<PAGE>
Annual Report
[LOGO] MFS(SM) for Year Ended
INVESTMENT MANAGEMENT November 30, 1997
MFS(R) VALUE FUND
[Graphic Omitted]
LEARNING FINANCIAL BASICS THE EASY WAY (see page 31)
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
A Discussion with the Portfolio Manager ................................... 2
Portfolio Manager's Profile ............................................... 5
Fund Facts ................................................................ 6
Performance Summary ....................................................... 6
Portfolio Concentration ................................................... 9
Tax Form Summary .......................................................... 9
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 15
Notes to Financial Statements ............................................. 23
Independent Auditors' Report .............................................. 30
The ABCs of Investing ..................................................... 31
The MFS Family of Funds(R) ................................................ 32
Trustees and Officers ..................................................... 33
HIGHLIGHTS
o FOR THE 12 MONTHS ENDED NOVEMBER 30, 1997, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 24.96%, CLASS B SHARES
24.03%, CLASS C SHARES 24.02%, AND CLASS I SHARES 25.12%. (SEE PERFORMANCE
SUMMARY FOR MORE INFORMATION.)
o THE FUND HAS BENEFITED FROM A STRONG BUSINESS ENVIRONMENT, WITH THE
ECONOMY GROWING AT A SUSTAINABLE RATE AND LOW INFLATION DESPITE SOME SIGNS
OF WAGE PRESSURES.
o IN THE HEALTH CARE SECTOR, THE FUND IS EMPHASIZING TWO MAIN AREAS:
PHARMACEUTICAL COMPANIES SUCH AS BRISTOL-MYERS SQUIBB, SANOFI, AND
NOVARTIS, AND RETAILERS SUCH AS RITE AID.
o THE TURMOIL IN EMERGING MARKETS HAD NO SIGNIFICANT IMPACT ON THE FUND, AS
THE FUND HAD LITTLE OR NO EXPOSURE GOING INTO THE CRISIS IN SOUTHEAST
ASIA.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of A. Keith Brodkin]
Dear Shareholders:
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still uncomfortably
high. The rapid pace of growth seen in the first quarter slowed to an annual
rate of 3.3% in the second quarter and 3.5% in the third. We believe economic
momentum will carry well into the first quarter of 1998, as the money supply is
increasing at a rapid rate. Because economic growth continues to be impressive,
markets are likely to continue to focus on the Federal Reserve Board's
willingness to raise interest rates.
The extreme volatility seen in the U.S. equity market in October was, we
believe, the consequence of overvaluations that had been evident for some
months. As a result, the stock market has been vulnerable to some type of
correction and has been impacted in the near term by chaotic market conditions
in the Pacific Rim. In the face of all this, however, the equity market
continues to exhibit surprising strength, much of it the result of continued
gains in corporate earnings, a trend that could be an important indicator of the
market's future direction. Certainly the situation throughout Asia bears close
scrutiny because it appears to be clearly deflationary and raises the prospect
of trade wars developing throughout the area. We are not convinced that U.S.
markets have escaped totally from October's volatility. Thus, while the
near-term outlook for profits is generally favorable, we believe equity
valuations have risen to a point where a cautious investment approach seems
warranted, with a need for particular attention to be paid to the effect of
Pacific Rim volatility on the earnings of U.S. companies.
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 15, 1997
<PAGE>
A DISCUSSION WITH THE PORTFOLIO MANAGER
[Photo of John F. Brennan, Jr.]
John F. Brennan, Jr.
For the 12 months ended November 30, 1997, Class A shares of the Fund provided a
total return of 24.96%, Class B shares 24.03%, Class C shares 24.02%, and Class
I shares 25.12%. These returns assume the reinvestment of distributions but
exclude the effects of any sales charges and compare to a 28.60% return for the
Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index
of common stock total return performance.
Q. WHAT DO YOU SEE AS SOME OF THE MAJOR REASONS FOR THE FUND'S PERFORMANCE
OVER THE PAST YEAR?
A. The Fund's bias toward medium-sized companies, whose valuations we believe
are most attractive, hurt performance relative to the S&P 500. Large-sized
companies performed best over the past year, with the largest 100 companies
in the S&P 500 significantly outperforming the rest of the index. Sector
weightings also had a slightly negative impact on the Fund's relative
performance. The top-performing sectors of the S&P 500 over the past year
were financial services, which advanced 42%; retailing, which was up 40.8%;
and health care, which gained 37%. The Fund was slightly underweighted in
financial services, especially in the banking industry. Retailing was very
significantly overweighted, at more than double the index weighting. The vast
majority of this weighting was in the food and drug segment, which
significantly outperformed the overall retailing sector. In health care, the
Fund was slightly overweighted; however, the drug segment was underweighted
relative to the index and this hurt performance. Stock selection had a
significantly positive impact on the Fund's performance, with four of the top
five holdings recording price appreciation of over 50% for the year.
Q. HOW WOULD YOU DESCRIBE THE BUSINESS AND INVESTMENT ENVIRONMENT OF THE PAST
YEAR?
A. The business environment hasn't been better in a long time. The economy is
growing at a sustainable rate and inflation is low, despite some signs of
wage pressures. U.S. productivity has been better than expected and is
relatively competitive with most developed countries. The wild card going
into next year is the devaluation of many Asian currencies. What impact is
that going to have on the competitive position of the United States versus
some of these emerging markets? It has to hurt, and I believe it will slow
economic growth in 1998. This should help mitigate any wage-related inflation
pressures and, hopefully, extend the low-inflation, moderate- growth economic
scenario we've experienced in the United States over the past several years.
Q. COULD YOU TALK ABOUT THE INVESTMENT PHILOSOPHY AND STRATEGY OF THE FUND,
PARTICULARLY HOW YOU USE THE VALUE APPROACH IN SELECTING STOCKS?
A. The Fund focuses on growth. We try to find good companies that are well
positioned in their markets and buy them when they're trading at reasonable
valuations relative to their growth prospects.
Q. IS IT HARDER TO FIND GOOD VALUES IN A STRONG MARKET LIKE THIS THAN IT WOULD
BE IN A WEAKER OR MORE UNEVEN MARKET?
A. It is, but it also makes you want to emphasize companies with attractive
valuations even more. Right now, for instance, the large-capitalization
segment is somewhat overvalued relative to smaller-cap and mid-cap stocks. So
the Fund has been moving down in market cap a bit.
Q. HEALTH CARE IS ANOTHER LARGE SEGMENT IN THE FUND. COULD YOU TALK ABOUT
THAT?
A. There are two main areas in health care that we're emphasizing. One is the
pharmaceutical sector, and the other is drug store chains. We own Bristol-
Myers Squibb, Sanofi, and Novartis. We think Bristol-Myers is going to see
above-peer growth rates and, because it trades at one of the lowest multiples
in the industry, we think we may see some relative valuation improvement
there. Novartis is a cost-cutting and consolidation story, and Sanofi is a
relatively small French company that is expected to roll out two new products
over the next couple of years, one for the treatment of hypertension and the
other for stroke prevention. In the drug store area, Rite Aid has done well
and its valuation has risen, but it's still trading at a discount to other
major chains so it's relatively undervalued. The company's consolidation of
its acquisition of Thrifty Payless on the West Coast is going well. Managed
care is helping these big chains; it hurts the mom-and-pop stores, but the
chains benefit from the large volume of sales.
Q. WHERE ARE THE HOLDINGS IN FINANCIAL SERVICES CONCENTRATED?
A. On the banking side, Wells Fargo is the biggest position, and although it's
had some problems with the First Interstate merger, we see earnings growth
accelerating. We owned Union Planters earlier in the year, but sold it based
on valuation. Fleet Financial is another bank stock that we think is
undervalued relative to the industry. On the insurance side, we've focused
mainly on asset gatherers such as Reliastar and Lincoln National, as well as
on life insurance companies that are consolidating.
Q. YOU ALSO HAVE ALMOST 12% OF THE FUND IN TECHNOLOGY. WHY DO YOU FIND THIS
SECTOR ATTRACTIVE, AND WHAT KINDS OF COMPANIES ARE YOU BUYING THERE?
A. Earlier in the year we bought Computer Associates and Synopsys, both of which
are attractive long-term growth software companies. We were able to buy them
at pretty significant discounts, but their prices rose relative to their
growth prospects. So we cut back a little on both, although we still hold a
position in each company. Both of these companies exemplify our approach to
technology, as we try to find companies whose near-term problems don't become
long-term ones. Also, in telecommunications, we're focusing on companies such
as Cellular Communications International that we think will benefit from
global cellular telephone expansion.
Q. HAVE YOU SIGNIFICANTLY INCREASED OR DECREASED POSITIONS IN ANY SECTORS THIS
YEAR?
A. We've increased some in retail. I talked about Rite Aid; another retailer is
Fred Meyer, a grocery chain in the Northwest that's benefiting from
consolidation. It bought Smith's Food and Drug, which we owned, and that's
how we ended up with Fred Meyer. We've since added to this position because
we think that the company will continue to grow earnings over the next four
to five years at 20% to 25% per year, and it is attractively valued given
those prospects. We also increased our weighting in health care with the
additions of Sanofi, Novartis, and Bristol-Myers Squibb. The leisure sector
has been greatly reduced because we believe the hotel companies are fairly
valued given the cyclical nature of the business, while we feel radio and
television broadcasters are no longer attractively valued.
Q. HAS THIS FALL'S TURMOIL IN EMERGING MARKETS HAD ANY EFFECT ON THE FUND'S
HOLDINGS OR HOW YOU MANAGE THE FUND?
A. Emerging markets had no significant impact on the portfolio. We had little or
no exposure going into the crisis in Southeast Asia. We are beginning to look
at that area, and we might add some companies, but we haven't done anything
yet.
Q. COULD YOU TALK ABOUT SOME STOCKS THAT HAVE PERFORMED BETTER
THAN EXPECTED?
A. Companies that significantly helped the portfolio were Tyco International,
Fred Meyer, Cellular Communications International, and Rite Aid. I mentioned
the last three already. Tyco has made several major acquisitions this year;
it bought ADT, which was another major holding in the portfolio, and is
already starting to see the benefits of that consolidation. Tyco has also
bought other companies in other sectors, and it's beginning to benefit from
cost and revenue synergies.
Q. AND WHAT ABOUT STOCKS OR SECTORS THAT HAVE NOT PERFORMED AS WELL AS YOU
WOULD HAVE WISHED?
A. Some of the cyclical stocks have underperformed due to concerns about supply
and demand in Southeast Asia. Technology has also weakened recently over
similar concerns.
Q. WHAT KIND OF MARKET OR ECONOMIC ENVIRONMENT DO YOU ANTICIPATE GOING
FORWARD, AND HOW MIGHT THIS AFFECT SOME OF YOUR INVESTMENT DECISIONS FOR
THE FUND?
A. We think the economy is going to see moderate growth in the coming year.
Inflation has the potential to become more of an issue, at least on the labor
side. Industries that are more labor intensive, such as business services,
restaurants, and retail, are probably going to have to face the wage issue,
which could slow some of their earnings momentum. On the flip side, we could
see further pressure on commodity prices. I think it will be more difficult
for U.S. companies to compete with Southeast Asian companies in products like
steel, paper, and forest products because of the potential increase in
supply. Technology, meanwhile, probably won't be as affected as some people
think because labor is such a small percentage of its total costs and because
most of its costs and sales are priced in dollars. Also, the actual
consumption of products like personal computers and cellular phones in
Southeast Asia, not including Japan and China, is probably only about 5% to
10% of the end market. So, while we're looking at more of the same for the
economy overall, it will be important to watch sectors that might be affected
by what's happening in the global economy, especially in Asia.
/s/ John F. Brennan, Jr.
John F. Brennan, Jr.
Portfolio Manager
PORTFOLIO MANAGER'S PROFILE
JOHN F. BRENNAN, JR., JOINED MFS IN 1985 AS AN INDUSTRY SPECIALIST AND WAS
PROMOTED TO ASSISTANT VICE PRESIDENT -- INVESTMENTS IN 1987, VICE PRESIDENT
-- INVESTMENTS IN 1988, AND SENIOR VICE PRESIDENT IN 1995. A GRADUATE OF THE
UNIVERSITY OF RHODE ISLAND AND THE STANFORD UNIVERSITY GRADUATE SCHOOL OF
BUSINESS ADMINISTRATION, HE HAS MANAGED MFS(R) VALUE FUND SINCE SEPTEMBER
1991.
<PAGE>
FUND FACTS
OBJECTIVE: THE INVESTMENT OBJECTIVE OF THE FUND IS TO SEEK
CAPITAL APPRECIATION. DIVIDEND INCOME, IF ANY,
IS A CONSIDERATION INCIDENTAL TO THE FUND'S
OBJECTIVE.
COMMENCEMENT OF INVESTMENT OPERATIONS: JUNE 13, 1983
CLASS INCEPTION: CLASS A JUNE 13, 1983
CLASS B SEPTEMBER 7, 1993
CLASS C APRIL 1, 1996
CLASS I JANUARY 3, 1997
SIZE: $1.1 BILLION NET ASSETS AS OF NOVEMBER 30, 1997
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 performance results reflect the deduction of the 5.75%
maximum sales charge; benchmark comparisons are unmanaged and do not reflect any
fees or expenses. The performance of other share classes will be greater than or
less than the line shown, based on differences in charges and fees paid by
shareholders investing in different classes. It is not possible to invest
directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-year period ended November 30, 1997)
MFS S&P 500 Consumer
Value Fund - Composite Price Index -
Class A Index U.S.
------------ --------- -------------
11/92 $ 9,400 $10,000 $10,000
11/93 11,506 11,010 10,268
11/94 11,727 11,125 10,542
11/95 16,615 15,239 10,813
11/96 19,689 19,485 11,169
11/97 24,603 25,041 11,409
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended November 30, 1997)
MFS S&P 500 Consumer
Value Fund - Composite Price Index -
Class A Index U.S.
------------ --------- -------------
11/87 $ 9,400 $10,000 $10,000
11/89 15,762 16,136 10,904
11/91 16,015 18,745 11,934
11/93 24,361 24,450 12,627
11/95 35,175 33,843 13,298
11/97 52,089 55,611 14,030
AVERAGE ANNUAL TOTAL RETURNS AS OF NOVEMBER 30, 1997
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Value Fund (Class A)
including 5.75% sales charge (SEC results) +17.81% +25.50% +19.73% +17.94%
- ------------------------------------------------------------------------------------------------------------
MFS Value Fund (Class A) at net asset value +24.96% +28.02% +21.15% +18.64%
- ------------------------------------------------------------------------------------------------------------
MFS Value Fund (Class B) with CDSC
(SEC results) +20.03% +26.37% +20.13% +18.23%
- ------------------------------------------------------------------------------------------------------------
MFS Value Fund (Class B) at net asset value +24.03% +26.99% +20.32% +18.23%
- ------------------------------------------------------------------------------------------------------------
MFS Value Fund (Class C) with CDSC
(SEC results) +23.02% +26.67% +20.39% +18.26%
- ------------------------------------------------------------------------------------------------------------
MFS Value Fund (Class C) at net asset value +24.02% +26.67% +20.39% +18.26%
- ------------------------------------------------------------------------------------------------------------
MFS Value Fund (Class I) at net asset value +25.12% +28.07% +21.19% +18.66%
- ------------------------------------------------------------------------------------------------------------
Average capital appreciation fund* +18.03% +21.40% +15.34% +15.15%
- ------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index# +28.60% +31.05% +20.15% +18.72%
- ------------------------------------------------------------------------------------------------------------
Consumer Price Index#+ + 2.15% + 2.67% + 2.67% + 3.44%
- ------------------------------------------------------------------------------------------------------------
* Source: Lipper Analytical Services, Inc.
# Source: CDA/Wiesenberger.
+ The Consumer Price Index is published by the U.S. Bureau of Labor
Statistics and measures the cost of living (inflation).
</TABLE>
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Class A share SEC results include the maximum 5.75% sales charge. Class B share
SEC results reflect the applicable contingent deferred sales charge (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. Class C share purchases are
subject to a 1% CDSC if redeemed within 12 months of purchase. Class I shares
have no sales charge or Rule 12b-1 fees and are only available to certain
institutional investors.
Class B and Class C share results include the performance and the operating
expenses (e.g., Rule 12b-1 fees) of the Fund's Class A shares for periods prior
to the inception of Class B and Class C shares. Because operating expenses
attributable to Class B and Class C shares are higher than those of Class A
shares, Class B and Class C share performance generally would have been lower
than Class A share performance. The Class A share performance included within
the Class B and Class C share SEC performance 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 I share results include the performance and the operating expenses (e.g.,
Rule 12b-1 fees) of the Fund's Class A shares for periods prior to the inception
of Class I shares. Because operating expenses attributable to Class A shares are
greater than those of Class I shares, Class I share performance generally would
have been higher than Class A share performance. The Class A share performance
included within the Class I share performance has been adjusted to reflect the
fact that Class I shares have no initial sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and waivers
may be rescinded at any time. See the prospectus for details.
<PAGE>
PORTFOLIO CONCENTRATION AS OF NOVEMBER 30, 1997
<TABLE>
TOP 10 HOLDINGS (BEGINNING WITH THE LARGEST POSITION IN THE PORTFOLIO)
<S> <C>
TYCO INTERNATIONAL LTD. RITE AID CORP.
Manufacturer of fire protection, packaging, U.S. drug store chain
and electronic equipment
SANOFI
FRED MEYER, INC. French pharmaceutical company
Northwestern U.S. supermarket chain
CANADIAN NATIONAL RAILWAY CO.
AMERICAN RADIO SYSTEMS CORP. Canadian railway/transportation company
Radio broadcasting company
ALCATEL ALSTHOM
CELLULAR COMMUNICATIONS INTERNATIONAL French telecommunications equipment company
Cellular telephone company
BRISTOL-MYERS SQUIBB CO.
UNITED HEALTHCARE CORP. U.S. pharmaceutical company
Health maintenance organization
</TABLE>
LARGEST SECTORS
Other Sectors 38.8%
Miscellaneous
(Conglomerates, special products/services) 12.9%
Leisure 12.8%
Health Care 12.2%
Technology 11.7%
Retailing 11.6%
For a more complete breakdown, refer to the Portfolio of Investments.
TAX FORM SUMMARY
IN JANUARY 1998, SHAREHOLDERS WILL BE MAILED A TAX FORM SUMMARY
REPORTING THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE
CALENDAR YEAR 1997.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
THE FUND HAS DESIGNATED $22,678,473 AS A LONG-TERM CAPITAL GAIN.
DIVIDENDS-RECEIVED DEDUCTION
FOR THE YEAR ENDED NOVEMBER 30, 1997, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS-RECEIVED DEDUCTION FOR
CORPORATIONS WAS 5.5%.
<PAGE>
PORTFOLIO OF INVESTMENTS - November 30, 1997
<TABLE>
Stocks - 87.3%
<CAPTION>
- ------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 71.6%
Aerospace - 2.7%
Allied Signal, Inc. 110,537 $ 4,103,686
Howmet International, Inc.* 184,400 2,812,100
Raytheon Co. 220,800 12,351,000
Thiokol Corp. 133,304 11,014,243
--------------
$ 30,281,029
- ------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 2.5%
Fleet/Norstar Financial Group, Inc. 223,071 $ 14,736,628
Wells Fargo & Co. 42,736 13,130,636
--------------
$ 27,867,264
- ------------------------------------------------------------------------------------------------------
Building - 0.3%
Newport News Shipbuilding, Inc. 154,200 $ 3,739,350
- ------------------------------------------------------------------------------------------------------
Business Services - 1.4%
Galieo International, Inc. 218,700 $ 5,863,894
Temple-Inland, Inc. 179,917 10,277,759
--------------
$ 16,141,653
- ------------------------------------------------------------------------------------------------------
Chemicals - 1.8%
Cambrex Corp. 130,103 $ 5,903,424
Ferro Corp. 155,729 5,966,367
NL Industries, Inc.* 477,527 7,729,968
--------------
$ 19,599,759
- ------------------------------------------------------------------------------------------------------
Computer Software - Systems - 4.8%
Adobe Systems, Inc. 305,677 $ 12,838,434
Compaq Computer Corp.* 316,228 19,744,486
Computer Associates International, Inc. 155,627 8,102,304
Siebel Systems, Inc.* 1 13
Synopsys, Inc.* 204,780 8,421,578
Viewlogic Systems, Inc.* 165,873 4,416,369
--------------
$ 53,523,184
- ------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 11.7%
Philip Morris Cos., Inc. 376,940 $ 16,396,890
Tyco International Ltd. 2,918,428 114,548,299
--------------
$ 130,945,189
- ------------------------------------------------------------------------------------------------------
Containers - 1.6%
Jefferson Smurfit Corp.* 468,685 $ 7,733,303
Stone Container Corp.* 817,093 10,213,663
--------------
$ 17,946,966
- ------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1%
Belden, Inc. 44,283 $ 1,466,874
- ------------------------------------------------------------------------------------------------------
Electronics - 2.2%
Analog Devices, Inc.* 405,410 $ 12,719,739
Teradyne, Inc.* 374,127 12,276,042
--------------
$ 24,995,781
- ------------------------------------------------------------------------------------------------------
Entertainment - 7.2%
American Radio Systems Corp., "A"* 1,055,369 $ 52,504,608
Casino America, Inc.* 502,410 1,444,429
Harrah's Entertainment, Inc.* 753,085 15,108,768
Hearst-Argyle Television, Inc.* 65,000 1,901,250
LIN Television Corp.* 89,512 4,800,081
Telemundo Group, Inc.* 115,658 4,792,578
--------------
$ 80,551,714
- ------------------------------------------------------------------------------------------------------
Financial Institutions - 0.6%
Federal Home Loan Mortgage Corp. 168,285 $ 6,941,756
- ------------------------------------------------------------------------------------------------------
Insurance - 5.7%
CIGNA Corp. 62,839 $ 10,509,823
Hartford Financial Services Group, Inc. 130,738 10,949,308
Lincoln National Corp. 186,924 13,341,700
PennCorp Financial Group, Inc. 409,168 13,834,993
Reliastar Financial Corp. 398,617 14,748,829
--------------
$ 63,384,653
- ------------------------------------------------------------------------------------------------------
Medical and Health Products - 1.5%
Bristol-Myers Squibb Co. 179,500 $ 16,805,688
- ------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 5.7%
AmeriSource Health Corp., "A"* 168,649 $ 10,920,023
Integrated Health Services, Inc. 319,352 9,720,277
Tenet Healthcare Corp.* 437,174 13,852,951
United Healthcare Corp. 558,843 29,094,764
--------------
$ 63,588,015
- ------------------------------------------------------------------------------------------------------
Oils - 2.2%
Enron Oil & Gas Co. 580,104 $ 11,058,233
Texaco, Inc. 240,818 13,606,217
--------------
$ 24,664,450
- ------------------------------------------------------------------------------------------------------
Pollution Control - 0.8%
Waste Management, Inc. 368,882 $ 9,083,719
- ------------------------------------------------------------------------------------------------------
Railroads - 0.9%
Wisconsin Central Transportation Corp.* 341,520 $ 10,288,290
- ------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 3.3%
Hilton Hotels Corp. 185,315 $ 5,767,929
ITT Corp.* 166,934 12,666,117
Outback Steakhouse, Inc.* 108,400 3,245,225
Promus Hotel Corp.* 355,790 14,765,285
--------------
$ 36,444,556
- ------------------------------------------------------------------------------------------------------
Stores - 3.4%
Arbor Drugs, Inc. 155,103 $ 4,207,169
Gymboree Corp.* 96,300 2,780,662
Office Depot, Inc.* 122,500 2,894,063
Rite Aid Corp. 428,437 28,169,733
--------------
$ 38,051,627
- ------------------------------------------------------------------------------------------------------
Supermarkets - 6.7%
Fred Meyer, Inc.* 1,862,965 $ 63,107,934
Safeway, Inc.* 195,161 11,856,000
--------------
$ 74,963,934
- ------------------------------------------------------------------------------------------------------
Telecommunications - 3.8%
Ascend Communications, Inc.* 108,200 $ 2,698,237
Cellular Communications International* 811,278 35,290,593
Granite Broadcasting Corp.* 408,187 3,877,777
--------------
$ 41,866,607
- ------------------------------------------------------------------------------------------------------
Utilities - Telephone - 0.7%
Sprint Corp. 126,284 $ 7,395,507
- ------------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 800,537,565
- ------------------------------------------------------------------------------------------------------
Foreign Stocks - 15.7%
Canada - 2.2%
Canadian National Railway Co. (Railroads) 481,467 $ 24,885,826
- ------------------------------------------------------------------------------------------------------
France - 4.8%
Alcatel Alsthom (Telecommunications) 169,201 $ 21,209,227
Alcatel Alsthom, ADR (Telecommunications) 193,173 4,781,032
Sanofi (Medical and Health Products) 274,200 27,450,189
--------------
$ 53,440,448
- ------------------------------------------------------------------------------------------------------
Germany - 1.5%
Henkel Kgaa (Chemicals) 192,220 $ 11,812,150
Wella AG (Cosmetics) 7,100 5,091,553
--------------
$ 16,903,703
- ------------------------------------------------------------------------------------------------------
Hong Kong - 0.4%
Cafe De Coral Holding Co. (Restaurants) 10,850,000 $ 2,048,480
Wing Hang Bank Ltd. (Banks and Credit Companies) 869,000 2,265,222
--------------
$ 4,313,702
- ------------------------------------------------------------------------------------------------------
Italy - 1.0%
Telecom Italia S.p.A. (Telecommunications)* 2,921,800 $ 11,515,983
- ------------------------------------------------------------------------------------------------------
Japan - 0.6%
Sony Corp. (Electronics) 79,500 $ 6,790,079
- ------------------------------------------------------------------------------------------------------
Netherlands - 1.3%
Akzo Nobel N.V. (Chemicals) 46,147 $ 8,117,636
Benckiser (Consumer Goods and Services)* 164,700 5,784,462
--------------
$ 13,902,098
- ------------------------------------------------------------------------------------------------------
Portugal - 0.4%
Banco Totta E Acores (Banks and Credit Companies) 262,799 $ 4,960,384
- ------------------------------------------------------------------------------------------------------
Singapore - 0.2%
Mandarin Oriental International Ltd. (Restaurants
and Lodging)* 2,813,988 $ 1,969,792
- ------------------------------------------------------------------------------------------------------
South Korea - 0.1%
SK Telecommunications (Telecommunications) 4,666 $ 1,316,614
- ------------------------------------------------------------------------------------------------------
Sweden - 0.7%
Sparbanken Sverige AB, "A" (Banks and Credit
Companies) 294,276 $ 7,487,882
- ------------------------------------------------------------------------------------------------------
Switzerland - 1.0%
Novartis AG (Pharmaceuticals) 6,839 $ 10,925,134
- ------------------------------------------------------------------------------------------------------
United Kingdom - 1.5%
British Petroleum PLC, ADR (Oils) 169,495 $ 14,068,085
Corporate Services Group PLC (Business Services) 380,527 1,326,517
PowerGen PLC (Utilities - Electric)* 122,795 1,580,949
--------------
$ 16,975,551
- ------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 175,387,196
- ------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $828,403,443) $ 975,924,761
- ------------------------------------------------------------------------------------------------------
Short-Term Obligations - 12.9%
- ------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- ------------------------------------------------------------------------------------------------------
Duke Power Co., due 12/10/97 $ 10,000 $ 9,986,100
Federal Farm Credit Bank, due 1/16/98 8,000 7,943,369
Federal Home Loan Bank due 12/02/97 16,165 16,162,548
Federal Home Loan Mortgage Corp.,
due 12/01/97 - 1/23/98 90,680 90,441,587
Federal National Mortgage Association due 12/17/97 10,000 9,975,778
General Electric Capital Corp., due 12/01/97 9,250 9,250,000
- ------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 143,759,382
- ------------------------------------------------------------------------------------------------------
Put Option Purchased - 0.3%
- ------------------------------------------------------------------------------------------------------
NUMBER
ISSUER/EXPIRATION DATE/STRIKE PRICE OF CONTRACTS VALUE
- ------------------------------------------------------------------------------------------------------
S&P 500 Index/December 1998/850
(Premiums Paid, $2,416,649) 787 $ 3,413,613
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $974,579,474) $1,123,097,756
Other Assets, Less Liabilities - (0.5)% (5,603,868)
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,117,493,888
- ------------------------------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------
NOVEMBER 30, 1997
- --------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $974,579,474) $1,123,097,756
Cash 6,414
Receivable for Fund shares sold 1,425,882
Receivable for investments sold 6,806,453
Dividends receivable 404,844
Other assets 103,241
--------------
Total assets $1,131,844,590
--------------
Liabilities:
Payable for Fund shares reacquired $ 1,652,900
Payable for investments purchased 11,600,866
Net payable for forward foreign currency exchange
contracts sold 135,455
Payable to affiliates -
Management fee 91,674
Shareholder servicing agent fee 6,373
Distribution and service fee 585,560
Administrative fee 1,804
Accrued expenses and other liabilities 276,070
--------------
Total liabilities $ 14,350,702
--------------
Net assets $1,117,493,888
==============
Net assets consist of:
Paid-in capital $ 852,011,474
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 148,387,868
Accumulated undistributed net realized gain on
investments and foreign currency transactions 116,099,251
Accumulated undistributed net investment income 995,295
--------------
Total $1,117,493,888
==============
Shares of beneficial interest outstanding 74,352,614
==========
Class A shares:
Net asset value per share
(net assets of $609,189,242 / 39,990,430 shares of
beneficial interest
outstanding, respectively) $15.23
======
Offering price per share (100 / 94.25 of net asset
value per share) $16.16
======
Class B shares:
Net asset value and offering price per share
(net assets of $411,639,736 / 27,876,065 shares of
beneficial interest
outstanding, respectively) $14.77
======
Class C shares:
Net asset value and offering price per share
(net assets of $66,148,043 / 4,486,158 shares of
beneficial interest outstanding,
respectively) $14.74
======
Class I shares:
Net asset value, offering price and redemption price per share
(net assets of $30,516,867 / 1,999,961 shares of
beneficial interest outstanding,
respectively) $15.26
======
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
<TABLE>
Statement of Operations
<CAPTION>
- ---------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997
- ---------------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Interest $ 8,652,527
Dividends 7,794,078
Foreign taxes withheld (376,343)
------------
Total investment income $ 16,070,262
------------
Expenses -
Management fee $ 6,851,160
Trustees' compensation 53,052
Shareholder servicing agent fee 1,099,437
Shareholder servicing agent fee (Class A) 54,827
Shareholder servicing agent fee (Class B) 46,442
Shareholder servicing agent fee (Class C) 4,178
Distribution and service fee (Class A) 1,276,806
Distribution and service fee (Class B) 3,278,283
Distribution and service fee (Class C) 499,968
Administration fee 109,492
Custodian fee 285,435
Postage 137,679
Printing 89,150
Auditing fees 38,039
Legal fees 8,506
Miscellaneous 702,446
------------
Total expenses $ 14,534,900
Fees paid indirectly (43,196)
------------
Net expenses $ 14,491,704
------------
Net investment income $ 1,578,558
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $114,952,172
Foreign currency transactions (314,018)
------------
Net realized gain on investments and foreign currency transactions $114,638,154
------------
Change in unrealized appreciation (depreciation) -
Investments $ 89,017,798
Translation of assets and liabilities in foreign currencies (133,343)
------------
Net unrealized gain on investments and foreign currency
translation $ 88,884,455
------------
Net realized and unrealized gain on investments and foreign
currency $203,522,609
------------
Increase in net assets from operations $205,101,167
============
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
- -------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,578,558 $ 931,441
Net realized gain on investments and foreign currency
transactions 114,638,154 62,206,828
Net unrealized gain on investments and foreign currency
translation 88,884,455 8,276,740
-------------- ------------
Increase in net assets from operations $ 205,101,167 $ 71,415,009
-------------- ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (946,436) $ --
From net investment income (Class C) (28,491) --
From net realized gain on investments and foreign
currency transactions (Class A) (36,139,796) (21,105,160)
From net realized gain on investments and foreign
currency transactions (Class B) (21,106,896) (4,429,633)
From net realized gain on investments and foreign
currency transactions (Class C) (2,868,779) --
-------------- ------------
Total distributions declared to shareholders $ (61,090,398) $(25,534,793)
-------------- ------------
Net increase in net assets from Fund share
transactions $ 269,839,092 $384,141,057
-------------- ------------
Total increase in net assets $ 413,849,861 $430,021,273
Net assets:
At beginning of period 703,644,027 273,622,754
-------------- ------------
At end of period (including accumulated undistributed net
investment income of $995,295 and $511,690,
respectively) $1,117,493,888 $703,644,027
============== ============
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
- -----------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------
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 $13.34 $12.39 $ 9.44 $10.82 $10.17 $ 8.73
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income (loss) $ 0.07 $ 0.05 $ 0.01 $(0.01) $ 0.02 $ --
Net realized and unrealized gain
on investments and foreign
currency transactions 2.97 2.04 3.64 0.26 1.96 2.03
------ ------ ------ ------ ------ ------
Total from investment
operations $ 3.04 $ 2.09 $ 3.65 $ 0.25 $ 1.98 $ 2.03
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.03) $ -- $ -- $(0.03) $ -- $(0.07)
From net realized gain on
investments and foreign
currency transactions (1.12) (1.14) (0.70) (1.60) (1.33) (0.52)
------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(1.15) $(1.14) $(0.70) $(1.63) $(1.33) $(0.59)
------ ------ ------ ------ ------ ------
Net asset value - end of period $15.23 $13.34 $12.39 $ 9.44 $10.82 $10.17
====== ====== ====== ====== ====== ======
Total return(+) 24.96% 18.50% 41.67% 1.92% 22.10% 24.60%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.29% 1.32% 1.35% 1.37% 1.42% 1.53%
Net investment income (loss) 0.49% 0.43% 0.06% (0.05)% 0.09% --
Portfolio turnover 144% 112% 109% 91% 95% 111%
Net assets at end of period
(000 omitted) $609,189 $427,478 $227,555 $141,790 $132,207 $112,958
Average commission rate### $ 0.0317 $ 0.0304 $ -- $ -- $ -- $ --
#Per share data for the periods subsequent to November 30, 1993, are
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. If the charge had been included, the results would have been
lower.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED MAY 31,
NOVEMBER 30, NOVEMBER 30, ------------------------------------
1991 1990 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 7.46 $ 8.99 $10.52 $ 8.70 $ 9.60
------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.14 $ 0.09 $ 0.33 $ 0.21 $ 0.10
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 1.21 (1.38) 0.17 2.17 (0.86)
------ ------ ------ ------ ------
Total from investment operations $ 1.35 $(1.29) $ 0.50 $ 2.38 $(0.76)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.08) $(0.11) $(0.34) $(0.17) $(0.03)
From net realized gain on investments and
foreign currency transactions -- (0.05) (1.69) (0.39) (0.11)
From paid-in capital -- (0.08) -- -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.08) $(0.24) $(2.03) $(0.56) $(0.14)
------ ------ ------ ------ ------
Net asset value - end of period $ 8.73 $ 7.46 $ 8.99 $10.52 $ 8.70
====== ====== ====== ====== ======
Total return(+) 18.26% (29.48)%+ 5.13% 28.47% (7.63)%
Ratios (to average net assets)/Supplemental data:
Expenses 1.50% 1.51%+ 1.26% 1.41% 1.33%
Net investment inome 1.65% 2.30%+ 3.38% 2.29% 1.12%
Portfolio turnover 132% 36% 88% 80% 99%
Net assets at end of period (000 omitted) $104,600 $100,398 $125,191 $133,219 $116,218
+Annualized.
(+)Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results would
have been lower.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995 1994 1993*
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $13.01 $12.15 $ 9.34 $10.79 $10.61
------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.04) $(0.04) $(0.08) $(0.09) $(0.01)
Net realized and unrealized gain on
investments and foreign currency
transactions 2.89 2.00 3.59 0.27 0.19
------ ------ ------ ------ ------
Total from investment operations $ 2.85 $ 1.96 $ 3.51 $ 0.18 $ 0.18
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net realized gain on investments and
foreign currency transactions $(1.09) $(1.10) $(0.70) $(1.60) $ --
In excess of net investment income -- -- -- (0.03) --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.09) $(1.10) $(0.70) $(1.63) $ --
------ ------ ------ ------ ------
Net asset value - end of period $14.77 $13.01 $12.15 $ 9.34 $10.79
====== ====== ====== ====== ======
Total return 24.03% 17.50% 40.53% 1.15% 1.70%++
Ratios (to average net assets)/Supplemental data:
Expenses## 2.04% 2.16% 2.17% 2.25% 2.46%+
Net investment loss (0.28)% (0.33)% (0.77)% (0.96)% (1.37)%+
Portfolio turnover 144% 112% 109% 91% 95%
Average commission rate### $ 0.0317 $ 0.0304 $ -- $ -- $ --
Net assets at end of period (000 omitted) $411,640 $244,247 $46,068 $17,189 $ 1,097
*For the period from the inception of Class B, September 7, 1993, through November 30, 1993.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to November 30, 1993, are 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
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1996**
- ----------------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $13.03 $12.00
------ ------
Income from investment operations# -
Net investment loss $(0.04) $(0.01)
Net realized and unrealized gain on investments and foreign
currency transactions 2.88 1.04
------ ------
Total from investment operations $ 2.84 $ 1.03
------ ------
Less distributions declared to shareholders -
From net investment income $(0.01) $ --
From net realized gain on investments and foreign currency
transactions (1.12) --
------ ------
Total distributions declared to shareholders $(1.13) $ --
------ ------
Net asset value - end of period $14.74 $13.03
====== ======
Total return 24.02% 7.95%++
Ratios (to average net assets)/Supplemental data:
Expenses## 2.04% 2.11%+
Net investment loss (0.28)% (0.17)%+
Portfolio turnover 144% 112%
Average commission rate $0.0317 $0.0304
Net assets at end of period (000 omitted) $66,148 $31,919
+Annualized.
++Not annualized.
**For the period from the inception of Class C shares, April 1, 1996, through November 30, 1996.
#Per share data are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
PERIOD ENDED NOVEMBER 30, 1997***
- --------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $12.22
------
Income from investment operations# -
Net investment income $ 0.08
Net realized and unrealized gain on investments and
foreign currency transactions 2.96
------
Total from investment operations $ 3.04
------
Net asset value - end of period $15.26
======
Total return 24.88%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.01%+
Net investment income 0.65%+
Portfolio turnover 144%
Average commission rate $0.0317
Net assets at end of period (000 omitted) $30,517
+Annualized.
++Not annualized.
***For the period from the inception of Class I shares, January 3, 1997,
through November 30, 1997.
#Per share data are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid
indirectly.
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.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using last quoted bid
prices. 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. Debt securities (other than short-term obligations which mature in 60
days or less), including listed issues, forward contracts, and interest rate
swaps, are valued on the basis of valuations furnished by dealers or by a
pricing service with consideration to factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data, without exclusive
reliance upon exchange or over-the-counter prices. Short-term obligations, which
mature in 60 days or less, are valued at amortized cost, which approximates
market value. Futures contracts, options, and options on futures contracts
listed on commodities exchanges are reported at market value using closing
settlement prices. Over-the-counter options on securities are valued by brokers.
Over-the-counter currency options are valued through the use of a pricing model
which takes into account foreign currency exchange spot and forward rates,
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 result 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. The Fund may also use contracts in a manner intended to protect
foreign-currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
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 is amortized or accreted for financial statement and tax
reporting purposes as required by federal income tax regulations. Dividends
received in cash are recorded on the ex-dividend date. Dividend and interest
payments received in additional securities are recorded on the ex- dividend or
ex-interest date in an amount equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's average daily net assets. 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.
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 net realized gains. During
the year ended November 30, 1997, $120,026 was reclassified from accumulated
undistributed net investment income to paid-in capital and $304,407 was
reclassified from accumulated undistributed net realized gain on investments to
paid-in capital due to differences between book and tax accounting for currency
transactions. This change had no effect on the net assets or net asset value per
share. At November 30, 1997 accumulated undistributed net investment income and
realized gain on investments and foreign currency transactions under book
accounting were different from tax accounting due to temporary differences in
accounting for losses on wash sale transactions and unrealized gains and losses
on forward foreign currency contracts.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares. The classes of shares differ in their respective distribution
and service fees. All shareholders bear the common expenses of the Fund pro rata
based on average daily net assets of each class, without distinction between
share classes. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75% of
average daily net assets.
Administrator - Effective March 1, 1997, the Fund has an administrative services
agreement with MFS to provide the Fund with certain financial, legal,
shareholder servicing, compliance, and other administrative services. As a
partial reimbursement for the cost of providing these services, the Fund pays
MFS an administrative fee at the following annual percentages of the Fund's
average daily net assets, provided that the administrative fee is not assessed
on Fund assets that exceed $3 billion:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain officers and Trustees of the
Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD), and
MFS Service Center, Inc. (MFSC). The 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 $16,456 for the year ended
November 30, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$351,940 for the year ended November 30, 1997, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class C
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee to each securities
dealer that enters into a sales agreement with MFD of up to 0.25% per annum of
the Fund's average daily net assets attributable to Class A shares which are
attributable to that securities dealer, a distribution fee to MFD of up to 0.10%
per annum of the Fund's average daily net assets attributable to Class A shares,
commissions to dealers, and payments to MFD wholesalers for sales at or above a
certain dollar level, and other such distribution-related expenses that are
approved by the Fund. MFD retains the service fee for accounts not attributable
to a securities dealer which amounted to $181,376 for the year ended November
30, 1997. Payment of the 0.10% per annum Class A distribution fee will commence
on such date as the Trustees of the Fund may determine. Fees incurred under the
distribution plan during the year ended November 30, 1997, were 0.25% of average
daily net assets attributable to Class A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be additional consideration for
services rendered by the dealer with respect to Class B and Class C shares. MFD
retains the service fee for accounts not attributable to a securities dealer,
which amounted to $44,005 and $16,733 for Class B and Class C shares,
respectively, for the year ended November 30, 1997. Fees incurred under the
distribution plan during the year ended November 30 1997, 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 and certain purchases by retirement
plans are subject to a contingent deferred sales charge in the event of a
shareholder redemption within 12 months following such purchase. A contingent
deferred sales charge is imposed on shareholder redemptions of Class B shares in
the event of a shareholder redemption within six years of purchase. A contingent
deferred sales charge is imposed on shareholder redemptions of Class C shares in
the event of a shareholder redemption within 12 months of purchase. MFD receives
all contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended November 30, 1997, were $21,436, $386,422, and $28,099 for
Class A, Class B, and Class C shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate of
0.13%. Prior to January 1, 1997, the fee was 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
- --------------------------------------------------------------------------------
U.S. government securities $ 115,730,579 $ 145,797,949
-------------- --------------
Investments (non-U.S. government securities) $1,304,963,827 $1,117,614,483
-------------- --------------
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 $ 975,125,757
-------------
Gross unrealized appreciation $ 181,531,590
Gross unrealized depreciation (33,559,591)
-------------
Net unrealized appreciation $ 147,971,999
=============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
Class A Shares
<CAPTION>
YEAR ENDED NOVEMBER 30, 1997 YEAR ENDED NOVEMBER 30, 1996
------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 21,945,096 $296,891,395 19,830,731 $247,848,654
Shares issued to shareholders in
reinvestment of distributions 2,783,995 33,768,741 1,739,061 19,947,385
Shares transferred to Class I (1,547,626) (18,911,993) -- --
Shares reacquired (15,224,032) (209,041,747) (7,905,513) (98,473,592)
----------- ------------ ---------- ------------
Net increase 7,957,433 $102,706,396 13,664,279 $169,322,447
=========== ============ ========== ============
</TABLE>
<TABLE>
Class B Shares
<CAPTION>
YEAR ENDED NOVEMBER 30, 1997 YEAR ENDED NOVEMBER 30, 1996
------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 11,370,630 $148,136,021 16,436,561 $202,564,032
Shares issued to shareholders in
reinvestment of distributions 1,482,412 17,551,958 348,040 3,918,873
Shares reacquired (3,749,784) (49,366,876) (1,804,198) (22,222,748)
----------- ------------ ---------- ------------
Net increase 9,103,258 $116,321,103 14,980,403 $184,260,157
=========== ============ ========== ============
</TABLE>
<TABLE>
Class C Shares
<CAPTION>
YEAR ENDED NOVEMBER 30, 1997 PERIOD ENDED NOVEMBER 30, 1996*
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,563,925 $ 33,259,494 2,695,641 $ 33,598,864
Shares issued to shareholders in
reinvestment of distributions 120,178 1,420,490 -- --
Shares reacquired (648,339) (8,661,075) (245,245) (3,040,411)
----------- ------------ ---------- ------------
Net increase 2,035,764 $ 26,018,909 2,450,396 $ 30,558,453
=========== ============ ========== ============
</TABLE>
Class I Shares
PERIOD ENDED NOVEMBER 30, 1997**
-------------------------------
SHARES AMOUNT
- ---------------------------------------------------------------------
Shares sold 721,994 $ 9,428,729
Shares transferred from Class A 1,547,626 18,911,993
Shares issued to shareholders in
reinvestment of distributions -- --
Shares reacquired (269,659) (3,548,038)
-------- ------------
Net increase 1,999,961 $ 24,792,684
========= ============
*For the period from the inception of Class C, April 1, 1996, through November
30, 1996.
**For the period from the inception of Class I, January 3, 1997, through
November 30, 1997.
(6) Line of Credit
The Fund and other affiliated funds participate in a $400 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
year ended November 30, 1997, was $7,534.
(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. 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.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
NET
CONTRACTS TO CONTRACTS UNREALIZED
SETTLEMENT DATE DELIVER IN EXCHANGE FOR AT VALUE DEPRECIATION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 1/07/98 GBP 6,168,270 $10,232,174 $10,367,629 $ 135,455
</TABLE>
At November 30, 1997, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
<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, 1997, the related statement of operations for the
year then ended, the statement of changes in net assets for the years ended
November 30, 1997 and 1996, and the financial highlights for each of the years
in the eleven-year period ended November 30, 1997. 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 securities owned at November
30, 1997 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, 1997, 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 9, 1998
--------------------------------------------
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
TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and Investors Bank & Trust Company
President; Chairman and Director,
Massachusetts Financial Services AUDITORS
Company Deloitte & Touche LLP
Richard B. Bailey* - Private INVESTOR INFORMATION
Investor; Former Chairman and For MFS stock and bond market
Director (until 1991), Massachusetts outlooks, call toll free:
Financial Services Company 1-800-637-4458 anytime from a
touch-tone telephone.
Peter G. Harwood - Private Investor
For information on MFS mutual funds,
J. Atwood Ives - Chairman and Chief call your financial adviser or, for
Executive Officer, Eastern an information kit, call toll free:
Enterprises 1-800-637-2929 any business day from
9 a.m. to 5 p.m. Eastern time (or
Lawrence T. Perera - Partner, leave a message anytime).
Hemenway & Barnes
INVESTOR SERVICE
William J. Poorvu - Adjunct MFS Service Center, Inc.
Professor, Harvard University P.O. Box 2281
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 For service to speech- or
Secretary, Massachusetts Financial hearing-impaired, call toll free:
Services Company 1-800-637-6576 any business day from
9 a.m. to 5 p.m. Eastern time. (To
Jeffrey L. Shames* - President and use this service, your phone must be
Director, Massachusetts Financial equipped with a Telecommunications
Services Company Device for the Deaf.)
Elaine R. Smith - Independent For share prices, account balances,
Consultant and exchanges, call toll free:
1-800-MFS-TALK (1-800-637-8255)
David B. Stone - Chairman, North anytime from a touch-tone telephone.
American Management Corp. (investment
advisers) WORLD WIDE WEB
www.mfs.com
INVESTMENT ADVISER
Massachusetts Financial Services
Company [Dalbar Logo] For the fourth year
500 Boylston Street in a row, MFS earned
Boston, MA 02116-3741 a #1 ranking in the DALBAR, Inc.
Broker/Dealer Survey, Main Office
DISTRIBUTOR Operations Service Quality Category.
MFS Fund Distributors, Inc. The firm achieved a 3.42 overall score
500 Boylston Street on a scale of 1 to 4 in the 1997
Boston, MA 02116-3741 survey. A total of 111 firms responded,
offering input on the quality of
PORTFOLIO MANAGER service they received from 29 mutual
John F. Brennan, Jr.* fund companies nationwide. The survey
contained questions about service
TREASURER quality in 11 categories, including
W. Thomas London* "knowledge of operations contact,"
"keeping you informed," and "ease of
ASSISTANT TREASURERS doing business" with the firm.
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
<PAGE>
MFS(R) VALUE FUND ----------------
Bulk Rate
500 Boylston Street U.S. Postage
Boston, MA 02116-3741 Paid
MFS
----------------
[LOGO] MFS(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
[DALBAR
LOGO]
TOP-RATED SERVICE
(C)1998 MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116-3741
MVF-2 1/98 128M 23/223/323/823
