<PAGE>
[LOGO] MFS(SM) Annual Report
INVESTMENT MANAGEMENT for Year Ended
November 30, 1996
MFS(R) VALUE FUND
[GRAPHIC OMITTED]
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AMERICA LEARNS HOW "WE INVENTED THE MUTUAL FUND" (see page 30)
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<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
A Discussion with the Portfolio Manager ................................... 3
Portfolio Manager's Profile ............................................... 5
Fund Facts ................................................................ 6
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 22
Independent Auditors' Report .............................................. 29
MFS Family of Funds(R) .................................................... 32
Trustees and Officers ..................................................... 33
HIGHLIGHTS
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o FOR THE 12 MONTHS ENDED NOVEMBER 30, 1996, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 18.50%, CLASS B SHARES
17.50%, AND CLASS C SHARES, WHICH BECAME AVAILABLE ON APRIL 1, 1996,
7.95%.
o WHILE TECHNOLOGY, FINANCIAL SERVICES, AND ENERGY WERE AMONG THE
TOP-PERFORMING SECTORS IN THE FUND OVER THE PAST YEAR, TWO OF THE LARGER
HOLDINGS, HARRAH'S ENTERTAINMENT AND HARVARD INDUSTRIES, EXPERIENCED
SIGNIFICANT PRICE DECLINES.
o THE FUND'S LARGEST SECTOR IS LEISURE, WITH MAJOR EXPOSURE TO THE LODGING
INDUSTRY AND RADIO/TELEVISION BROADCASTERS.
o OUR OUTLOOK FOR THE EQUITY MARKET IN 1997 IS CAUTIOUS. WHILE INFLATION IS
SUBDUED, LOW UNEMPLOYMENT LEVELS MAY MAKE FURTHER INTEREST RATE REDUCTIONS
DIFFICULT. VALUATION LEVELS, BY ALL HISTORIC MEASURES, ARE FULL, AND
EARNINGS GROWTH HAS DECELERATED.
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<PAGE>
LETTER FROM THE CHAIRMAN
- ----------------------------
[Photo of A. Keith Brodkin]
- ----------------------------
A. Keith Brodkin
Dear Shareholders:
The U.S. economy appears to have settled into a pattern of moderate growth and
inflation -- two factors that we think can be important contributors to a
favorable long-term investment climate. During the first quarter of 1996, real
(inflation-adjusted) economic growth was 2.3% on an annualized basis, followed
by a rate of 4.7% in the second quarter. However, this unexpectedly high level
was followed by a more moderate 2.0% pace during the third quarter. Overall,
real growth in gross domestic product has surpassed our expectations this
year, and we now expect that growth for all of 1996 could exceed 2.5%. While
the consumer appears to be carrying an excessive debt load, this sector, which
represents two-thirds of the economy, provided some support to the automobile
and housing markets through much of the year. Consumer spending has also been
positively impacted by widespread job growth and, more recently, modestly
rising wages. Retail sales, which have been flat for several months, appear to
be improving during the holiday shopping season. The economies of Europe and
Japan, meanwhile, continue to be in the doldrums, weakening U.S. export
markets. Finally, the capital spending plans of American corporations are far
from robust. Thus, while economic growth should continue, we expect some
slackening toward the end of the year.
We believe U.S. equity investors should lower their expectations for 1997.
The expected slowdown in corporate earnings growth and interest rate increases
earlier in the year have raised some near-term concerns, as was seen in July's
stock market correction. 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 in the near
term. 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
equity market's longer-term health. We believe 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.
Finally, as you may notice, this report to shareholders incorporates a number
of changes which we hope you will find informative and useful. Following a
discussion with the Portfolio Manager, we have added new information on the
Fund's holdings, including a chart illustrating the portfolio's concentration in
the types of investments that meet its criteria. Near the back of the report,
telephone numbers and addresses are listed if you would like to contact MFS.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
December 12, 1996
<PAGE>
A DISCUSSION WITH THE PORTFOLIO MANAGER
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[Photo of John F. Brennan, Jr.]
- -------------------------------
John F. Brennan, Jr.
For the 12 months ended November 30, 1996, Class A shares of the Fund provided
a total return of 18.50%, Class B shares 17.50%, and Class C shares, which
became available on April 1, 1996, 7.95%. These returns, which include the
reinvestment of distributions but exclude the effects of any sales charges,
compare to a 27.85% return over the same period for the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock
performance.
Q. WHAT DO YOU THINK WERE SOME OF THE MAJOR REASONS FOR THE FUND'S PERFORMANCE
OVER THE PAST YEAR, JOHN?
A. Technology, financial services, and energy were among the top-performing
sectors over the past year. Relative to the S&P 500, the Fund was
significantly underweighted in energy (3.7% of the Fund versus 10.0% of the
index) and somewhat underweighted in financial services (11.8% versus 15.0%)
and technology (9.6% versus 12.6%). Two large holdings in the portfolio,
Harrah's Entertainment and Harvard Industries, experienced significant price
declines.
The rapid rise of the stock market, particularly the S&P 500, has made it
increasingly difficult to find compelling investments, and our cash position
has risen to 15% of net assets. This higher cash level has also impeded
performance relative to the S&P 500.
Q. HOW WOULD YOU DESCRIBE THE BUSINESS AND ECONOMIC ENVIRONMENT YOU FACED OVER
THE PAST YEAR, PARTICULARLY AS IT RELATES TO THE FUND?
A. Moderate growth and low inflation prevailed throughout 1996. We believe
earnings growth for the S&P 500 is likely to be at less than 5% for all of
1996, while long-term interest rates have increased from 6.0% at the beginning
of the year to 6.4% currently, after peaking at over 7.0% during the third
quarter. While low inflation and interest rates continue to favor financial
services holdings and blue-chip growth companies, we do not believe the stock
market can continue its ascent unless earnings growth accelerates without
igniting inflation, or interest rates decline significantly while earnings
remain solid. Given the higher level of risk, we have positioned the Fund
conservatively.
Q. WE NOTICE THAT LEISURE IS THE LARGEST SECTOR IN THE FUND. WHAT IS IT YOU
LIKE ABOUT THIS SECTOR, AND COULD YOU DISCUSS ANY SUB-GROUPS WITHIN THE
LEISURE SECTOR THAT YOU FIND PARTICULARLY ATTRACTIVE?
A. In the leisure sector, our major exposure is to the lodging industry and
radio/television broadcasters. The lodging industry is experiencing very tight
supply, which is resulting in higher prices and occupancy levels. The
deregulation of the radio and television broadcast industries has precipitated
a major industry consolidation which has improved the revenue and cost
outlooks for these companies.
Q. COULD YOU GIVE US SOME OF YOUR FAVORITE HOLDINGS IN THE LEISURE SECTOR AND
TELL US WHAT YOU THINK MAKES THEM ATTRACTIVE?
A. LIN Television, Harrah's Entertainment, and Promus Hotels are major
holdings in this sector. LIN is a television broadcaster which has shown solid
operating performance in 1996, and we believe it will be a major player in the
ongoing consolidation of that industry. Harrah's Entertainment is a large,
diversified casino operator. While 1996 has not been a good year for its
stock, we believe the company's long-term expansion plan is intact. Promus
Hotels should continue to benefit from the expansion of its lodging brands.
Q. HOWEVER, YOUR LARGEST HOLDING IS NOT A LEISURE COMPANY BUT TYCO
INTERNATIONAL. WHAT MAKES THIS COMPANY ATTRACTIVE TO YOU?
A. Tyco International is a multi-industry company. Its main operations are
fire protection systems and service, flow control products, and health care
supplies. We believe internal growth, new acquisitions, and strong management
incentives should combine to produce earnings growth of 20% to 25% over the
next three to five years. While Tyco has performed well over the past few
years, we believe further earnings growth should result in solid stock price
appreciation.
Q. IN GENERAL, WHAT CHARACTERISTICS OR QUALITIES DO YOU LOOK FOR IN SELECTING
STOCKS FOR THE FUND?
A. Our primary objective is to find companies with good earnings growth,
generally 15% to 20% per year. Management incentive programs are considered a
key factor in determining the likelihood of achieving growth targets. Once an
expected growth rate is determined, our objective is to buy the stock at a
significant discount to its expected fair value. Turnaround candidates and
restructurings are also part of the portfolio, and these investments are
analyzed based on their earnings potential.
Q. CAN YOU TALK ABOUT SOME OTHER STOCKS OR SECTORS THAT PERFORMED AS WELL AS
OR BETTER THAN EXPECTED AND TELL US WHY YOU THINK THEY DID WELL?
A. Both the pharmaceutical and lodging industries performed well last year.
The pharmaceutical industry was aided by strong earnings growth and the
expectation of low inflation and low economic growth, which enhanced valuation
levels. In the lodging industry, supply tightened significantly, which
resulted in higher room prices and stronger occupancy levels.
Q. NOW, COULD YOU TALK ABOUT SOME STOCKS OR SECTORS THAT DID NOT PERFORM AS
WELL AS YOU EXPECTED?
A. Harrah's Entertainment and Harvard Industries performed poorly over the
past year. Harrah's was hurt by competitive pressures in several casino
markets, and Harvard felt the impact of the General Motors strike as well as
cost overruns on several newly launched products. However, we believe the
long-term prospects continue to be good for both companies, and we expect
results to resume a positive trend in 1997.
Q. CAN YOU TELL US ABOUT SOME SECTORS YOU MIGHT BE AVOIDING, AND WHY?
A. We avoided the basic materials sector because we did not feel the prospects
for an economic pickup were good, paricularly with higher interest rates
prevailing for most of the year. However, the recent decline in interest rates
may improve the outlook for this sector in 1997.
Q. AS YOU LOOK AHEAD, WHAT CHANGES DO YOU SEE IN THE OVERALL MARKET OR
ECONOMIC ENVIRONMENT, PARTICULARLY AS IT RELATES TO THE FUND, AND HOW ARE YOU
POSITIONING THE FUND TO TRY AND TAKE ADVANTAGE OF THOSE CHANGES?
A. Our outlook for the equity market in 1997 is cautious. While inflation is
currently subdued, low unemployment levels may make further interest rate
reductions difficult. Valuation levels, by all historic measures, are full,
and earnings growth has decelerated. We are therefore taking a cautious
approach to our investment selections.
Respectfully,
/s/ John F. Brennan, Jr.
John F. Brennan, Jr.
Portfolio Manager
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PORTFOLIO MANAGER'S 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. HE BECAME PORTFOLIO MANAGER OF MFS
VALUE FUND IN 1991.
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<PAGE>
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FUND FACTS
STRATEGY: THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK CAPITAL
APPRECIATION, PRIMARILY BY INVESTING IN COMMON STOCKS.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JUNE 13, 1983
SIZE: $703.6 MILLION NET ASSETS AS OF NOVEMBER 30, 1996
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LARGEST SECTORS
Other .................................. 37.3%
Leisure ................................ 22.3%
Financial Services ..................... 11.8%
Technology ............................. 9.6%
Utilities & Communications ............. 9.5%
Health Care ............................ 9.1%
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TAX FORM SUMMARY
IN JANUARY 1997, SHAREHOLDERS WILL BE MAILED A TAX FORM SUMMARY
REPORTING THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE
CALENDAR YEAR 1996.
THE FUND HAS DESIGNATED $5,678,940 AS A LONG-TERM CAPITAL GAIN
DISTRIBUTION FOR TAX PURPOSES. THIS DISTRIBUTION WAS MADE TO
SHAREHOLDERS OF RECORD AS OF DECEMBER 28, 1995, PAYABLE DECEMBER 29,
1995.
FOR THE YEAR ENDED NOVEMBER 30, 1996, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS-RECEIVED DEDUCTION FOR
CORPORATIONS CAME TO 8.20%.
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<PAGE>
PORTFOLIO CONCENTRATION AS OF NOVEMBER 30, 1996
TOP TEN HOLDINGS
<TABLE>
<S> <C>
TYCO INTERNATIONAL LTD. BE AEROSPACE
Manufacturer of fire protection, packaging, Manufacturer of interior products for commercial
and electronic equipment aircraft
HOST MARRIOTT SYBASE, INC.
Hotel owner/operator On-line software and services company
CELLULAR COMMUNICATIONS INTERNATIONAL ADT LTD.
Cellular telephone company Commercial and residential security company
MCI COMMUNICATIONS CORP. ST. JUDE MEDICAL
Telecommunications company Manufacturer of medical instruments
HARRAH'S ENTERTAINMENT, INC. CABLETRON SYSTEMS
Owner of gaming operations in several states Computer network company
</TABLE>
<PAGE>
PERFORMANCE SUMMARY
The information below and on the following page illustrates the historical
performance of MFS Value Fund Class A shares in comparison to various market
indicators. Class A share results reflect the deduction of the 5.75% maximum
sales charge; benchmark comparisons are unmanaged and do not reflect any fees
or expenses. You cannot invest in an index. All results are historical and
assume the reinvestment of dividends and capital gains.
The performance of Class B and Class C shares will be greater or less than
the line shown, based on differences in loads and fees.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-Year Period Ended November 30, 1996)
MFS Value Fund Consumer S&P 500
Class A Price Index - U.S. Composite Index
-------------- ------------------ ---------------
11/91 $ 9,428 $10,000 $10,000
10/92 11,170 10,290 11,465
10/93 14,579 10,573 13,175
10/94 15,700 10,849 13,677
10/95 19,855 11,154 27,274
11/96 24,539 11,524 23,020
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-Year Period Ended November 30, 1996)
MFS Value Fund Consumer S&P 500
Class A Price Index - U.S. Composite Index
-------------- ------------------ ---------------
11/86 $ 9,429 $10,000 $10,000
11/88 11,804 10,891 11,735
11/90 12,527 12,113 14,808
11/92 18,460 12,856 21,097
11/94 22,968 13,553 23,463
11/96 38,561 14,377 41,017
<PAGE>
PEFORMANCE SUMMARY -- continued
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C>
MFS Value Fund (Class A) including 5.75% sales charge +11.66% +17.27% +19.66% +14.44%
- ------------------------------------------------------------------------------------------------------------------------------
MFS Value Fund (Class A) at net asset value +18.50% +19.61% +21.08% +15.21%
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MFS Value Fund (Class B) with CDSC +13.50% +17.93% +20.24% +14.81%
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MFS Value Fund (Class B) without CDSC +17.50% +18.65% +20.43% +14.81%
- ------------------------------------------------------------------------------------------------------------------------------
MFS Value Fund (Class C) with CDSC +14.66% +18.64% +20.50% +14.84%
- ------------------------------------------------------------------------------------------------------------------------------
MFS Value Fund (Class C) without CDSC +15.66% +18.64% +20.50% +14.84%
- ------------------------------------------------------------------------------------------------------------------------------
Average capital appreciation fund** +18.05% +14.99% +15.37% +12.29%
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Consumer Price Index* + 3.42% + 2.89% + 2.88% + 3.70%
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Standard & Poor's 500 Composite Index** +27.85% +20.88% +18.15% +15.16%
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*The Consumer Price Index is a popular measure of change in prices.
**Source: Lipper Analytical Services.
</TABLE>
Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Class B results, including the contingent deferred sales charge (CDSC),
reflect the applicable CDSC which declines over six years as follows: 4%, 4%,
3%, 3%, 2%, 1%, 0%. Class C shares have no initial sales charge but, along
with Class B shares, have higher annual fees and expenses than Class A shares.
As of April 1, 1996, Class C shares redeemed within 12 months of purchase will
be subject to a 1% CDSC.
Class B and Class C share performance includes the performance of the Fund's
Class A shares for periods prior to the commencement of offering of Class B
shares on September 7, 1993 and of Class C shares on April 1, 1996. Sales
charges and operating expenses for Class A, Class B, and Class C shares
differ. The Class A share performance, which is included within the Class B
and Class C share performance, including the CDSC, has been adjusted to
reflect the CDSC generally applicable to Class B and Class C shares rather
than the initial sales charge generally applicable to Class A shares. Class B
and Class C share performance has not been adjusted, however, to reflect
differences in operating expenses (e.g., Rule 12b-1 fees), which generally are
lower for Class A shares. Fund results reflect any applicable expense
subsidies and waivers, without which the performance results would have been
less favorable. Subsidies and waivers may be rescinded at any time. See the
prospectus for details.
<PAGE>
PORTFOLIO OF INVESTMENTS - November 30, 1996
Stocks - 85.1%
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Issuer Shares Value
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U.S. Stocks - 71.8%
Advertising - 0.9%
Outdoor Systems, Inc.* 257,250 $ 6,527,719
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Aerospace - 2.5%
BE Aerospace, Inc.* 609,400 $ 14,054,288
Raytheon Co. 66,500 3,399,813
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$ 17,454,101
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Agricultural Products - 0.8%
AGCO Corp. 84,060 $ 2,343,173
Case Corp. 56,200 2,950,500
------------
$ 5,293,673
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Automotive - 1.5%
Goodrich (B.F.) Co. 185,700 $ 8,333,288
Harvard Industries, Inc.*++ 378,400 1,892,000
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$ 10,225,288
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Banks and Credit Companies - 1.3%
Wells Fargo & Co. 33,333 $ 9,487,405
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Business Services - 3.2%
ADT Ltd.* 584,900 $ 11,990,450
Alco Standard Corp. 206,900 10,707,075
------------
$ 22,697,525
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Cellular Telephones - 0.9%
Telephone & Data Systems, Inc. 167,200 $ 6,249,100
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Chemicals - 1.2%
Betzdearborn, Inc. 24,653 $ 1,426,792
Dexter Corp. 212,700 6,965,925
------------
$ 8,392,717
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Computer Software - Systems - 3.3%
Adobe Systems, Inc. 145,700 $ 5,755,150
Cerner Corp.* 320,300 4,764,463
Sybase, Inc.* 706,600 12,453,825
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$ 22,973,438
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Consumer Goods and Services - 4.4%
Philip Morris Cos., Inc. 77,400 $ 7,981,875
Tyco International Ltd. 360,000 19,710,000
UST, Inc. 97,070 3,166,909
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$ 30,858,784
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Defense Electronics - 0.4%
Loral Space & Communications Corp.* 141,900 $ 2,625,150
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Electronics - 2.8%
Atmel Corp.* 269,500 $ 8,859,813
Intel Corp. 54,700 6,940,063
Kulicke & Soffa Industries* 72,800 1,474,200
LTX Corp.* 387,100 2,298,406
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$ 19,572,482
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Entertainment - 8.0%
American Radio Systems Corp., "A"* 240,660 $ 6,618,150
Argosy Gaming Corp.* 191,400 1,076,625
Casino America, Inc.* 472,510 1,594,721
Central European Media Enterprises Ltd.* 199,200 5,577,600
Chancellor Broadcast Co., "A"* 42,600 1,235,400
Cox Radio, Inc., "A"* 112,200 1,963,500
EZ Communications, Inc.* 172,700 6,044,500
Emmis Broadcasting Co., "A"* 10,400 357,500
Golden Bear Golf, Inc.* 2,800 38,150
Harrah's Entertainment, Inc.* 878,700 15,596,925
Harveys Casino Resorts 100,000 1,662,500
LIN Television Corp.* 255,900 10,267,988
Showboat, Inc. 175,300 3,264,963
Starsight Telecast, Inc.* 95,000 712,500
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$ 56,011,022
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Financial Institutions - 3.5%
Beneficial Corp. 119,200 $ 7,405,300
Federal Home Loan Mortgage Corp. 75,500 8,625,875
Union Planters Corp. 216,000 8,937,000
------------
$ 24,968,175
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Food and Beverage Products - 1.2%
Earthgrains Co. 38,300 $ 1,982,025
Interstate Bakeries Corp. 146,700 6,619,838
------------
$ 8,601,863
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Forest and Paper Products - 1.0%
Kimberly Clark Corp. 70,100 $ 6,852,275
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Insurance - 3.0%
Chubb Corp. 108,000 $ 5,859,000
Cigna Corp. 15,500 2,191,313
ITT Hartford Group, Inc. 104,400 7,138,350
Penncorp Financial Group, Inc. 173,200 5,953,750
------------
$ 21,142,413
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Machinery - 0.9%
Greenfield Industries, Inc. 2,400 $ 70,200
Stewart & Stevenson Services, Inc. 252,400 6,246,900
------------
$ 6,317,100
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Medical and Health Products - 2.9%
Pharmacia & Upjohn, Inc. 209,300 $ 8,084,213
Rhone-Poulenc Rorer, Inc. 136,300 10,137,313
Uromed Corp.* 255,600 2,332,350
------------
$ 20,553,876
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Medical and Health Technology and Services - 3.7%
Pacificare Health Systems, Inc., "B"* 40,100 $ 3,328,300
Regency Health Services, Inc.* 219,800 2,307,900
St. Jude Medical, Inc. 280,800 11,723,400
United Healthcare Corp. 199,500 8,603,438
------------
$ 25,963,038
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Oil Services - 0.4%
Tidewater, Inc. 64,200 $ 2,808,750
- -----------------------------------------------------------------------------
Oils - 1.7%
Occidental Petroleum Corp. 224,300 $ 5,383,200
Texaco, Inc. 69,600 6,899,100
------------
$ 12,282,300
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Photographic Products - 0.6%
Eastman Kodak Co. 50,000 $ 4,050,000
- -----------------------------------------------------------------------------
Printing and Publishing - 1.9%
Gannett Co. 63,900 $ 5,016,150
Pulitzer Publishing Co. 93,633 4,260,315
Scripps (E.W.) Co. 100,300 3,485,425
Tribune Co. 6,900 596,850
------------
$ 13,358,740
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Railroads - 2.0%
Burlington Northern - Santa Fe 77,900 $ 7,001,263
Wisconsin Central Transportation
Corp.* 174,900 7,127,175
------------
$ 14,128,438
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Restaurants and Lodging - 6.1%
Felcor Suite Hotels, Inc. 98,200 $ 3,498,375
Host Marriott Corp.* 1,087,553 16,585,183
Prime Hospitality Corp.* 615,300 10,229,363
Promus Hotel Corp.* 325,050 10,482,863
Servico, Inc.* 106,500 1,650,750
Showbiz Pizza Time, Inc.* 44,850 734,419
------------
$ 43,180,953
- -----------------------------------------------------------------------------
Special Products and Services - 0.2%
Gillett Holdings, Inc.* 37,656 $ 1,430,928
- -----------------------------------------------------------------------------
Stores - 3.5%
Ann Taylor Stores, Inc.* 245,900 $ 4,979,475
Rite-Aid Corp. 233,300 9,244,548
Sears, Roebuck & Co. 133,700 6,651,575
Talbots, Inc. 139,800 4,036,725
------------
$ 24,912,323
- -----------------------------------------------------------------------------
Supermarkets - 1.4%
Vons Cos., Inc.* 182,500 $ 9,604,063
- -----------------------------------------------------------------------------
Telecommunications - 3.9%
Cabletron Systems, Inc.* 280,600 $ 11,329,225
Cellular Communications
International, Inc.*++ 623,100 16,434,263
------------
$ 27,763,488
- -----------------------------------------------------------------------------
Trucking - 0.4%
Sea Containers Ltd. 199,700 $ 3,095,350
- -----------------------------------------------------------------------------
Utilities - Telephone - 2.3%
MCI Communications Corp. 525,600 $ 16,030,800
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Total U.S. Stocks $505,413,277
- -----------------------------------------------------------------------------
Foreign Stocks - 13.3%
Finland - 0.7%
Huhtamaki Oy Group (Consumer Goods) 115,000 $ 4,984,928
- -----------------------------------------------------------------------------
France - 0.8%
Union des Assurances Federale S.A. (Insurance) 47,900 $ 5,910,750
- -----------------------------------------------------------------------------
Germany - 0.8%
Adidas AG (Sporting Goods) 64,500 $ 5,619,633
- -----------------------------------------------------------------------------
Hong Kong - 1.8%
Cafe de Coral Group (Restaurants) 10,850,000 $ 3,157,350
Giordano International Ltd. (Stores) 4,532,000 3,985,894
Liu Chong Hing Bank Ltd. (Finance) 980,000 1,635,032
Wing Hang Bank Ltd. (Finance) 862,500 3,859,774
------------
$ 12,638,050
- -----------------------------------------------------------------------------
Italy - 0.7%
Fila Holdings S.p.A., ADR (Sporting Goods) 29,000 $ 2,146,000
Olivetti Co., S.p.A. (Office Equipment)* 7,086,200 2,491,508
------------
$ 4,637,508
- -----------------------------------------------------------------------------
Netherlands
Giessen de Noord (Van der), N.V.
(Transportation) 5,100 $ 122,898
- -----------------------------------------------------------------------------
New Zealand - 2.7%
Lion Nathan Ltd. (Beverages) 1,500,900 $ 3,852,810
Sky City Ltd. (Entertainment) 830,950 4,738,926
Tranz-Rail Holdings Ltd., ADR* 577,500 10,322,813
------------
$ 18,914,549
- -----------------------------------------------------------------------------
Philippines - 0.3%
Pilipino Telephone (Telecommunications)* 2,500,000 $ 2,187,500
- -----------------------------------------------------------------------------
South Korea - 1.3%
Korea Electric Power (Utilities - Electric) 118,900 $ 3,801,697
Korea Mobile Telecom (Telecommunications) 5,501 5,502,858
------------
$ 9,304,555
- -----------------------------------------------------------------------------
Spain
Cubiertas Y Mzov (Beverages) 2,900 $ 229,971
- -----------------------------------------------------------------------------
Sweden - 1.3%
Enator AB (Consumer Goods and Services)* 221,300 $ 5,398,923
Nobel Biocare AB (Pharmaceuticals) 197,200 3,373,540
------------
$ 8,772,463
- -----------------------------------------------------------------------------
United Kingdom - 2.9%
British Petroleum PLC, ADR 50,000 $ 6,937,500
Jarvis Hotels Ltd. (Restaurants and Lodging)+ 1,612,600 4,581,074
Kwik-Fit Holdings PLC (Consumer Goods and
Services) 600,000 2,249,100
PowerGen PLC (Utilities - Electric) 700,000 6,824,650
------------
$ 20,592,324
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 93,915,129
- -----------------------------------------------------------------------------
Total Stocks (Identified Cost, $539,762,307) $599,328,406
- -----------------------------------------------------------------------------
Warrants - 0.1%
- -----------------------------------------------------------------------------
Warrants
- -----------------------------------------------------------------------------
Enator AB, Rights (Identified Cost, $0) 221,300 $ 477,344
- -----------------------------------------------------------------------------
Bonds - 0.5%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Continental Airlines, Inc., 11.75s, 1995** $ 3,000 $ 300
Harrah's Jazz Co., 14.25s, 2001** 6,478 3,409,894
Wang-Talon, 0s, 2000 1 990
- -----------------------------------------------------------------------------
Total Bonds (Identified Cost, $2,603,409) $ 3,411,184
- -----------------------------------------------------------------------------
Short-Term Obligations - 13.7%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
Federal Farm Credit Corp., due 12/16/96 $11,555 $ 11,529,867
Federal Home Loan Mortgage Corp.,
due 12/02/96 - 12/27/96 47,725 47,664,193
Federal National Mortgage Assn., due
12/03/96 5,370 5,366,107
General Motors Acceptance Corp., due
12/13/96 9,000 8,984,130
Raytheon Co., due 12/05/96 8,290 8,285,119
Student Loan Marketing Assn., due
12/27/96 9,460 9,424,198
Tennessee Valley Authority, due 12/02/96 5,305 5,304,234
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 96,557,848
- -----------------------------------------------------------------------------
Equity Put Option Purchased - 0.7%
- -----------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Date/Strike Price (000 Omitted)
- -----------------------------------------------------------------------------
Standard & Poor's 500 Index /September
1997/775
(Premiums Paid, $6,394,059) $ 1,253 $ 5,043,325
- -----------------------------------------------------------------------------
Total Investments (Identified Cost,
$645,317,623) $704,818,107
Other Assets, Less Liabilities - (0.1)% (1,174,080)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $703,644,027
- -----------------------------------------------------------------------------
*Non-income producing security.
**Non-income producing security - in default.
##SEC Rule 144A restriction.
+Restricted security.
++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
- ------------------------------------------------------------------------------
November 30, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value -
Unaffiliated issuers (identified cost, $622,732,158) $686,491,844
Affiliated issuers (identified cost, $22,585,465) 18,326,263
-------------
Total investments, at value (identified cost,
$645,317,623) $704,818,107
Cash 9,997
Receivable for Fund shares sold 3,365,300
Receivable for investments sold 18,692,367
Dividends receivable 579,161
Other assets 32,608
------------
Total assets $727,497,540
------------
Liabilities:
Payable for Fund shares reacquired $ 612,761
Payable for investments purchased 22,654,808
Net payable for closed forward foreign currency exchange
contracts sold 3,014
Payable to affiliates -
Management fee 43,355
Shareholder servicing agent fee 10,076
Distribution fee 328,377
Accrued expenses and other liabilities 201,122
------------
Total liabilities $ 23,853,513
------------
Net assets $703,644,027
============
Net assets consist of:
Paid-in capital $581,747,949
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 59,503,413
Accumulated undistributed net realized gain on investments
and foreign currency transactions 61,880,975
Accumulated undistributed net investment income 511,690
------------
Total $703,644,027
============
Shares of beneficial interest outstanding 53,256,200
==========
Class A shares:
Net asset value per share
(net assets of $427,477,519 / 32,032,997 shares of
beneficial interest outstanding) $13.34
======
Offering price per share (100/94.25) $14.15
======
Class B shares:
Net asset value and offering price per share
(net assets of $244,247,133 / 18,772,807 shares of
beneficial interest outstanding) $13.01
======
Class C shares:
Net asset value and offering price per share
(net assets of $31,919,375 / 2,450,396 shares of beneficial
interest outstanding) $13.03
======
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A,
Class B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended November 30, 1996
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 5,094,738
Interest 3,225,148
Foreign taxes withheld (127,360)
-----------
Total investment income $ 8,192,526
-----------
Expenses -
Management fee $ 3,552,972
Trustees' compensation 31,046
Shareholder servicing agent fee (Class A) 487,216
Shareholder servicing agent fee (Class B) 292,776
Shareholder servicing agent fee (Class C) 15,993
Distribution and service fee (Class A) 799,582
Distribution and service fee (Class B) 1,330,028
Distribution and service fee (Class C) 106,620
Custodian fee 212,326
Postage 79,085
Printing 75,976
Auditing fees 33,965
Legal fees 5,322
Miscellaneous 308,332
-----------
Total expenses $ 7,331,239
Fees paid indirectly (70,154)
-----------
Net expenses $ 7,261,085
-----------
Net investment income $ 931,441
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $62,821,828
Foreign currency transactions (615,000)
-----------
Net realized gain on investments and foreign currency
transactions $62,206,828
-----------
Change in unrealized appreciation (depreciation) -
Investments $ 7,978,405
Translation of assets and liabilities in foreign currencies 298,335
-----------
Net unrealized gain on investments and foreign currency
translation $ 8,276,740
-----------
Net realized and unrealized gain on investments and
foreign currency $70,483,568
-----------
Increase in net assets from operations $71,415,009
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended November 30, 1996 1995
- --------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income (loss) $ 931,441 $ (109,399)
Net realized gain on investments and foreign
currency transactions 62,206,828 25,733,086
Net unrealized gain on investments and foreign
currency translation 8,276,740 45,785,546
------------ ------------
Increase in net assets from operations $ 71,415,009 $ 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 $484,011,550 $112,728,051
Net asset value of shares issued to shareholders
in reinvestment of distributions 23,866,258 11,168,786
Cost of shares reacquired (123,736,751) (68,776,712)
------------ ------------
Increase in net assets from Fund share
transactions $384,141,057 $ 55,120,125
------------ ------------
Total increase in net assets $430,021,273 $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
$511,690 and $195,249, respectively) $703,644,027 $273,622,754
============ ============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- -------------------------------------------------------------------------------
Year Ended November 30, 1996 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------
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# -
Net investment
income (loss) $ 0.05 $ 0.01 $ (0.01) $ 0.02 $ -- $ 0.14
Net realized and
unrealized gain
on investments
and foreign
currency
transactions 2.04 3.64 0.26 1.96 2.03 1.21
------ ------ ------ ------ ------ ------
Total from
investment
operations $ 2.09 $ 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 $13.34 $12.39 $ 9.44 $10.82 $10.17 $ 8.73
====== ====== ====== ====== ====== ======
Total return(+) 18.50% 41.67% 1.92% 22.10% 24.60% 18.26%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.32% 1.35% 1.37% 1.42% 1.53% 1.50%
Net investment
income (loss) 0.43% 0.06% (0.05)% 0.09% -- 1.65%
Portfolio turnover 112% 109% 91% 95% 111% 132%
Average commission
rate### $0.0304 -- -- -- -- --
Net assets at end of
period (000 omitted) $427,478 $227,555 $141,790 $132,207 $112,958 $104,600
#Per share data for the periods subsequent to November 30, 1993 is based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(+)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
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- -----------------------------------------------------------------------------
Six Months
Ended Year Ended May 31,
November 30, ----------------------------------
1990 1990 1989 1988 1987
- -----------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------
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
------ ------ ------ ------ ------
Income from investment
operations -
Net investment income $ 0.09 $ 0.33 $ 0.21 $ 0.10 $ 0.04
Net realized and unrealized
gain (loss) on
investments and foreign
currency transactions (1.38) 0.17 2.17 (0.86) 1.60
------ ------ ------ ------ ------
Total from investment
operations $(1.29) $ 0.50 $ 2.38 $(0.76) $ 1.64
------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.11) $(0.34) $(0.17) $(0.03) $(0.04)
From net realized gain on
investments and foreign
currency transactions (0.05) (1.69) (0.39) (0.11) (1.81)
From paid-in capital (0.08) -- -- -- --
------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.24) $(2.03) $(0.56) $(0.14) $(1.85)
------ ------ ------ ------ ------
Net asset value - end of period $ 7.46 $ 8.99 $10.52 $ 8.70 $ 9.60
====== ====== ====== ====== ======
Total return(+) (29.48)%+ 5.13% 28.47% (7.63)% 17.95%
Ratios (to average net assets)/Supplemental data:
Expenses 1.51%+ 1.26% 1.41% 1.33% 1.31%
Net investment income 2.30%+ 3.38% 2.29% 1.12% 0.38%
Portfolio turnover 36% 88% 80% 99% 135%
Net assets at end of period
(000 omitted) $100,398 $125,191 $133,219 $116,218 $148,227
+Annualized.
(+)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
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- -----------------------------------------------------------------------------
Year Ended November 30, 1996 1995 1994 1993* 1996**
- -----------------------------------------------------------------------------
Class B Class 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 $12.00
------ ------ ------ ------ ------
Income from investment
operations# -
Net investment loss $(0.04) $(0.08) $(0.09) $(0.01) $(0.01)
Net realized and
unrealized gain on
investments and foreign
currency transactions 2.00 3.59 0.27 0.19 1.04
------ ------ ------ ------ ------
Total from investment
operations $ 1.96 $ 3.51 $ 0.18 $ 0.18 $ 1.03
------ ------ ------ ------ ------
Less distributions declared
to shareholders -
From net realized gain on
investments and
foreign currency
transactions $(1.10) $(0.70) $(1.60) $ -- $ --
In excess of net
investment income -- -- (0.03) -- --
------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(1.10) $(0.70) $(1.63) $ -- $ --
------ ------ ------ ------ ------
Net asset value - end of
period $13.01 $12.15 $ 9.34 $10.79 $13.03
====== ====== ====== ====== ======
Total return 17.50% 40.53% 1.15% 1.70% 7.95%++
Ratios (to average net assets)/Supplemental data:
Expenses## 2.16% 2.17% 2.25% 2.46%+ 2.11%+
Net investment loss (0.33)% (0.77)% (0.96)% (1.37)%+ (0.17)%+
Portfolio turnover 112% 109% 91% 95% 112%
Average commission rate### $0.0304 -- -- -- $0.0304
Net assets at end of period
(000 omitted) $244,247 $46,068 $17,189 $1,097 $31,919
*For the period from the commencement of offering of Class B shares, September
7, 1993, to November 30, 1993.
**For the period from the commencement of offering of Class C shares, April 1,
1996, to November 30, 1996.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to November 30, 1993 is based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(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. Effective April 1, 1996, the Fund commenced
offering Class C shares.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political and economic
environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are
not available are valued at last quoted bid prices. Debt securities (other
than short-term obligations which mature in 60 days or less), including listed
issues 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.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The Fund will enter
into forward contracts for hedging purposes as well as for non-hedging
purposes. For hedging purposes, the Fund may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. 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 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. During the year ended November 30, 1996, $615,000 was
reclassified to accumulated undistributed net realized gain on investments and
foreign currency transactions from accumulated undistributed net investment
income due to differences between book and tax accounting for foreign currency
transactions. This change had no effect on the net assets or net asset value
per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers 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 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 its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of $9,549
for the year ended November 30, 1996.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$511,805 for the year ended November 30, 1996 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 $1,808 for the year ended November 30, 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 year ended November 30, 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 Fund's average daily net assets attributable to Class B and
Class C shares. MFD will pay to securities dealers that enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class B
and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended
to be additional consideration for services rendered by the dealer with
respect to Class B and Class C shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $165,371
and $8,002 for Class B and Class C shares, respectively, for the year ended
November 30, 1996. Fees incurred under the distribution plans during the year
ended November 30, 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 of Class A shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within 12
months following such purchase. A contingent deferred sales charge is imposed
on shareholder redemptions of Class B shares in the event of a shareholder
redemption within six years of purchase. A contingent deferred sales charge is
imposed on shareholder redemptions of Class C shares in the event of a
shareholder redemption within 12 months of purchases made on or after April 1,
1996. MFD receives all contingent deferred sales charges. Contingent deferred
sales charges imposed during the year ended November 30, 1996 were $139,302,
$13,250 and $317 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 U.S. government securities,
purchased option transactions and short-term obligations, aggregated
$743,865,094 and $465,435,387, 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 $645,324,954
============
Gross unrealized appreciation $ 91,201,745
Gross unrealized depreciation (31,708,592)
------------
Net unrealized appreciation $ 59,493,153
============
(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 30, 1996 1995
------------------------ -----------------------
Shares Amount Shares Amount
- ----------------------- -----------------------------------------------------
Shares sold 19,830,731 $247,848,654 7,410,621 $ 79,382,430
Shares issued to
shareholders in
reinvestment of
distributions 1,739,061 19,947,385 1,133,703 9,953,735
Shares reacquired (7,905,513) (98,473,592) (5,202,592) (54,439,794)
---------- ------------ --------- ------------
Net increase 13,664,279 $169,322,447 3,341,732 $ 34,896,371
========== ============ ========= ============
Class B Shares
Year Ended November 30, 1996 1995
------------------------ -----------------------
Shares Amount Shares Amount
- ---------------------- -----------------------------------------------------
Shares sold 16,436,561 $202,564,032 3,211,010 $ 33,345,621
Shares issued to
shareholders in
reinvestment of
distributions 348,040 3,918,873 139,959 1,215,051
Shares reacquired (1,804,198) (22,222,748) (1,399,842) (14,336,918)
---------- ------------ --------- ------------
Net increase 14,980,403 $184,260,157 1,951,127 $ 20,223,754
========== ============ ========= ============
Class C Shares
Year Ended November 30, 1996
------------------------
Shares Amount
- ---------------------- ------------------------
Shares sold 2,695,641 $33,598,864
Shares issued to
shareholders in
reinvestment of
distributions -- --
Shares reacquired (245,245) (3,040,411)
--------- -----------
Net increase 2,450,396 $30,558,453
========= ===========
(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, 1996 was $5,346.
(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 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 do 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 November 30, 1996
is as follows:
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Contracts Contracts Net Unrealized
Settlement Date to Deliver In Exchange for at Value Depreciation
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 12/12/96 ITL 3,264,770,000 $2,149,719 $2,152,733 $(3,014)
=======
</TABLE>
ITL = Italian Lire
At November 30, 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 year ended November
30, 1996, is set forth below:
Acquisitions
Beginning ------------------- Ending
Share Share Share Ending
Affiliate Amount Amount Cost Amount Value
- --------------------------------------------------------------------------------
Cellular
Communications
International 28,400 594,700 $17,412,388 623,100 $16,434,263
Harvard Industries,
Inc. 360,000 18,400 137,897 378,400 1,892,000
-----------
$18,326,263
===========
(9) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At November 30,
1996, the Fund owned the following restricted security (constituting 0.65% of
net assets) which may not be publicly sold without registration under the
Securities Act of 1933. The Fund does not have the right to demand that such
security be registered. The value of this security is determined by valuations
supplied by a pricing service or brokers.
<TABLE>
<CAPTION>
Share
Description Date of Acquisition Amount Cost Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jarvis Hotels Ltd. 6/21/96 - 8/23/96 1,612,600 $4,219,398 $4,581,074
==========
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust VII and Shareholders of MFS Value Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Value Fund (a separate series
of MFS Series Trust VII) as of November 30, 1996, the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended November 30, 1996 and 1995, and the financial highlights for
each of the years in the eleven-year period ended November 30, 1996. 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, 1996 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Value Fund at
November 30, 1996, 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 3, 1997
--------------------------------------------
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>
<TABLE>
MFS(R) VALUE FUND
<S> <C>
TRUSTEES AUDITORS
A. Keith Brodkin* - Chairman and President Deloitte & Touche LLP
Richard B. Bailey* - Private Investor; INVESTOR INFORMATION
Former Chairman and Director (until 1991), For MFS stock and bond market outlooks,
Massachusetts Financial Services Company; call toll free: 1-800-637-4458 anytime from
Director, Cambridge Bancorp; Director, a touch-tone telephone.
Cambridge Trust Company
For information on MFS mutual funds,
Peter G. Harwood - Private Investor call your financial adviser or, for an
information kit, call toll free:
J. Atwood Ives - Chairman and Chief Executive 1-800-637-2929 any business day from
Officer, Eastern Enterprises 9 a.m. to 5 p.m. Eastern time (or leave
a message anytime).
Laurence T. Perera - Partner, Hemenway &
Barnes INVESTOR SERVICE
MFS Service Center, Inc.
William J. Poorvu - Adjunct Professor, Harvard P.O. Box 2281
University Graduate School of Business Boston, MA 02107-9906
Administration
For general information, call toll free:
Charles W. Schmidt - Private Investor 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
Arnold D. Scott* - Senior Executive Vice
President, Director and Secretary, For service to speech- or hearing-impaired,
Massachusetts Financial Services Company call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time.
Jeffrey L. Shames* - President and Director, (To use this service, your phone must be equipped
Massachusetts Financial Services Company with a Telecommunications Device for the Deaf.)
Elaine R. Smith - Independent Consultant For share prices, account balances, and
exchanges, call toll free: 1-800-MFS-TALK
David B. Stone - Chairman, North American (1-800-637-8255) anytime from a touch-tone
Management Corp. (investment advisers) telephone.
INVESTMENT ADVISER WORLD WIDE WEB
Massachusetts Financial Services Company www.mfs.com
500 Boylston Street
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street ------------------------------------------------
Boston, MA 02116-3741 [DALBAR For the third year in a row,
LOGO] MFS earned a #1 ranking in the
PORTFOLIO MANAGER TOP RATED DALBAR, Inc. Broker/Dealer
John F. Brennan, Jr.* SERVICE Survey, Main Office Operations
Service Quality Category. The
TREASURER firm achieved a 3.48 overall score on a
W. Thomas London* scale of 1 to 4 in the 1996 survey. A total
of 110 firms responded, offering input on the
ASSISTANT TREASURER quality of service they received from 29
James O. Yost* mutual fund companies nationwide. The survey
contained questions about service quality in
SECRETARY 15 categories, including "knowledge of phone
Stephen E. Cavan* service contacts," "accuracy of transaction
processing," and "overall ease of doing
ASSISTANT SECRETARY business with the firm."
James R. Bordewick, Jr.* ------------------------------------------------
CUSTODIAN
Investors Bank & Trust Company
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
MFS(R) VALUE -------------
UND [LOGO: NUMBER 1 DALBAR BULK RATE
TOP-RATED SERVICE] U.S. POSTAGE
PAID
500 Boylston Street PERMIT #55638
Boston, MA 02116 BOSTON, MA
-------------
[LOGO: M F S(SM)]
INVESTMENT MANAGEMENT
WE INVENTED THE MUTUAL FUND(SM)
(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston MA 02116
MVF-2 1/97 67M 23/223/323
