------------------------------------------------------
Electronics - 1.8%
Altera Corp.* 39,700 $ 1,920,487
Analog Devices, Inc.* 64,900 1,792,863
LSI Logic Corp.* 154,700 4,815,037
-------------
$ 8,528,387
- -----------------------------------------------------------------------------
Entertainment - 11.0%
American Radio Systems Corp., "A"* 11,300 $ 432,225
Ameristar Casinos, Inc.* 93,700 1,042,412
Argosy Gaming Co.* 191,400 1,507,275
Casino America, Inc.* 146,200 1,370,625
Chancellor Broadcasting Co., "A"* 26,100 668,813
Emmis Broadcasting Corp., "A"* 124,300 5,469,200
Harrah's Entertainment, Inc.* 512,700 17,239,538
Harveys Casino Resorts 100,000 2,150,000
LIN Television Corp.* 262,800 8,409,600
Showboat, Inc. 293,600 8,184,100
Starsight Telecast, Inc.* 95,000 948,509
Viacom, Inc.* 137,400 5,822,325
-------------
$ 53,244,622
- -----------------------------------------------------------------------------
Financial Institutions - 4.6%
Associates First Capital Corp., "A"* 20,500 $ 758,500
Federal Home Loan Mortgage Corp. 93,900 7,758,488
Student Loan Corp. 120,000 4,305,000
Student Loan Marketing Assn. 49,300 3,666,688
Texas Regional Bancshares, "A"* 53,400 1,308,300
Union Planters Corp. 150,000 4,593,750
-------------
$ 22,390,726
- -----------------------------------------------------------------------------
Food and Beverage Products - 2.0%
General Mills Co. 77,500 $ 4,446,562
Interstate Bakeries Corp. 182,600 5,044,325
-------------
$ 9,490,887
- -----------------------------------------------------------------------------
Forest and Paper Products - 2.2%
Fort Howard Corp.* 136,600 $ 2,834,450
Kimberly-Clark Corp. 108,500 7,906,937
-------------
$ 10,741,387
- -----------------------------------------------------------------------------
Insurance - 1.3%
Chartwell Reinsurance Corp. 52,400 $ 1,152,800
Penncorp Financial Group, Inc. 173,200 5,282,600
-------------
$ 6,435,400
- -----------------------------------------------------------------------------
Machinery - 1.3%
Ingersoll Rand Co. 97,300 $ 4,098,762
York International Corp. 42,900 2,268,337
-------------
$ 6,367,099
- -----------------------------------------------------------------------------
Medical and Health Products - 0.6%
Uromed Corp.* 255,600 $ 3,099,150
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 4.1%
Beverly Enterprises, Inc.* 459,900 $ 5,633,775
Pacificare Health Systems, Inc., "B"* 37,500 3,103,125
Regency Health Services, Inc.* 219,800 2,225,475
St. Jude Medical, Inc.* 238,600 9,066,800
-------------
$ 20,029,175
- -----------------------------------------------------------------------------
Oil Services - 0.1%
Trico Marine Services, Inc.* 13,900 $ 309,275
- -----------------------------------------------------------------------------
Oils - 1.5%
Belco Oil & Gas Corp.* 41,200 $ 1,127,850
USX-Marathon Group 144,500 3,160,938
Union Pacific Resources Group, Inc. 115,600 2,976,700
-------------
$ 7,265,488
- -----------------------------------------------------------------------------
Photographic Products - 0.8%
Eastman Kodak Co. 50,000 $ 3,718,750
- -----------------------------------------------------------------------------
Printing and Publishing - 2.6%
Pulitzer Publishing Co. 75,500 $ 4,152,500
Scripps (E.W.) Co., "A" 137,900 6,136,550
Tribune Co. 27,800 2,060,675
-------------
$ 12,349,725
- -----------------------------------------------------------------------------
Railroads - 3.8%
Burlington Northern-Santa Fe 60,800 $ 5,152,800
Wisconsin Central Transportation Corp.* 125,600 13,313,600
-------------
$ 18,466,400
- -----------------------------------------------------------------------------
Restaurants and Lodging - 4.7%
Equity Inns, Inc. 300,000 $ 3,562,500
Felcor Suite Hotels, Inc. 157,800 4,872,075
Promus Hotel Corp.* 323,650 8,900,375
Servico, Inc.* 125,700 1,791,225
Showbiz Pizza Time, Inc.* 223,050 3,568,800
-------------
$ 22,694,975
- -----------------------------------------------------------------------------
Special Products and Services - 1.6%
Gillett Holdings, Inc.* 37,656 $ 922,572
Stanley Works 45,000 2,728,125
Wackenhut Corp., "B" 182,700 4,224,938
-------------
$ 7,875,635
- -----------------------------------------------------------------------------
Stores - 2.1%
Office Depot, Inc.* 205,900 $ 5,276,188
Sears, Roebuck & Co. 91,700 4,665,237
Tyco Toys, Inc. 67,900 364,962
-------------
$ 10,306,387
- -----------------------------------------------------------------------------
Telecommunications - 3.8%
Cabletron Systems, Inc.* 81,400 $ 5,921,850
Cellular Communications International,
Inc.* 100,000 3,400,000
Ericsson (L.M.) Telephone Co., ADR, "B" 313,900 7,239,319
Rogers Cantel Mobile Co., "B"* 71,800 1,723,200
-------------
$ 18,284,369
- -----------------------------------------------------------------------------
Utilities - Electric - 3.3%
CMS Energy Corp. 138,500 $ 3,981,875
Cinergy Corp. 129,100 3,824,587
Illinova Corp. 143,300 3,761,625
Nipsco Industries, Inc. 20,000 745,000
Portland General Electric Corp. 130,800 3,858,600
-------------
$ 16,171,687
- -----------------------------------------------------------------------------
Total U.S. Common Stocks $367,747,045
- -----------------------------------------------------------------------------
Foreign Stocks - 11.3%
Finland - 0.8%
Huhtamaki Oy (Consumer Goods) 115,000 $ 3,874,776
- -----------------------------------------------------------------------------
France - 0.7%
Accor S.A. (Restaurants and Lodging) 24,900 $ 3,602,388
- -----------------------------------------------------------------------------
Hong Kong - 2.6%
Cafe de Coral Group (Restaurants and
Lodging) 10,522,000 $ 3,230,254
Dah Sing Financial (Finance) 1,177,200 3,378,211
Giordano International Ltd. (Clothing) 2,869,000 2,577,510
Wing Hang Bank Ltd. (Finance) 862,500 3,367,114
-------------
$ 12,553,089
- -----------------------------------------------------------------------------
Italy - 1.7%
Olivetti Group (Office Equipment)* 7,086,200 $ 4,449,425
Telecom Italia (Telecommunications) 389,000 833,549
Telecom Italia (Telecommunications) 2,180,300 3,015,573
-------------
$ 8,298,547
- -----------------------------------------------------------------------------
Malaysia - 0.2%
New Straits Times Press, BHD
(Publishing) 166,000 $ 858,104
- -----------------------------------------------------------------------------
Netherlands - 0.1%
Giessen de Noord (Van der), N.V.
(Transportation) 5,100 $ 172,236
- -----------------------------------------------------------------------------
New Zealand - 1.6%
Lion Nathan Ltd. (Food and Beverages) 1,523,100 $ 3,669,148
Sky City Ltd. (Entertainment)* 975,000 4,267,546
-------------
$ 7,936,694
- -----------------------------------------------------------------------------
Philippines - 0.8%
Pilipino Telephone Corp.
(Telecommunications)* 2,500,000 $ 4,015,250
- -----------------------------------------------------------------------------
South Korea - 0.9%
Korea Mobile Telecom
(Telecommunications)* 3,101 $ 4,331,521
- -----------------------------------------------------------------------------
Spain - 0.1%
Cubiertas as Y Mzov (Construction) 2,900 $ 178,538
- -----------------------------------------------------------------------------
Sweden - 0.5%
Nobel Biocare (Medical Supplies) 126,100 $ 2,283,835
- -----------------------------------------------------------------------------
United Kingdom - 1.3%
Kwik-Fit Holdings, PLC (Automobiles) 600,000 $ 2,163,779
PowerGen PLC, ADR (Electricity) 700,000 4,071,620
-------------
$ 6,235,399
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 54,340,377
- -----------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $349,032,679) $ 422,087,422
- -----------------------------------------------------------------------------
Bonds - 0.5%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Continental Airlines, Inc., 11.75s,
1995** $ 3,000 $ 300
Harrah's Jazz Co., 14.25s, 2001 5,250 2,388,750
Wang-Talon, 0s, 2000 1 960
Woodward & Lothrop, Inc., 14.75s, 1995** 500 150,000
- -----------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,949,765) $ 2,540,010
- -----------------------------------------------------------------------------
Short-Term Obligations - 12.9%
- -----------------------------------------------------------------------------
Federal Home Loan Bank, due 6/03/96 - 6/17/96 $10,600 $ 10,556,198
Federal Home Loan Mortgage Corp.,
due 6/03/96 - 6/19/96 20,925 20,871,162
Federal National Mortgage Assn.,
due 6/03/96 - 6/13/96 16,405 16,349,677
Ford Motor Credit Corp., due 6/06/96 6,025 6,013,643
Raytheon Co., due 6/07/96 8,580 8,567,487
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost and Value $ 62,358,167
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $413,340,611) $ 486,985,599
Other Assets, Less Liabilities - (0.8)% (3,994,246)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $ 482,991,353
- -----------------------------------------------------------------------------
* Non-income producing security.
** Non-income producing security - in default.
++ Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- ------------------------------------------------------------------------------
May 31, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value -
Unaffiliated issuers (identified cost, $409,316,068) $481,045,599
Affiliated issuer (identified cost, $4,024,543) 5,940,000
------------
Total investments, at value (identified cost,
$413,340,611) $486,985,599
Cash 15,713
Net receivable for closed forward foreign currency
exchange contracts 7,981
Net receivable for forward foreign currency exchange
contracts purchased 4
Receivable for investments sold 1,009,768
Receivable for Fund shares sold 6,016,599
Interest and dividends receivable 328,688
Other assets 3,185
------------
Total assets $494,367,537
------------
Liabilities:
Payable for investments purchased $ 10,729,918
Payable for Fund shares reacquired 213,858
Net payable for forward foreign currency exchange
contracts sold 77,036
Payable to affiliates -
Management fee 9,873
Shareholder servicing agent fee 2,319
Distribution fee 205,961
Accrued expenses and other liabilities 137,219
------------
Total liabilities $ 11,376,184
------------
Net assets $482,991,353
============
Net assets consist of:
Paid-in capital $378,956,405
Unrealized appreciation on investments and translation of
assets and liabilities in
foreign currencies 73,575,901
Accumulated undistributed net realized gain on investments
and foreign
currency transactions 30,352,737
Accumulated undistributed net investment income 106,310
------------
Total $482,991,353
============
Shares of beneficial interest outstanding 37,093,794
============
Class A shares:
Net asset value per share
(net assets of $339,606,861 / 25,916,510 shares of
beneficial interest outstanding) $13.10
======
Offering price per share (100/94.25) $13.90
======
Class B shares:
Net asset value and offering price per share
(net assets of $135,236,053 / 10,542,586 shares of
beneficial interest outstanding) $12.83
======
Class C shares:
Net asset value and offering price per share
(net assets of $8,148,439 / 634,698 shares of beneficial
interest outstanding) $12.84
======
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 May 31, 1996
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 1,554,483
Interest 1,035,000
Foreign taxes withheld (37,118)
-----------
Total investment income $ 2,552,365
-----------
Expenses -
Management fee $ 1,348,084
Trustees' compensation 14,563
Shareholder servicing agent fee (Class A) 207,964
Shareholder servicing agent fee (Class B) 86,941
Shareholder servicing agent fee (Class C) 826
Distribution and service fee (Class A) 346,616
Distribution and service fee (Class B) 393,823
Distribution and service fee (Class C) 5,509
Custodian fee 80,152
Postage 29,669
Auditing fees 14,478
Printing 6,428
Legal fees 1,232
Miscellaneous 122,118
-----------
Total expenses $ 2,658,403
Fees paid indirectly (17,099)
-----------
Net expenses $ 2,641,304
-----------
Net investment loss $ (88,939)
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $31,755,061
Foreign currency transactions (461,471)
-----------
Net realized gain on investments and foreign currency
transactions $31,293,590
-----------
Change in unrealized appreciation -
Investments $22,122,910
Translation of assets and liabilities in foreign currencies 226,318
-----------
Net unrealized gain on investments $22,349,228
-----------
Net realized and unrealized gain on investments and
foreign currency $53,642,818
-----------
Increase in net assets from operations $53,553,879
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Six Months Ended
May 31, 1996 Year Ended
(Unaudited) November 30, 1995
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (88,939) $ (109,399)
Net realized gain on investments and
foreign currency transactions 31,293,590 25,733,086
Net unrealized gain on investments
and foreign currency translation 22,349,228 45,785,546
------------ ------------
Increase in net assets from
operations $ 53,553,879 $ 71,409,233
------------ ------------
Distributions declared to shareholders -
From net realized gain on investments
and foreign currency transactions
(Class A) $(21,105,160) $(10,491,130)
From net realized gain on investments
and foreign currency transactions
(Class B) (4,429,633) (1,394,622)
------------ ------------
Total distributions declared to
shareholders $(25,534,793) $(11,885,752)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $214,440,354 $112,728,051
Net asset value of shares issued to
shareholders in reinvestment of
distributions 23,865,030 11,168,786
Cost of shares reacquired (56,955,871) (68,776,712)
------------ ------------
Increase in net assets from Fund
share transactions $181,349,513 $ 55,120,125
------------ ------------
Total increase in net assets $209,368,599 $114,643,606
Net assets:
At beginning of period 273,622,754 158,979,148
------------ ------------
At end of period (including
accumulated undistributed net
investment income of $106,310 and
$195,249, respectively) $482,991,353 $273,622,754
============ ============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended November 30,
May 31, 1996 ------------------------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $12.39 $ 9.44 $10.82 $10.17 $ 8.73 $ 7.46
------ ------ ------ ------ ------ ------
Income from investment operations<F3> -
Net investment income
(loss) $ 0.01 $ 0.01 $ (0.01) $ 0.02 $ -- $ 0.14
Net realized and
unrealized gain on
investments and
foreign currency
transactions 1.84 3.64 0.26 1.96 2.03 1.21
------ ------ ------ ------ ------ ------
Total from investment
operations $ 1.85 $ 3.65 $ 0.25 $ 1.98 $ 2.03 $ 1.35
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $ -- $ -- $(0.03) $ -- $(0.07) $(0.08)
From net realized gain
on investments and
foreign currency
transactions (1.14) (0.70) (1.60) (1.33) (0.52) --
------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(1.14) $(0.70) $(1.63) $(1.33) $(0.59) $(0.08)
------ ------ ------ ------ ------ ------
Net asset value - end of
period $13.10 $12.39 $ 9.44 $10.82 $10.17 $ 8.73
====== ====== ====== ====== ====== ======
Total return<F6> 16.28%<F2> 41.67% 1.92% 22.10% 24.60% 18.26%
Ratios (to average net assets)/Supplemental data:
Expenses<F4> 1.31%<F1> 1.35% 1.37% 1.42% 1.53% 1.50%
Net investment income (loss) 0.12%<F1> 0.06% (0.05)% 0.09% -- 1.65%
Portfolio turnover 51% 109% 91% 95% 111% 132%
Average commission rate<F5> $ 0.02 -- -- -- -- --
Net assets at end of period
(000 omitted) $339,607 $227,555 $141,790 $132,207 $112,958 $104,600
<FN>
<F1> Annualized.
<F2> Not annualized.
<F3> Per share data for the periods subsequent to November 30, 1993 is based on average shares outstanding.
<F4> For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees
paid indirectly.
<F5> Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
<F6> Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends
prior to October 1, 1989). If the charge had been included, the results would have been lower.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended May 31,
November 30, -----------------------------------------------------------------------
1990 1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $ 8.99 $10.52 $ 8.70 $ 9.60 $ 9.81 $ 7.59
------ ------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.09 $ 0.33 $ 0.21 $ 0.10 $ 0.04 $ 0.03
Net realized and
unrealized gain
(loss) on investments
and foreign currency
transactions (1.38) 0.17 2.17 (0.86) 1.60 2.79
------ ------ ------ ------ ------ ------
Total from investment
operations $(1.29) $ 0.50 $ 2.38 $(0.76) $ 1.64 $ 2.82
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment
income $(0.11) $(0.34) $(0.17) $(0.03) $(0.04) $(0.04)
From net realized gain
on investments and
foreign currency
transactions (0.05) (1.69) (0.39) (0.11) (1.81) (0.53)
From paid-in capital (0.08) -- -- -- -- (0.03)
Total distributions
declared to shareholders $(0.24) $(2.03) $(0.56) $(0.14) $(1.85) $(0.60)
------ ------ ------ ------ ------ ------
Net asset value - end of
period $ 7.46 $ 8.99 $10.52 $ 8.70 $ 9.60 $ 9.81
====== ====== ====== ====== ====== ======
Total return<F2> (29.48)%<F1> 5.13% 28.47% (7.63)% 17.95% 37.15%
Ratios (to average net assets)/Supplemental data:
Expenses 1.51%<F1> 1.26% 1.41% 1.33% 1.31% 1.39%
Net investment income 2.30%<F1> 3.38% 2.29% 1.12% 0.38% 1.44%
Portfolio turnover 36% 88% 80% 99% 135% 156%
Net assets at end of
period (000 omitted) $100,398 $125,191 $133,219 $116,218 $148,227 $128,135
<FN>
<F1> Annualized.
<F2> Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends
prior to October 1, 1989). If the charge had been included, the results would have been lower. See notes to
financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Year Ended November 30, Ended
May 31, 1996 --------------------------- May 31, 1996<F2>
(Unaudited) 1995 1994 1993<F1> (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
Class B Class C
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $12.15 $ 9.34 $10.79 $10.61 $11.92
------ ------ ------ ------ ------
Income from investment operations<F5> -
Net investment loss $(0.04) $(0.08) $(0.09) $(0.01) $(0.01)
Net realized and unrealized gain on investments and foreign
currency transactions 1.82 3.59 0.27 0.19 0.93
------ ------ ------ ------ ------
Total from investment operations $ 1.78 $ 3.51 $ 0.18 $ 0.18 $ 0.92
------ ------ ------ ------ ------
Less distributions declared to shareholders -
In excess of net investment income
$ -- $ -- $(0.03) $ -- $ --
From net realized gain on investments
and foreign currency transactions (1.10) (0.70) (1.60) -- --
------ ------ ------ ------ ------
Total distributions declared to shareholders
$(1.10) $(0.70) $(1.63) $ -- $ --
------ ------ ------ ------ ------
Net asset value - end of period $12.83 $12.15 $ 9.34 $10.79 $12.84
====== ====== ====== ====== ======
Total return 15.87%<F4> 40.53% 1.15% 1.70% 6.38%<F4>
Ratios (to average net assets)/Supplemental data:
Expenses<F6> 2.15%<F3> 2.17% 2.25% 2.46% 2.28%<F3>
Net investment loss (0.66%)<F3> (0.77)% (0.96)% (1.37)% (0.46%)<F3>
Portfolio turnover 51% 109% 91% 95% 51%
Average commission rate<F7> $ 0.02 -- -- -- $ 0.02
Net assets at end of period (000 omitted) $135,236 $46,068 $17,189 $1,097 $8,148
<FN>
<F1> For the period from the commencement of offering of Class B shares, September 7, 1993 to November 30, 1993.
<F2> For the period from the commencement of offering of Class C shares, April 1, 1996 to May 31, 1996.
<F3> Annualized.
<F4> Not annualized.
<F5> Per share data for the periods subsequent to November 30, 1993 is based on average shares outstanding.
<F6> For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees
paid indirectly.
<F7> Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) Business and Organization
MFS Value Fund (the Fund) is a diversified series of MFS Series Trust VII (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 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 and forward contracts, are valued on the basis of valuations furnished
by dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. 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 discount are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. Dividend 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 custodian bank calculates its fee based on
the Fund's average daily net assets. This fee is reduced according to an
expense offset arrangement with State Street Bank, the dividend disbursing
agent, which provides for partial reimbursement of custody fees based on a
formula developed to measure the value of cash deposited by the Fund with the
custodian and with the dividend disbursing agent. This amount is shown as a
reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of
net investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return, and
consequently, the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on Form
1099-DIV. Foreign taxes have been provided for on interest and dividend income
earned on foreign investments in accordance with the applicable country's tax
rates and to the extent unrecoverable are recorded as a reduction of
investment income. Distributions to shareholders are recorded on the ex-
dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return
of capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B, and Class C shares. The three 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 the
average daily net assets of each class, without distinction between share
classes. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate
of 0.75% of average daily net assets.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain of the officers
and Trustees of the Fund are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC). The Fund has an
unfunded defined benefit plan for all of its independent Trustees and Mr.
Bailey. Included in Trustees' compensation is a net periodic pension expense
of $4,586 for the period ended May 31, 1996.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$219,848 as its portion of the sales charge on sales of Class A shares of the
Fund. The Trustees have adopted separate distribution plans for Class A, Class
B, and Class C shares pursuant to Rule 12b-1 of the Investment Company Act of
1940 as follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets
attributable to Class A shares, commissions to dealers and payments to MFD
wholesalers for sales at or above a certain dollar level, and other such
distribution-related expenses that are approved by the Fund. MFD retains the
service fee for accounts not attributable to a securities dealer which
amounted to $53,156 for the period ended May 31, 1996. Payment of the 0.10%
per annum Class A distribution fee will commence on such date as the Trustees
of the Trust may determine. Fees incurred under the distribution plan during
the period ended May 31, 1996 were 0.25% of average daily net assets
attributable to Class A shares on an annualized basis.
The Class B and Class C distribution plans provide that the Fund will pay MFD
a distribution fee of 0.75% per annum, and a service fee of up to 0.25% per
annum, of the Funds' 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 an 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 $4,028 and
$16 for Class B and Class C shares, respectively, for the period ended May 31,
1996. Fees incurred under the distribution plans during the period ended May
31, 1996 were 1.00% of average daily net assets attributable to Class B and
Class C shares on an annualized basis.
Purchases over $1 million into Class A shares and purchases into retirement
plans are subject to a contingent deferred sales charge in the event of a
shareholder redemption within twelve 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
twelve months of purchases made on or after April 1, 1996. MFD receives all
contingent deferred sales charges. Contingent deferred sales charges imposed
during the period ended May 31, 1996 were $768, $37,456 and $617 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 average daily net assets of each class of shares at an
effective annual rate of up to 0.15%, up to 0.22%, and up to 0.15%
attributable to Class A, Class B, and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
Purchases Sales
- ------------------------------------------------------------------------------
Investments (non-U.S. government securities) $286,427,301 $166,914,604
============ ============
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 $413,340,611
============
Gross unrealized appreciation $ 78,737,471
Gross unrealized depreciation (5,092,483)
------------
Net unrealized appreciation $ 73,644,988
============
(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
Six Months Ended Year Ended
May 31, 1996 November 30, 1995
---------------------------- ----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 9,712,189 $119,242,821 7,410,621 $ 79,382,430
Shares issued to
shareholders in
reinvestment of
distributions 1,738,895 19,945,341 1,133,703 9,953,735
Shares reacquired (3,903,291) (48,033,610) (5,202,592) (54,439,794)
--------- ------------ --------- ------------
Net increase 7,547,793 $ 91,154,552 3,341,732 $ 34,896,371
========= ============ ========= ============
Class B Shares
Six Months Ended Year Ended
May 31, 1996 November 30, 1995
---------------------------- ----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 7,003,009 $ 85,539,785 3,211,010 $ 33,345,621
Shares issued to
shareholders in
reinvestment of
distributions 348,109 3,919,689 139,959 1,215,051
Shares reacquired (600,937) (7,281,543) (1,399,842) (14,336,918)
--------- ------------ --------- ------------
Net increase 6,750,181 $ 82,177,931 1,951,127 $ 20,223,754
========= ============ ========= ============
Class C Shares
Six Months Ended
May 31, 1996*
----------------------------
Shares Amount
- ----------------------------------------------
Shares sold 768,722 $9,657,748
Shares issued to
shareholders in
reinvestment of
distributions -- --
Shares
reacquired (134,024) (1,640,718)
------- ----------
Net increase 634,698 $8,017,030
======= ==========
*For the period from the commencement of offering of Class C shares, April 1,
1996 to May 31, 1996.
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the period ended May 31,
1996 was $1,983.
(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, forward foreign currency
exchange contracts and futures 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. A summary of obligations under these financial
instruments at May 31, 1996, is as follows:
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Net Unrealized
Settlement Date Contracts to In Contracts Appreciation
Deliver/Receive Exchange for at Value (Depreciation)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 8/06/96 ITL 3,264,770,000 $2,067,854 $2,106,037 $(38,183)
8/02/96 SEK 16,642,000 2,438,242 2,477,095 (38,853)
---------- ---------- --------
$4,506,096 $4,583,132 $(77,036)
========== ========== ========
Purchases 6/03/96 HKD 240,383 $ 31,071 $ 31,075 $ 4
========== ========== ========
HKD = Hong Kong Dollars
ITL = Italian Lire
SEK = Swedish Kronor
Forward foreign currency purchases and sales under master netting arrangements
and closed forward foreign currency exchange contracts excluded above amounted
to a net receivable of $7,981 at May 31, 1996.
At May 31, 1996, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
(8) Transactions in Securities of Affiliated Issuers
Affiliated issuers, as defined under the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the period ended May
31, 1996 is set forth below:
</TABLE>
<TABLE>
<CAPTION>
Acquisitions Dispositions Interest
Beginning -------------------- ---------------------- Ending Realized and
Share/Par Share/Par Share/Par Share/Par Gain Dividend Ending
Affiliate Amount Amount Cost Amount Cost Amount (Loss) Income Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Harvard Industries, Inc. 360,000 -- $ -- -- $ -- 360,000 $ -- $ -- $5,940,000
==========
</TABLE>
--------------------------------------------
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) VALUE FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[Graphic omitted: Dalbar logo]
BULK RATE
U.S. POSTAGE
P A I D
PERMIT #55638
BOSTON, MA
[MFS logo]
MFV-3 7/96 40M 23/223/323
