<PAGE>
[MFS Logo] Semiannual Report
INVESTMENT MANAGMENT April 30, 1997
- -------------------------------------------------------------------------------
MFS(R) STRATEGIC INCOME FUND
- -------------------------------------------------------------------------------
[graphic omitted]
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LEARNING FINANCIAL BASICS THE EASY WAY (see page 31)
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<PAGE>
TABLE OF CONTENTS
Letter from the Chairman ................................................... 1
Portfolio Manager's Overview ............................................... 3
Portfolio Manager's Profile ................................................ 4
Fund Facts ................................................................. 4
Performance Summary ........................................................ 4
Portfolio Concentration .................................................... 6
Portfolio of Investments ................................................... 7
Financial Statements .......................................................13
Notes to Financial Statements ..............................................21
Independent Auditors' Report ...............................................30
The ABCs of Investing ......................................................31
The MFS Family of Funds(R) .................................................32
Trustees and Officers ......................................................33
HIGHLIGHTS
o FOR THE SIX MONTHS ENDED APRIL 30, 1997, CLASS A SHARES OF THE FUND PROVIDED
A TOTAL RETURN AT NET ASSET VALUE OF 5.27%, CLASS B SHARES 4.94%, CLASS C
SHARES 4.96%, AND CLASS I SHARES 4.62%.
o THE FUND'S INTERNATIONAL SOVEREIGN EXPOSURE HAS BEEN REDUCED TO VIRTUALLY
ZERO IN THE LAST SIX MONTHS, WHILE THE EXPOSURE TO U.S. TREASURIES WAS CUT TO
0.6%, THEIR LOWEST ALLOCATION IN THE HISTORY OF THE FUND.
o THE FUND'S BIGGEST GAINS CAME FROM ITS OVERWEIGHTING IN "BB"-RATED U.S.
ELECTRIC UTILITIES, WHICH PERFORMED QUITE WELL AND EXPERIENCED POSITIVE
RATING NEWS.
o CURRENTLY, HIGH-YIELD CORPORATE SECURITIES MAKE UP THE LARGEST PORTION OF THE
PORTFOLIO AND WILL PROBABLY CONTINUE TO DO SO IN COMING MONTHS AS EVIDENCE
MOUNTS OF TREMENDOUS GROWTH IN THE U.S. ECONOMY.
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of A. Keith Brodkin]
A. Keith Brodkin
Dear Shareholders:
After more than six years of expansion, the U.S. economy is experiencing another
year of growth in 1997, although a few signs point to the possibility of a
modest rise in inflation during the year. On the positive side, the pattern of
moderate growth and inflation set over the past few years now seems fairly well
entrenched in the economy and, short of a major international or domestic
crisis, appears to have enough momentum to remain on track for some time. Also,
gains in such important sectors as housing, automobiles, industrial production,
and exports indicate a fair amount of underlying strength in the economy. Some
of that strength was seen in the first quarter, when the U.S. economy grew at an
annualized rate of 5.6% (based on preliminary estimates), a pace that would be
inflationary in the unlikely event that it were to continue. The ongoing
tightness in the labor market could also add some inflationary pressures to the
economy. At the same time, there is some reason for caution as a result of the
continuing high level of consumer debt and rising personal bankruptcies. Given
these somewhat conflicting indicators, we expect real (inflation-adjusted)
growth to revolve around 2% in 1997, with the strength of the first quarter
moderating as we move through the balance of the year.
In the bond markets, conflicting signals over the strength of the economy have
also created near-term volatility, and the Federal Reserve Board has begun
taking measured steps to control inflation by raising short-term interest rates.
Although we do not expect a repeat of the rapid growth in the first quarter, we
would expect the Fed to raise interest rates at least one more time in reaction
to the economic momentum that was built up during the period. While inflationary
forces largely remained in check in 1996, the continued strength in the labor
market suggests that a pickup in inflation is still possible. At the same time,
the U.S. budget deficit continues to decline and, as a percentage of gross
domestic product, is now approaching 1%, which we consider a positive
development for the bond markets. Although interest rates may remain volatile
over the coming months, we believe that, at current levels, fixed-income markets
remain equitably valued.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
May 14, 1997
<PAGE>
PORTFOLIO MANAGER'S OVERVIEW
[Photo of James T. Swanson]
Dear Shareholders:
For the six months ended April 30, 1997, Class A shares of the Fund provided a
total return of 5.27%, Class B shares 4.94%, Class C shares 4.96%, and Class I
shares 4.62%. These returns assume the reinvestment of distributions but exclude
the effects of any sales charges.
We attribute the favorable results to the following strategic decisions.
First, we moved the Fund's international sovereign exposure to virtually zero in
the last six months. Further, we lowered our exposure to U.S. Treasuries to
0.6%, their lowest allocation in the history of the Fund. These two markets have
performed poorly in the wake of moves by the Federal Reserve Board to tighten
monetary conditions and raise interest rates, moves that were not well received
by the bond markets, which are sensitive to rate changes. In addition, we
maintained the Fund's duration, or interest-rate sensitivity, short relative to
key benchmarks in the above sectors, which helped to further protect the Fund
against changes in interest rates.
The biggest gains in the portfolio came from our overweighting in "BB"-rated
U.S. electric utilities, which performed quite well and experienced positive
rating news. We also were overweighted in emerging markets and benefited from
credit upgrades in Brazil and Argentina, as well as from tightening yield
spreads in this sector that created both price appreciation and relative
outperformance.
Currently, high-yield corporate securities make up the largest portion of the
portfolio and will probably continue to do so in coming months as evidence
mounts of tremendous growth in the U.S. economy. Going forward, we would expect
to buy more U.S. Treasuries and international sovereign bonds if the yield on
the 30-year Treasury bond reaches 7.5%.
We continue to believe that a diversified bond portfolio can provide
competitive returns at lower risk levels than portfolios dedicated to one asset
class. We believe our process of focusing on relative risk, based on
risk-adjusted forward returns, has helped us balance the requirement for current
yield with relative stability for the shareholder.
Respectfully,
/s/ James T. Swanson
James T. Swanson
Portfolio Manager
<PAGE>
PORTFOLIO MANAGER'S PROFILE
JAMES T. SWANSON JOINED MFS IN 1985 AS VICE PRESIDENT - INVESTMENTS AND WAS
NAMED SENIOR VICE PRESIDENT IN 1989. A GRADUATE OF COLGATE UNIVERSITY AND THE
HARVARD UNIVERSITY GRADUATE SCHOOL OF BUSINESS ADMINISTRATION, HE WAS NAMED
PORTFOLIO MANAGER OF MFS(R) STRATEGIC INCOME FUND IN 1991.
FUND FACTS
STRATEGY: THE INVESTMENT OBJECTIVE OF THE FUND IS TO PROVIDE HIGH
CURRENT INCOME BY INVESTING IN FIXED-INCOME SECURITIES.
COMMENCEMENT OF
INVESTMENT OPERATIONS: CLASS A: OCTOBER 29, 1987
CLASS B: SEPTEMBER 7, 1993
CLASS C: SEPTEMBER 1, 1994
CLASS I: JANUARY 9, 1997
SIZE: $92.7 MILLION NET ASSETS AS OF APRIL 30, 1997
PERFORMANCE SUMMARY
Because mutual funds like MFS Strategic Income Fund are designed for investors
with long-term goals, we have provided cumulative results as well as the average
annual total returns for Class A, Class B, Class C, and Class I shares for the
applicable time periods.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
AS OF APRIL 30, 1997
CLASS A INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
Life of
6 Months 1 Year 5 Years Fund*
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +5.27% +12.13% +49.47% +134.78%
- -----------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +12.13% + 8.37% + 9.39%
- -----------------------------------------------------------------------------------------------------------------
SEC Results -- + 6.78% + 7.32% + 8.83%
- -----------------------------------------------------------------------------------------------------------------
*For the period from the commencement of the Fund's investment operations, October 29, 1987, through April 30, 1997.
</TABLE>
CLASS B INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
Life of
6 Months 1 Year 5 Years Fund*
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +4.94% +11.46% +45.58% +128.73%
- -----------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +11.46% + 7.80% + 9.09%
- -----------------------------------------------------------------------------------------------------------------
SEC Results -- + 7.46% + 7.51% + 9.09%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
CLASS C INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
Life of
6 Months 1 Year 5 Years Fund*
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +4.96% +11.40% +46.46% +130.13%
- -----------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +11.40% + 7.93% + 9.16%
- -----------------------------------------------------------------------------------------------------------------
SEC Results -- +10.40% + 7.93% + 9.16%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
CLASS I INVESTMENT RESULTS
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
Life of
6 Months 1 Year 5 Years Fund*
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +4.62% +12.23% +49.60% +134.98%
- -----------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +12.23% + 8.39% + 9.40%
- -----------------------------------------------------------------------------------------------------------------
SEC Results -- +12.23% + 8.39% + 9.40%
- -----------------------------------------------------------------------------------------------------------------
*For the period from the commencement of the Fund's investment operations, October 29, 1987, through April 30, 1997.
</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 4.75% 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,
which became available on January 9, 1997, 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 operating expenses
(e.g., Rule 12b-1 fees) of the Fund's Class A shares for periods prior to the
commencement of offering 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 in
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 sales
charge generally applicable to Class A shares.
Class I share results include the performance and operating expenses (e.g., Rule
12b-1 fees) of Class A shares for periods prior to the commencement of offering
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 in the Class I share SEC performance has been adjusted to reflect the
fact that Class I shares have no initial sales charge. These results represent
the percentage change in net asset value.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Current subsidies and
waivers may be discontinued at any time.
PORTFOLIO CONCENTRATION AS OF APRIL 30, 1997
LARGEST SECTORS
Corporates 54%
Emerging Markets and Other Foreign 28%
Miscellaneous 10%
U.S. Government and Treasury 8%
For a more complete breakdown, refer to the Portfolio of Investments.
<PAGE>
PORTFOLIO OF INVESTMENTS - April 30, 1997
<TABLE>
<CAPTION>
Bonds - 89.7%
- ------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 62.2%
Aerospace - 1.1%
BE Aerospace, Inc., 9.875s, 2006 $1,000 $ 1,030,000
- ------------------------------------------------------------------------------------------------
Airlines - 0.6%
K & F Industries, Inc., 10.375s, 2004 $ 500 $ 521,250
- ------------------------------------------------------------------------------------------------
Automotive - 1.5%
Exide Corp., 10s, 2005 $ 750 $ 759,375
Harvard Industries, Inc., 12s, 2004 430 193,500
Titan Wheel International, Inc., 8.75s, 2007 450 450,000
------------
$ 1,402,875
- ------------------------------------------------------------------------------------------------
Banks and Credit Companies - 1.6%
Advanta Corp., 7.07s, 1997 $1,000 $ 1,000,800
Bank United Corp., 8.875s, 2007 500 492,135
------------
$ 1,492,935
- ------------------------------------------------------------------------------------------------
Building - 0.3%
Nortek, Inc., 9.25s, 2007## $ 60 $ 58,950
Nortek, Inc., 9.875s, 2004 250 247,500
UDC Homes, Inc., 14.5s, 2000 6 3,048
------------
$ 309,498
- ------------------------------------------------------------------------------------------------
Cellular Telephones - 0.3%
Millicom International Cellular Communications Corp.,
0s to 2001, 13.5s to 2006 $ 350 $ 245,000
- ------------------------------------------------------------------------------------------------
Chemicals - 1.3%
NL Industries, Inc., 11.75s, 2003 $ 250 $ 268,750
UCC Investors Holdings, Inc., 0s to 1998, 12s to 2005 1,000 920,000
------------
$ 1,188,750
- ------------------------------------------------------------------------------------------------
Consumer Goods and Services - 3.10%
E & S Holdings Corp., 10.375s, 2006 $1,000 $ 1,030,000
FoodBrands America, Inc., 10.75s, 2006 750 862,500
Revlon, Inc., 10.5s, 2003 200 208,500
Sealy Corp., 9.5s, 2003 500 507,500
Westpoint Stevens, Inc., 9.375s, 2005 250 256,250
------------
$ 2,864,750
- ------------------------------------------------------------------------------------------------
Containers - 0.4%
Calmar, Inc., 11.5s, 2005 $ 250 $ 257,500
Ivex Packaging Corp., 12.5s, 2002 100 108,625
------------
$ 366,125
- ------------------------------------------------------------------------------------------------
Defense Electronics - 0.6%
Alliant Techsystem., Inc., 11.75s, 2003 $ 500 $ 540,000
- ------------------------------------------------------------------------------------------------
Entertainment - 0.9%
Cinemark USA, Inc., 9.625s, 2008 $ 750 $ 735,000
Marvel Holdings, Inc., 0s, 1998+ 500 65,000
------------
$ 800,000
- ------------------------------------------------------------------------------------------------
U.S. Bonds - continued
Food and Beverage Products - 0.5%
Specialty Foods Corp., 10.25s, 2001 $ 500 $ 488,750
- ------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.6%
Fort Howard Corp., 9.25s, 2001 $ 500 $ 515,000
- ------------------------------------------------------------------------------------------------
Machinery - 0.5%
AGCO Corp., 8.5s, 2006 $ 500 $ 505,000
- ------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.5%
Beverly Enterprises, Inc., 9s, 2006 $ 460 $ 457,700
- ------------------------------------------------------------------------------------------------
Metals and Minerals - 1.2%
Haynes International, Inc., 11.625s, 2004 $1,000 $ 1,065,000
- ------------------------------------------------------------------------------------------------
Oil Services - 1.3%
Clark USA, Inc., 10.875s, 2005 $ 500 $ 506,250
Falcon Drilling, Inc., 8.875s, 2003 500 495,000
Ferrell Gas LP, 10s, 2001 200 205,000
------------
$ 1,206,250
- ------------------------------------------------------------------------------------------------
Oils - 0.3%
Enserch Exploration, Inc., 7.54s, 2009## $ 250 $ 244,110
- ------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.5%
Red Roof Inns, Inc., 9.625s, 2003 $ 500 $ 507,500
- ------------------------------------------------------------------------------------------------
Special Products and Services - 2.0%
AAF-Mcquay, Inc., 8.875s, 2003 $ 500 $ 481,250
IMO Industries, Inc., 11.75s, 2006 500 500,000
Polymer Group, Inc., 12.25s, 2002 333 361,721
Thermadyne Holdings Corp., 10.75s, 2003 500 510,000
------------
$ 1,852,971
- ------------------------------------------------------------------------------------------------
Steel - 2.5%
Alaska Steel Corp., 9.125s, 2006 $1,000 $ 986,250
Commonwealth Aluminum Corp., 10.75s, 2006 500 515,000
Kaiser Aluminum & Chemical Corp., 9.875s, 2002 300 303,000
WCI Steel, Inc., 10s, 2004 500 502,500
------------
$ 2,306,750
- ------------------------------------------------------------------------------------------------
Supermarkets - 3.9%
Dominick's Finer Foods Co., 10.875s, 2005 $ 500 $ 545,625
Grand Union Co., 12s, 2004 750 716,250
Jitney Jungle Stores of America, Inc., 12s, 2006 750 813,750
Pathmark Stores, Inc., 9.625s, 2003 500 465,000
Ralph's Grocery Co., 10.45s, 2004 500 530,000
Smith's Food & Drug Centers, 11.25s, 2007 500 556,250
------------
$ 3,626,875
- ------------------------------------------------------------------------------------------------
Telecommunications - 9.1%
Adelphia Communications Corp., 9.875s, 2007## $ 75 $ 70,875
American Radio Systems Corp., 9s, 2006 500 495,000
Brooks Fiber Properties, Inc., 0s to 2001, 10.875s
to 2006 500 327,500
Cablevision Industries Corp., 9.25s, 2008 100 106,165
Comcast Corp., 9.375s, 2005 500 510,000
Diamond Cable Communications Corp., 0s to 2000,
11.75s to 2005 250 173,125
Echostar Satellite Broadcasting Corp., 0s to 2000,
13.125s to 2004 1,000 710,000
Falcon Holdings Group, Inc., 11s, 2003 228 198,695
ICG Holdings, Inc., 0s to 2001, 12.5s to 2006 1,250 743,750
Intermedia Capital Partners IV, LP, 11.25s, 2006 75 77,250
Jones Intercable, Inc., 8.875s, 2007 500 482,500
Marcus Cable Operating Co., 0s to 1999,
13.5s to 2004 500 413,750
MFS Communications, Inc., 0s to 2001, 8.875s to
2006 800 606,824
Mobilemedia Communications, Inc., 0s to 1998,
10.50s to 2003+ 205 30,750
Nextel Communications, Inc., 0s to 1999, 9.75s to
2004 500 363,750
Panamsat Capital Corp., 0s to 1998, 11.375s to 2003 1,250 1,181,250
Rogers Cablesystems, Inc., 10.125s, 2012 500 511,250
Sprint Spectrum LP, 11s, 2006 550 600,875
Teleport Communications Group, Inc., 0s to 2001,
11.125s to 2007 500 343,750
Western Wireless Corp., "A", 10.5s, 2007 500 492,500
------------
$ 8,439,559
- ------------------------------------------------------------------------------------------------
Transportation - 0.1%
Moran Transportation Co., 11.75s, 2004 $ 100 $ 107,000
- ------------------------------------------------------------------------------------------------
U.S. Government and Treasury Obligations - 8.1%
Government National Mortgage Association - 7.5%
GNMA, 8.5s, 2025 $4,343 $ 4,482,298
GNMA, 8.5s, 2027 2,409 2,486,226
------------
$ 6,968,524
- ------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 0.6%
U.S. Treasury Notes, 6.25s, 2002 $ 600 $ 592,032
- ------------------------------------------------------------------------------------------------
Total U.S. Government and Treasury Obligations $ 7,560,556
- ------------------------------------------------------------------------------------------------
Utilities - Electric - 15.1%
El Paso Electric Co., 9.4s, 2011 $1,000 $ 1,063,830
First PV Funding Corp., 10.15s, 2016 343 365,295
First PV Funding Corp., 10.3s, 2014 729 772,740
Midland Cogeneration Venture Corp., 10.33s, 2002 1,196 1,280,006
Midland Funding Corp., "B", 13.25s, 2006 2,500 2,978,825
Niagara Mohawk Power Corp., 8s, 2004 625 615,588
Niagara Mohawk Power Corp., 8.77s, 2018 990 974,229
Niagara Mohawk Power Corp., 9.25s, 2001 2,250 2,337,975
North Atlantic Energy Corp., 9.05s, 2002 1,500 1,481,025
Texas & New Mexico Power Co., 12.5s, 1999 2,000 2,151,660
------------
$ 14,021,173
- ------------------------------------------------------------------------------------------------
Utilities - Gas - 2.2%
Maxus Energy Corp., 9.875s, 2002 $ 500 $ 516,250
Maxus Energy Corp., 11.25s, 2013 1,000 1,035,000
Ras Laffan Liquefied Natural Gas, 8.294s, 2014## 500 508,125
------------
$ 2,059,375
- ------------------------------------------------------------------------------------------------
Other - 2.1%
George Town Real Estate Ltd., 5.9s, 2007## $ 500 $ 478,500
Humpuss Funding Corp., 7.72s, 2009## 500 490,345
News America Holdings, Inc., 8.15s, 2036 500 476,675
Shopko Stores, Inc., 8.5s, 2002 500 495,000
------------
$ 1,940,520
- ------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 57,665,272
- ------------------------------------------------------------------------------------------------
Foreign Bonds - 27.5%
Argentina - 3.6%
City of Buenos Aires, 11.25s, 2007 $ 700 $ 729,750
Hidroelectrica Alicura, 8.375s, 1999## 500 499,375
Republic of Argentina, 5.5s, 2023 1,000 651,250
Republic of Argentina, 6.75s, 2005 485 444,988
Republic of Argentina, 11.75s, 2007## 1,000 1,047,500
------------
$ 3,372,863
- ------------------------------------------------------------------------------------------------
Brazil - 9.6%
Companhia Energetica de Minas, 9.125s, 2004## $1,500 $ 1,488,750
Companhia Paranaense, 9.75s, 2005## 2,000 2,020,000
Federal Republic of Brazil, 5s, 2014 1,681 1,275,440
Federal Republic of Brazil, 6.688s, 2001 13 12,805
Federal Republic of Brazil, 6.938s, 2009 2,500 2,118,750
Leasing Bank Boston/Brazil, 8.375s to 1999, 8.625s
to 2001, 9s to 2004## 2,000 1,985,000
------------
$ 8,900,745
- ------------------------------------------------------------------------------------------------
Canada - 1.1%
Gulf Canada Resources Ltd., 9.25s, 2004 $ 500 $ 517,500
Rogers Cantel, Inc., 9.375s, 2008 500 513,750
------------
$ 1,031,250
- ------------------------------------------------------------------------------------------------
Ecuador - 1.4%
Republic of Ecuador, 3.5s, 2025 $3,000 $ 1,305,000
- ------------------------------------------------------------------------------------------------
Greece - 2.5%
Hellenic Republic, 13.4s, 2003 GRD 600,000 $ 2,299,290
- ------------------------------------------------------------------------------------------------
Indonesia - 0.7%
PT Polysindo Eka Perkasa, 13s, 2001 $ 555 $ 620,213
- ------------------------------------------------------------------------------------------------
Ireland - 0.5%
Republic of Ireland, 6.5s, 2001 IEP 325 $ 494,639
- ------------------------------------------------------------------------------------------------
Mexico - 4.1%
Empresas ICA Sociedad SA, 11.875s, 2001 $2,000 $ 2,135,000
Grupo Elektra SA, 12.75s, 2001 1,500 1,629,375
------------
$ 3,764,375
- ------------------------------------------------------------------------------------------------
Panama - 3.1%
Republic of Panama, 7.875s, 2002## $3,000 $ 2,872,500
- ------------------------------------------------------------------------------------------------
Russia - 0.8%
Russia, Interest Notes, 6.5s, 2049++(S)(S) $1,000 $ 693,750
- ------------------------------------------------------------------------------------------------
United Kingdom - 0.1%
Central Transport Rental Finance Corp., 9.5s, 2003 $ 143 $ 132,606
- ------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 25,487,231
- ------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $83,409,651) $ 83,152,503
- ------------------------------------------------------------------------------------------------
Stocks - 0.1%
- ------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------
U.S. Stocks - 0.1%
Apparel and Textiles - 0.1%
Ithaca Industries, Inc. 8,000 $ 64,000
- ------------------------------------------------------------------------------------------------
Building
Atlantic Gulf Communities Corp.*++ 100 $ 550
- ------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 64,550
- ------------------------------------------------------------------------------------------------
Foreign Stocks
United Kingdom
Central Transport Rental Group PLC, ADR* 69,924 $ 21,851
- ------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 21,851
- ------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $157,798) $ 86,401
- ------------------------------------------------------------------------------------------------
Preferred Stock - 3.2%
- ------------------------------------------------------------------------------------------------
Cablevision Systems Corp. 5,659 $ 519,213
Panamsat Corp. 1,031 1,221,735
Long Island Lighting Co., 7.95s 25,000 650,000
Renaissance Cosmetics, Inc., 14s## 535 470,800
Time Warner, Inc., "K", 10.25s 110 118,250
- ------------------------------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $2,969,944) $ 2,979,998
- ------------------------------------------------------------------------------------------------
Warrants - 0.1%
- ------------------------------------------------------------------------------------------------
American Media, Inc.* 27,000 $ 422
ICO, Inc.* 62,500 40,625
Renaissance Cosmetics, Inc.* 500 50,000
- ------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $51,786) $ 91,047
- ------------------------------------------------------------------------------------------------
Repurchase Agreement - 8.1%
- ------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------
Goldman Sachs, dated 4/30/97, due 5/01/97, total to be received $7,481,112
(secured by various U.S. Treasury and federal agency obligations in a
jointly traded account),
at Amortized Cost $ 7,480 $ 7,480,000
- ------------------------------------------------------------------------------------------------
Short-Term Obligations - 2.1%
- ------------------------------------------------------------------------------------------------
CSFB Russia Note, due 07/21/97++
(Identified Cost, $1,954,556) $ 2,000 $ 1,949,318
- ------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $96,023,735) $ 95,739,267
Other Assets, Less Liabilities - (3.3)% (3,061,800)
- ------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 92,677,467
- ------------------------------------------------------------------------------------------------
*Non-income producing security.
+Non-income producing security - in default.
++Restricted security.
##SEC Rule 144A restriction.
(S)(S)When-issued security. At April 30, 1997, the Fund had sufficient cash and/or securities at least
equal to the value of the when-issued security.
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. dollar. A list of abbreviations is shown below.
IEP = Irish Punts GRD = Greek Drachma
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
April 30, 1997
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at value (identified cost, $96,023,735) $ 95,739,267
Net receivable for closed forward foreign currency exchange contracts 84,658
Receivable for Fund shares sold 854,481
Receivable for investments sold 2,248,460
Interest receivable 1,914,574
Receivable from investment adviser 314,921
Other assets 341,199
------------
Total assets $101,497,560
------------
Liabilities:
Cash overdraft $ 9,967
Payable for Fund shares reacquired 38,401
Payable for investments purchased 8,599,194
Payable to affiliates -
Management fee 1,008
Distribution fee 26,631
Accrued expenses and other liabilities 144,892
------------
Total liabilities $ 8,820,093
------------
Net assets $ 92,677,467
============
Net assets consist of:
Paid-in capital $ 90,682,855
Unrealized depreciation on investments and translation of assets and
liabilities in foreign currencies (204,591)
Accumulated undistributed net realized gain on investments and foreign
currency transactions 1,950,129
Accumulated undistributed net investment income 249,074
------------
Total $ 92,677,467
============
Shares of beneficial interest outstanding 11,351,448
==========
Class A shares:
Net asset value and redemption price per share
(net assets of $51,444,871 / 6,281,952 shares of beneficial interest
outstanding) $8.19
=====
Offering price per share (100 / 95.25) $8.60
=====
Class B shares:
Net asset value and offering price per share
(net assets $34,230,658 / 4,206,932 shares of beneficial interest
outstanding) $8.14
=====
Class C shares:
Net asset value and offering price per share
(net assets of $7,001,836 / 862,552 shares of beneficial interest
outstanding) $8.12
=====
Class I shares:
Net asset value and offering price per share
(net assets of $102 / 12 shares of beneficial interest outstanding) $8.19
=====
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares. See notes to financial statements
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------------
Six Months Ended April 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Net investment income:
Income -
Interest $ 4,044,646
Dividend 186,039
------------
Total investment income $ 4,230,685
------------
Expenses -
Management fee $ 515,943
Administrative fee 2,300
Trustees' compensation 24,012
Shareholder servicing agent fee (Common) 38,636
Shareholder servicing agent fee (Class A) 12,726
Shareholder servicing agent fee (Class B) 9,614
Shareholder servicing agent fee (Class C) 1,380
Distribution and service fee (Class A) 90,076
Distribution and service fee (Class B) 150,857
Distribution and service fee (Class C) 30,616
Custodian fee 64,767
Printing 39,704
Auditing fees 38,664
Postage 25,228
Legal fees 4,699
Miscellaneous 73,443
------------
Total expenses $ 1,122,665
Fees paid indirectly (17,625)
Preliminary reduction of expenses by investment adviser (655,430)
------------
Net expenses $ 449,610
------------
Net investment income $ 3,781,075
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 2,213,174
Written option transactions 29,506
Foreign currency transactions (217,928)
Futures contracts (68,933)
------------
Net realized gain on investments $ 1,955,819
------------
Change in unrealized appreciation (depreciation) -
Investments $ (1,643,529)
Written options (22,603)
Translation of assets and liabilities in foreign currencies 256,022
------------
Net unrealized loss on investments $ (1,410,110)
------------
Net realized and unrealized gain on investments and foreign
currency $ 545,709
------------
Increase in net assets from operations $ 4,326,784
============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
April 30, 1997 October 31, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 3,781,075 $ 5,127,428
Net realized gain on investments and foreign
currency transactions 1,955,819 427,669
Net unrealized gain (loss) on investments and
foreign currency translation (1,410,110) 870,240
----------- -----------
Increase in net assets from operations $ 4,326,784 $ 6,425,337
----------- -----------
Distributions declared to shareholders -
From net investment income (Class A) $(2,190,051) $(3,527,319)
From net investment income (Class B) (1,166,941) (1,123,277)
From net investment income (Class C) (236,864) (266,632)
From net investment income (Class I) (2) --
Net realized gain on investments and foreign
currency transactions (Class A) (460,894) (400,584)
Net realized gain on investments and foreign
currency transactions (Class B) (246,359) (87,623)
Net realized gain on investments and foreign
currency transactions (Class C) (50,625) (10,865)
----------- -----------
Total distributions declared to shareholders $(4,351,736) $(5,416,300)
----------- -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $33,856,877 $46,730,577
Net asset value of shares issued to shareholders
in
reinvestment of distributions 2,439,088 2,632,478
Cost of shares reacquired (23,865,340) (21,213,968)
----------- -----------
Increase in net assets from Fund share transactions $12,430,625 $28,149,087
----------- -----------
Total increase in net assets $12,405,673 $29,158,124
Net assets:
At beginning of year 80,271,794 51,113,670
----------- -----------
At end of year (including accumulated
undistributed net investment income of $249,074 and
$61,857, respectively) $92,677,467 $80,271,794
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS- continued
Financial Highlights
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended October 31,
Six Months Ended ----------------------------------------------------------------------------
April 30, 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 8.19 $ 8.07 $ 7.57 $ 8.34 $ 8.00 $ 8.12
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.36 $ 0.62 $ 0.60 $ 0.48 $ 0.52 $ 0.63
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions 0.06 0.18 0.48 (0.74) 0.42 0.08
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.42 $ 0.80 $ 1.08 $(0.26) $ 0.94 $ 0.71
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
$
From net investment income $(0.35) $(0.60) $(0.58) -- $(0.24) $(0.56)
From net realized gain on
investments and foreign
currency transactions (0.07) (0.08) -- -- (0.32) --
In excess of net investment
income and foreign currency
transactions -- -- -- (0.06) -- --
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- (0.04) -- --
From paid-in-capital -- -- -- (0.41) (0.04) (0.27)
------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.42) $(0.68) $(0.58) $(0.51) $(0.60) $(0.83)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 8.19 $ 8.19 $ 8.07 $ 7.57 $ 8.34 $ 8.00
====== ====== ====== ====== ====== ======
Total return(+) 5.27%++ 10.42% 15.00% (3.15)% 12.36% 9.02%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.80%+ 1.13% 1.54% 1.71% 1.98% 2.02%
Net investment income 8.88%+ 7.63% 7.86% 6.11% 5.92% 7.47%
Portfolio turnover 95% 287% 249% 153% 275% 423%
Net assets at end of period
(000 omitted) $51,445 $49,432 $41,688 $44,032 $60,120 $77,487
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to October 31, 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.
(+)Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results would
have been lower.
(S)The investment adviser did not impose a portion of its management fee for the periods indicated. If this fee had been incurred
by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.30 $ 0.54 $ 0.53 $ 0.44 $ 0.49 $ 0.61
Ratios (to average net assets):
Expenses## 2.29%+ 2.06% 2.47% 2.21% 2.14% 2.21%
Net investment income 7.39%+ 6.70% 6.89% 5.62% 5.76% 7.55%
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended October 31,
-------------------------------------------------------------------------------------
1991 1990 1989 1988 1987*
- ----------------------------------------------------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 7.56 $ 8.93 $ 9.60 $ 9.21 $ 9.35
------ ------ ------ ------ ------
Income from investment operations -
Net investment income(S) $ 0.73 $ 0.86 $ 0.94 $ 0.93 $ 0.0025
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 0.95 (1.03) (0.38) 0.56 (0.1425)
------ ------ ------ ------ ------
Total from investment operations $ 1.68 $(0.17) $ 0.56 $ 1.49 $(0.14)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.73) $(0.82) $(1.18) $(0.69) $ --
From net realized gain on investments
and foreign currency transactions -- -- -- (0.41) --
From paid-in-capital (0.39) (0.38) (0.05) -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.12) $(1.20) $(1.23) $(1.10) $ --
------ ------ ------ ------ ------
Net asset value - end of period $ 8.12 $ 7.56 $ 8.93 $ 9.60 $ 9.21
====== ====== ====== ====== ======
Total return(+) 23.78% (1.62)% 5.85% 16.60% (1.50)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.87% 1.47% 1.82% 1.75% 0.57%+
Net investment income 9.26% 10.42% 10.05% 9.74% 4.88%+
Portfolio turnover 671% 400% 157% 270% --
Net assets at end of period (000 omitted) $76,312 $74,555 $87,978 $93,819 $78,479
*For the period from the commencement of investment operations October 29, 1987, to October 31, 1987.
+Annualized.
++Not 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.
(S)The investment adviser did not impose a portion of its management fee for the periods indicated. If this fee had been incurred
by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.71 $ 0.83 -- -- --
Ratios (to average net assets):
Expenses 2.16% 1.81% -- -- --
Net investment income 8.97% 10.08% -- -- --
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended October 31,
Six Months Ended -----------------------------------------------------------------
April 30, 1997 1996 1995 1994 1993**
- ----------------------------------------------------------------------------------------------------------------------------------
Class B
- ----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 8.14 $ 8.03 $ 7.53 $ 8.33 $ 8.28
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.33 $ 0.56 $ 0.55 $ 0.45 $ 0.04
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 0.06 0.18 0.48 (0.78) 0.05
------ ------ ------ ------ ------
Total from investment operations $ 0.39 $ 0.74 $ 1.03 $(0.33) $ 0.09
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.32) $(0.55) $(0.53) $ -- $(0.03)
From net realized gain on investments and
foreign currency transactions (0.07) (0.08) -- -- (0.01)
In excess of net investment income and
foreign currency transactions -- -- -- (0.05) --
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- (0.03) --
From paid-in-capital -- -- -- (0.39) --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.39) $(0.63) $(0.53) $(0.47) $(0.04)
------ ------ ------ ------ ------
Net asset value - end of period $ 8.14 $ 8.14 $ 8.03 $ 7.53 $ 8.33
====== ====== ====== ====== ======
Total return 4.94%++ 9.68% 14.23% (3.97)% 1.15%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.45%+ 1.80% 2.27% 2.43% 3.03%+
Net investment income 8.26%+ 7.02% 7.15% 5.97% 5.22%+
Portfolio turnover 95% 287% 249% 153% 275%
Net assets at end of period (000 omitted) $34,231 $25,361 $8,365 $5,350 $265
**For the period from the commencement of offering of Class B shares, September 7, 1993, to October 31, 1993.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to October 31, 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.
(S)The investment adviser did not impose a portion of its management fee for the periods indicated. If this fee had been incurred
by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.27 $ 0.49 $ 0.48 $ 0.41 --
Ratios (to average net assets):
Expenses## 2.94%+ 2.73% 3.20% 2.92% --
Net investment income 6.77%+ 6.09% 6.18% 5.48% --
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year Ended October 31,
Six Months Ended --------------------------------------------
April 30, 1997 1996 1995 1994***
- -------------------------------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $ 8.12 $ 8.00 $ 7.53 $ 7.53
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.33 $ 0.57 $ 0.54 $ 0.12
Net realized and unrealized gain (loss) on
investments
and foreign currency transactions 0.07 0.18 0.48 (0.03)
------ ------ ------ ------
Total from investment operations $ 0.40 $ 0.75 $ 1.02 $ 0.09
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.32) $(0.55) $(0.55) $ --
From net realized gain on investments and
foreign
currency transactions (0.08) (0.08) -- --
From paid-in-capital -- -- -- (0.09)
------ ------ ------ ------
Total distributions declared to
shareholders $(0.40) $(0.63) $(0.55) $(0.09)
------ ------ ------ ------
Net asset value - end of period $ 8.12 $ 8.12 $ 8.00 $ 7.53
====== ====== ====== ======
Total return 4.96%++ 9.80% 14.17% 1.23%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.44%+ 1.71% 2.20% 2.16%+
Net investment income 8.25%+ 7.12% 7.23% 8.99%+
Portfolio turnover 95% 287% 249% 153%
Net assets at end of period (000 omitted) $7,002 $5,478 $1,060 $13
***For the period from the commencement of offering of Class C shares, September 1, 1994, to October 31, 1994.
+Annualized.
++Not annualized.
#Per share data 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.
(S)The investment adviser did not impose a portion of its management fee for the periods indicated. If this fee had been incurred
by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.27 $ 0.51 $ 0.46 $ 0.11
Ratios (to average net assets):
Expenses## 2.94%+ 2.64% 3.13% 2.65%+
Net investment income 6.76%+ 6.19% 6.26% 8.50%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Six Months Ended
April 30, 1997****
- ------------------------------------------------------------------------------------------
Class I
- ------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C>
Net asset value - beginning of period $ 8.15
------
Income from investment operations# -
Net investment income $ 0.20
Net realized and unrealized gain on investments and foreign
currency transactions 0.02
------
Total from investment operations $ 0.22
------
Less distributions declared to shareholders -
From net investment income (0.18)
------
Total distributions declared to shareholders $(0.18)
------
Net asset value - end of period $ 8.19
======
Total return 2.72%++ Ratios (to average net assets)/Supplementa data:
Expenses## --
Net investment income 8.10%+
Portfolio turnover 95%
Net assets at end of period $ 102
****For the period from the commencement of offering of Class I shares,
January 9, 1997, to April 30, 1997.
+Annualized.
++Not annualized.
#Per share data is based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Strategic Income Fund (the Fund) is a non-diversified series of MFS Series
Trust VIII (the Trust). The Trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political and economic environment.
Investment Valuations - 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.
Non-U.S. dollar denominated short-term obligations are valued at amortized cost
as calculated in the base currency and translated into U.S. dollars at the
closing daily exchange rate. 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. 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.
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.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities purchased in a repurchase transaction be transferred to the custodian
in a manner sufficient to enable the Fund to obtain those securities in the
event of a default under the repurchase agreement. The Fund monitors, on a daily
basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement. The
Fund, along with other affiliated entities of Massachusetts Financial Services
Company (MFS), may utilize a joint trading account for the purpose of entering
into one or more repurchase agreements.
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.
Written Options - The Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options may
also be used as part of an income producing strategy reflecting the view of the
Fund's management on the direction of interest rates.
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of securities, currency, or contracts based on financial indices at a
fixed price on a future date. In entering such contracts, the Fund is required
to deposit either in cash or securities an amount equal to a certain percentage
of the contract amount. Subsequent payments are made or received by the Fund
each day, depending on the daily fluctuations in the value of the underlying
security, and are recorded for financial statement purposes as unrealized gains
or losses by the Fund. The Fund's investment in futures contracts is designed to
hedge against anticipated future changes in interest or exchange rates or
securities prices. Investments in interest rate futures for purposes other than
hedging may be made to modify the duration of the portfolio without incurring
the additional transaction costs involved in buying and selling the underlying
securities. Investments in currency futures for purposes other than hedging may
be made to change the Fund's relative position in one or more currencies without
buying and selling portfolio assets. Investments in equity index contracts, or
contracts on related options, for purposes other than hedging may be made when
the Fund has cash on hand and wishes to participate in anticipated market
appreciation while the cash is being invested. Should interest or exchange rates
or securities prices move unexpectedly, the Fund may not achieve the anticipated
benefits of the futures contracts and may realize a loss.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund will enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized until the
contract settlement date.
Swap Agreements - The Fund may enter into swap agreements. A swap is an exchange
of cash payments between the Fund and another party which is based on a specific
financial index. Cash payments are exchanged at specified intervals and the
expected income or expense is recorded on the accrual basis. The value of the
swap is adjusted daily and the change in value is recorded as unrealized
appreciation or depreciation. Risks may arise upon entering into these
agreements from the potential inability of counterparties to meet the terms of
their contract and from unanticipated changes in the value of the financial
index on which the swap agreement is based. The Fund uses swaps for both hedging
and non-hedging purposes. For hedging purposes, the Fund may use swaps to reduce
its exposure to interest and foreign exchange rate fluctuations. For non-hedging
purposes, the Fund may use swaps to take a position on anticipated changes in
the underlying financial index.
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.
The Fund invests in high-yield securities rated below investment grade.
Investments in high-yield securities involve greater degrees of credit and
market risk than investments in higher-rated securities, and tend to be more
sensitive to economic conditions.
The Fund uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds, whereby interest income on PIK bonds is recorded
ratably by the Fund at a constant yield to maturity. Legal fees and other
related expenses incurred to preserve and protect the value of a security owned
are added to the cost of the security; other legal fees are expensed. Capital
infusions, which are generally non-recurring, incurred to protect or enhance the
value of high-yield debt securities, are reported as an addition to the cost
basis of the security. Costs that are incurred to negotiate the terms or
conditions of capital infusions or that are expected to result in a plan of
reorganization are reported as realized losses. Ongoing costs incurred to
protect or enhance an investment, or costs incurred to pursue other claims or
legal actions, are reported as operating expenses.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on the
Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
The Fund files a tax return annually using tax accounting methods required under
provisions of the Code which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the amount of net investment income and net realized gain reported
on these financial statements may differ from that reported on the Fund's tax
return and, consequently, the character of distributions to shareholders
reported in the financial highlights may differ from that reported to
shareholders on Form 1099-DIV. Foreign taxes have been provided for on interest
and dividend income earned on foreign investments in accordance with the
applicable country's tax rates and, to the extent unrecoverable, are recorded as
a reduction of investment income. Distributions to shareholders are recorded on
the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B, Class C, and Class I shares. The four 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 was computed daily and paid monthly at an effective annual rate
of 0.50% of average daily net assets and 7.14% of investment income. The
investment adviser did not impose a portion of its fee, which is reflected as a
reduction of expenses in the Statement of Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain 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 $6,187 for the period ended
April 30, 1997.
Administrator - Effective March 31, 1997, the Trust has an administrative
services agreement with certain financial, legal, compliance, shareholder
communications and other administrative services. As a partial reimbursement for
the cost of providing these services, the Trust pays MFS an administrative fee
up to 0.015% per annum of the Trust's average daily net assets, provided that
the administrative fee is not assessed on Trust assets that exceed $3 billion.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$27,452 for the period ended April 30, 1997, as its portion of the sales charge
on sales of Class A shares of the Fund. The Trustees have adopted a 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 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 $10,818 for the period ended April 30,
1997. Fees incurred under the distribution plan during the period ended April
30, 1997, were 0.35% of average daily net assets attributable to Class A shares
on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be additional consideration for
services rendered by the dealer with respect to Class B and Class C shares. MFD
retains the service fee for accounts not attributable to a securities dealer,
which amounted to $3,213 and $85 for Class B and Class C shares, respectively,
for the period ended April 30, 1997. Fees incurred under the distribution plans
during the period ended April 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 into
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 twelve months of
purchases made on or after April 1, 1996. MFD receives all contingent deferred
sales charges. Contingent deferred sales charges imposed during the period ended
April 30, 1997, were $5,700, $23,166, and $1,985 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:
<TABLE>
<CAPTION>
Purchases Sales
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. government securities $10,828,171 $ 5,272,853
=========== ===========
Investments (non-U.S. government securities) $80,181,717 $73,087,588
=========== ===========
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 $96,023,735
===========
Gross unrealized appreciation $ 1,442,394
Gross unrealized depreciation (1,726,862)
===========
Net unrealized depreciation $ (284,468)
===========
</TABLE>
(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>
<CAPTION>
Class A Shares
Period Ended April 30, 1997 Year Ended October 31, 1996
--------------------------------- --------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,311,498 $10,755,289 2,056,255 $ 16,667,005
Shares issued to shareholders in
reinvestment of distributions 149,445 1,222,794 200,640 1,607,490
Shares reacquired (1,214,699) (9,974,809) (1,387,485) (11,133,559)
---------- ----------- ---------- ------------
Net increase (decrease) 246,244 $ 2,003,274 869,410 $ 7,140,936
========== =========== ========== ============
<CAPTION>
Class B Shares
Period Ended April 30, 1997 Year Ended October 31, 1996
--------------------------------- --------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,309,268 $18,838,734 2,785,248 $22,357,597
Shares issued to shareholders in
reinvestment of distributions 121,364 987,034 98,830 787,774
Shares reacquired (1,339,660) (10,924,151) (809,863) (6,470,174)
---------- ----------- ---------- ------------
Net increase 1,090,972 $ 8,901,617 2,074,215 $ 16,675,197
========== =========== ========== ============
<CAPTION>
Class C Shares
Period Ended April 30, 1997 Year Ended October 31, 1996
--------------------------------- --------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 524,292 $ 4,262,754 962,710 $ 7,705,975
Shares issued to shareholders in
reinvestment of distributions 28,253 229,258 29,851 237,214
Shares reacquired (364,697) (2,966,380) (450,415) (3,610,235)
---------- ----------- ---------- ------------
Net increase 187,848 $ 1,525,632 542,146 $ 4,332,954
========== =========== ========== ============
<CAPTION>
Class I Shares
Period Ended April 30, 1997****
--------------------------------
Shares Amount
- ----------------------------------------------------------------------
<S> <C> <C>
Shares sold 12 $ 100
Shares issued to shareholders in
reinvestment of distributions -- 2
Shares reacquired -- --
---------- -----------
Net increase 12 $ 102
========== ===========
****For the period from the commencement of offering of Class I shares, January 9, 1997, to April 30, 1997.
</TABLE>
(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 $400 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the period ended April 30,
1997, was $388.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include written options, forward foreign currency exchange
contracts, and futures contracts. The notional or contractual amounts of these
instruments represent the investment the Fund has in particular classes of
financial instruments and does not necessarily represent the amounts potentially
subject to risk. The measurement of the risks associated with these instruments
is meaningful only when all related and offsetting transactions are considered.
A summary of obligations under these financial instruments at April 30, 1997, is
as follows:
Written Option Transactions
<TABLE>
<CAPTION>
1997 Calls 1997 Puts
----------------------------------------------------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- -----------------------------------------------------------------------------------------------------------
OUTSTANDING, BEGINNING OF PERIOD -
<S> <C> <C> <C> <C>
German Marks/British Pounds 2,537 $ 9,873 -- --
Japanese Yen -- -- 155,000 $ 12,885
Options terminated in closing transactions -
Japanese Yen -- -- (155,000) (12,885)
Options expired -
German Marks/British Pounds (2,537) (9,873) -- --
------ ----------- ------ -----------
OUTSTANDING, END OF PERIOD -- $ -- $ --
====== =========== ====== ===========
</TABLE>
At April 30, 1997, the Fund had sufficient cash and/or securities at least equal
to the value of the written options.
The net receivables on forward foreign currency purchases and sales under master
netting arrangements amounted to $65,465 with Bankers Trust, $18,765 with
Merrill Lynch, and $428 with Swiss Bank Corporation International
Securities at April 30, 1997.
At April 30, 1997, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
(8) RESTRICTED SECURITIES
The Fund may invest not more than 15% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At April 30, 1997,
the Fund owned the following restricted securities (constituting 2.85% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933 (the 1933 Act). The Fund does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations supplied by a pricing service or brokers or, if not available, in
good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
Date of Shares/
Description Acquisition Par Amount Cost Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Atlantic Gulf Communities 9/21/89 - 9/25/95 100 $ -- $ 550
CSFB Russian Note, 0s, 1997 4/25/97 2,000,000 1,954,556 1,949,318
Russia, Interest Notes, 6.5s, 2049 3/18/97 1,000,000 708,750 693,750
----------
$2,643,618
==========
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of MFS Strategic Income Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Strategic Income Fund, including the schedule of portfolio of investments as of
April 30, 1997, and the related statement of operations for the six month period
ended April 30, 1997, the statement of changes in net assets for the six month
period ended April 30, 1997 and for the year ended October 31, 1996, and the
financial highlights for the six month period ended April 30, 1997, and for each
of the three years in the period ended October 31, 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. The financial
highlights for the periods prior to the year ended October 31, 1994, indicated
herein, were audited by other auditors whose report dated December 16, 1993
expressed an unqualified opinion on those statements and financial highlights.
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 and financial highlights. Our procedures included confirmation of
securities owned as of April 30, 1997, by correspondence with the custodian and
brokers or other appropriate auditing procedures where replies from brokers were
not received. 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Strategic Income Fund at April 30, 1997, the results of its operations for the
six month period ended April 30, 1997, the changes in its net assets for the six
month period ended April 30, 1997, and for the year ended October 31, 1996, and
the financial highlights for the six month period ended April 30, 1997 and for
each of the three years in the period ended October 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
June 6, 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>
MFS(R) STRATEGIC INCOME FUND
<TABLE>
<S> <C>
TRUSTEES
A. Keith Brodkin* - Chairman and President ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991), CUSTODIAN
Massachusetts Financial Services Company; State Street Bank and Trust Company
Director, Cambridge Bancorp; Director,
Cambridge Trust Company AUDITORS
Ernst & Young LLP
Marshall N. Cohan - Private Investor
INVESTOR INFORMATION
Lawrence H. Cohn, M.D. - Chief of Cardiac For MFS stock and bond market outlooks, call
Surgery, Brigham and Women's Hospital; toll free: 1-800-637-4458 anytime from a
Professor of Surgery, Harvard Medical School touch-tone telephone. For information on MFS
mutual funds, call your financial adviser
The Hon. Sir J. David Gibbons, KBE - Chief or, for an information kit, call toll free:
Executive Officer, Edmund Gibbons Ltd.; 1-800-637-2929 any business day from 9 a.m.
Chairman, Bank of N.T. Butterfield & Son to 5 p.m. Eastern time (or leave a message
Ltd. anytime).
Abby M. O'Neill - Private Investor; INVESTOR SERVICE
Director, Rockefeller Financial Services, MFS Service Center, Inc.
Inc. (investment advisers) P.O. Box 2281
Boston, MA 02107-9906
Walter E. Robb, III - President and
Treasurer, Benchmark Advisors, Inc. For general information, call toll free:
(corporate financial consultants); 1-800-225-2606 any business day from
President, Benchmark Consulting Group, Inc. 8 a.m. to 8 p.m. Eastern time.
(office services); Trustee, Landmark Funds
(mutual funds) For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business
Arnold D. Scott* - Senior Executive Vice day from 9 a.m. to 5 p.m. Eastern time. (To
President, Director and Secretary, use this service, your phone must be
Massachusetts Financial Services Company equipped with a Telecommunications Device
for the Deaf.)
Jeffrey L. Shames* - President and Director,
Massachusetts Financial Services Company For share prices, account balances, and
exchanges, call toll free: 1-800-MFS-TALK
J. Dale Sherratt - President, Insight (1-800-637-8255) anytime from a touch-tone
Resources, Inc. (acquisition planning telephone.
specialists)
WORLD WIDE WEB
Ward Smith - Former Chairman (until 1994), www.mfs.com
NACCO Industries; Director, Sundstrand
Corporation
[DALBAR Logo] For the third year in a row,
INVESTMENT ADVISER MFS earned a #1 ranking in the
Massachusetts Financial Services Company DALBAR, Inc. Broker/Dealer
500 Boylston Street Survey, Main Office Operations Service
Boston, MA 02116-3741 Quality Category. The firm achieved a 3.48
overall score on a scale of 1 to 4 in the
DISTRIBUTOR 1996 survey. A total of 110 firms responded,
MFS Fund Distributors, Inc. offering input on the quality of service
500 Boylston Street they received from 29 mutual fund companies
Boston, MA 02116-3741 nationwide. The survey contained questions
about service quality in 15 categories,
PORTFOLIO MANAGER including "knowledge of phone service
James T. Swanson* contacts," "accuracy of transaction
processing," and "overall ease of doing
TREASURER business with the firm."
W. Thomas London*
ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
*A ffiliated with the Investment Adviser
</TABLE>
<PAGE>
MFS(R) STRATEGIC [DALBAR Logo} Bulk Rate
INCOME FUND U.S. Postage
500 Boylston Street P A I D
Boston, MA 02116-3741 MFS
[MFS logo]
INVESTMENT MANAGEMENT
WE INVENTED THE MUTUAL FUND(SM)
(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MSI-3 6/97 18.5M 34/234/334/834
