<PAGE>
[Logo]
INVESTMENT MANAGEMENT
ANNUAL REPORT
FOR YEAR ENDED
OCTOBER 31, 1996
MFS(R) STRATEGIC INCOME FUND
[Graphic Omitted]
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman ................................................... 1
A Discussion with the Portfolio Manager .................................... 3
Portfolio Manager's Profile ................................................ 5
Portfolio Concentration .................................................... 5
Fund Facts ................................................................. 6
Performance Summary ........................................................ 6
Portfolio of Investments ................................................... 9
Financial Statements .......................................................15
Notes to Financial Statements ..............................................22
Independent Auditors' Report .............................................. 32
Trustees and Officers ......................................................33
HIGHLIGHTS
* FOR THE YEAR ENDED OCTOBER 31, 1996, CLASS A SHARES OF THE FUND PROVIDED A
TOTAL RETURN AT NET ASSET VALUE OF 10.42%, CLASS B SHARES 9.68%, AND CLASS C
SHARES 9.80%.
* THE FUND'S PERFORMANCE WAS HELPED BY ITS ALLOCATION TO THE HIGHER-YIELDING
FIXED-INCOME MARKETS, INCLUDING CORPORATE AND EMERGING MARKETS, WHICH HAVE
BEEN THE BEST PERFORMERS IN THE FIXED-INCOME UNIVERSE.
* WE ARE SEEKING TO INCREASE THE FUND'S YIELD BY REDUCING ITS INTERNATIONAL
EXPOSURE TO MATURE COUNTRIES AND ITS POSITION IN THE U.S. GOVERNMENT
SECTOR, WHERE YIELD LEVELS IN GENERAL HAVE DROPPED, AND REPLACING THESE
SEGMENTS WITH MORE HIGH-YIELD U.S. CORPORATE BONDS, EMERGING MARKET DEBT,
AND SOME HIGHER-GRADE MORTGAGE-BACKED SECURITIES.
* THE FUND HAS A RELATIVELY HIGH WEIGHTING IN EMERGING MARKETS, WHICH WE
BELIEVE ARE CHEAP RELATIVE TO OTHER FIXED-INCOME MARKETS, AND WHERE OUR
LONG-TERM OUTLOOK FORESEES HIGHER GROWTH RATES COMPARED TO THOSE OF
DEVELOPED COUNTRIES. INVESTMENTS IN EMERGING MARKET SECURITIES MAY PROVIDE
SUPERIOR RETURNS BUT ALSO INVOLVE GREATER RISK.
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders:
[Photo of A. Keith Brodkin]
As we enter the final months of 1996, the U.S. economy appears to have settled
into a pattern of moderate growth and inflation -- two factors that we think can
be important contributors to a favorable long-term investment climate. During
the first quarter of 1996, real (inflation-adjusted) economic growth was 2.3% on
an annualized basis, followed by a rate of 4.7% in the second quarter. However,
this unexpectedly high level was followed by a more moderate 2.2% pace during
the third quarter. Overall, real growth in gross domestic product has surpassed
our expectations this year, and we now expect that growth for all of 1996 could
exceed 2.5%. Although individual consumers appear to be carrying an excessive
debt load, the consumer sector itself, which represents two-thirds of the
economy, continues to support the automobile and housing markets. Consumer
spending has also been positively impacted by widespread job growth and, more
recently, rising wages. However, recent statistics appear to show a slowdown in
consumer spending. This is particularly true when considering overall retail
sales, which have been flat for several months. Furthermore, the economies of
Europe and Japan continue to be in the doldrums, weakening U.S. export markets
while subduing the capital spending plans of American corporations. Thus, while
economic growth should continue, we expect some slackening toward the end of the
year.
In the bond markets, persistent signs of economic weakness led to decreases in
short-term interest rates by the Federal Reserve Board in late 1995 and early
1996. Should signs of more rapid economic growth and, particularly, of higher
inflation resurface, we would expect the Fed to maintain its anti- inflationary
stance. In the beginning of the year, bond markets traded in a narrow range as
investors shifted between concern for the lack of a budget resolution in
Washington and hope that sluggish economic reports and low inflation might lead
to lower interest rates. Later, fixed-income markets began reacting to
conflicting signals regarding the economy's strength with more volatile trading
patterns marked by an upward bias in interest rates. Interest rates may move
even higher over the coming months, but we believe the current rise in bond
yields is reaching a point where fixed-income markets are equitably valued.
Finally, as you may notice, this report to shareholders incorporates a number
of changes which we hope you will find informative and useful. Following a
discussion with the Portfolio Manager, we have added new information on the
Fund's holdings, including charts illustrating the portfolio's concentration in
the types of investments that meet its criteria. Near the back of the report,
telephone numbers and addresses are listed if you would like to contact MFS.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin
------------------------------
A. Keith Brodkin
Chairman and President
November 12, 1996
<PAGE>
A DISCUSSION WITH THE PORTFOLIO MANAGER
[Photo of James T. Swanson]
In a mostly favorable global environment for financial assets, with inflation on
a downward trend in Europe, Asia, and North America and interest rates in most
countries declining or stable, Class A shares of the Fund provided a total
return of 10.42% for the year ended October 31, 1996, Class B shares 9.68%, and
Class C shares 9.80%. These returns assume the reinvestment of distributions but
exclude the effects of any sales charges.
Q. WHAT DO YOU SEE AS SOME OF THE REASONS FOR THIS PERFORMANCE, JIM?
A. The Fund's performance has been strong because of our allocation of assets
to the higher-yielding fixed-income markets, including corporate and emerging
markets, which have been the best performers in the fixed-income universe.
Also, our use of five or more asset classes has helped us reduce the
portfolio's volatility.
Q. COULD YOU DESCRIBE THE INVESTMENT ENVIRONMENT YOU FACED OVER THE PAST YEAR,
PARTICULARLY AS IT RELATES TO THE FUND?
A. As yields fell throughout the world on news of declining inflation, it became
difficult to keep the Fund's distribution level high. Even more difficult was
interpreting the news on the U.S. economy which, despite being largely positive,
has defied conventional thinking on business cycle patterns, wherein one would
have expected by now to have seen an upsurge in inflation, the biggest risk to
bonds and other financial assets.
Q. WHAT IS YOUR VIEW ON THE U.S. INTEREST RATE ENVIRONMENT, AND HAVE YOU MADE
ANY CHANGES IN THE FUND TO REFLECT THAT OUTLOOK?
A. We are concerned about interest rates in the United States, which we think
are vulnerable to upward pressure due to tight labor markets and rising wages.
Accordingly, we are keeping the Fund's U.S. government portion near its all-
time low (10% to 15% of assets) and our duration in the neutral to short
range.
Q. WHAT CAN YOU TELL US ABOUT ANY OTHER CHANGES IN THE FUND'S MANAGEMENT?
A. Our near-term plan is to reduce our international exposure to mature
countries (following a period of good gains from that sector) and our position
in the U.S. government sector because these markets are more at risk to faster
world growth and because their yield levels, in general, have dropped. We will
replace these segments with more high-yield U.S. corporate bonds, slightly more
emerging market debt, and a small portion of higher-grade mortgage-backed
securities.
Q. WHY ARE YOU DOING THIS?
A. Going forward, we see lower volatility in the fixed-income markets in general
as inflation rates and interest rates converge around the world. Given that
backdrop, we see the "spread markets," that is, the higher-yielding markets,
offering the better risk/reward potential because of our belief that their
higher coupon streams, reinvested, will produce higher returns than
lower-yielding markets that drift sideways. Of course, the key to successful
implementation of this strategy is thorough research, to help us avoid credit
mistakes.
Q. HOW ABOUT THE INTERNATIONAL BOND MARKET? WHAT PARTS OF THE WORLD LOOK MOST
FAVORABLE TO YOU NOW, AND HAVE YOU MADE ANY MOVES TOWARD THOSE AREAS?
A. International sovereigns have done well, particularly in Europe. Prices in
high-yielding countries such as Spain and Italy have risen as the European union
has begun to look more certain. However, much of the relative value from that
trade has already occurred, and we see better value in other markets. At the
same time, emerging markets still look exciting to us.
Q. WHAT AREAS OF THE WORLD ARE YOU AVOIDING OR UNDERWEIGHTING, AND WHY?
A. We are avoiding much of Asia because we feel yield spreads there suggest
high valuation levels.
Q. TELL US ABOUT THE EMERGING MARKETS. THE FUND HAS BEEN AT OR NEAR ITS
MAXIMUM WEIGHTING IN THESE MARKETS FOR SOME TIME, SO YOU MUST LIKE SOMETHING
ABOUT THEM. WHAT IS IT?
A. First, we believe these markets are cheap relative to other fixed-income
markets. Second, our long-term outlook foresees higher growth rates from these
countries than from the developed countries. Finally, the end of centrally
planned economies has rejuvenated many stagnant economies as their governments
have shown the political will to move to free-market economic systems. We
think all of these developments are creating a favorable environment for these
countries' bonds.
Respectfully,
/s/ James T. Swanson
-------------------------------
James T. Swanson
Portfolio Manager
<PAGE>
PORTFOLIO MANAGER'S PROFILE
JAMES SWANSON IS A SENIOR VICE PRESIDENT OF MASSACHUSETTS FINANCIAL SERVICES
(MFS). HE IS PORTFOLIO MANAGER OF MFS WORLD ASSET ALLOCATION FUND, MFS
STRATEGIC INCOME FUND, MERIDIAN CHARTER INCOME FUND, AND TWO CLOSED-END FUNDS
- MFS CHARTER INCOME TRUST AND MFS MULTIMARKET INCOME TRUST. MR. SWANSON
JOINED MFS IN 1985 AS A VICE PRESIDENT - INVESTMENTS AND WAS NAMED A SENIOR
VICE PRESIDENT IN 1989. HE WAS NAMED PORTFOLIO MANAGER OF MFS STRATEGIC
INCOME FUND IN 1991, OF MFS CHARTER INCOME TRUST AND MFS MULTIMARKET INCOME
TRUST IN 1992, AND OF MFS WORLD ASSET ALLOCATION FUND UPON ITS INCEPTION IN
JULY 1994. HE IS A GRADUATE OF COLGATE UNIVERSITY AND THE HARVARD UNIVERSITY
GRADUATE SCHOOL OF BUSINESS ADMINISTRATION.
PORTFOLIO CONCENTRATION AS OF OCTOBER 31, 1996
LARGEST SECTORS
Corporates 65.5%
Emerging Markets 23%
Foreign Governments 7.5%
U.S. Treasuries 3%
Cash 1%
TAX FORM SUMMARY
IN JANUARY 1997, SHAREHOLDERS WILL BE MAILED A TAX FORM SUMMARY
REPORTING THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE
CALENDAR YEAR 1996.
<PAGE>
FUND FACTS
STRATEGY: THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE HIGH
CURRENT INCOME BY INVESTING IN FIXED-INCOME SECURITIES.
COMMENCEMENT OF
INVESTMENT OPERATIONS: OCTOBER 29, 1987
SIZE: $80.3 MILLION NET ASSETS AS OF OCTOBER 31, 1996
PERFORMANCE SUMMARY
The information below and on the following page illustrates the historical
performance of MFS Strategic Income Fund Class A shares in comparison to various
market indicators. Classs A share results reflect the deduction of the 4.75%
maximum sales charge; benchmark comparisons are unmanaged and do not reflect any
fees or expenses. You cannot invest in an index. All results reflect the
reinvestment of all dividends and capital gains.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the Period from November 1, 1987 to October 31, 1996)
MFS Strategic
Income Fund Consumer Price S&P 500 Lehman Brothers
Class A Index -- U.S. Composite Govt./Corp.
------------- -------------- --------- ---------------
11/87 9524.00 10000.0 10000.0 10000.0
10/89 11754.0 10893.0 14499.0 12406.0
10/91 14317.0 11917.0 17991.0 15099.0
10/93 17537.0 12637.0 22610.0 18962.0
10/95 19532.0 13331.0 29644.0 21005.0
10/96 21568.0 13732.0 36747.0 22137.0
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
Life
1 Year 3 Years 5 Years of Fund#
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Strategic Income Fund (Class A)
including 4.75% sales charge + 5.21% + 5.40% + 7.49% + 8.72%
- ------------------------------------------------------------------------------------------------------------------------------
MFS Strategic Income Fund (Class A) at net asset value +10.42% + 7.14% + 8.54% + 9.31%
- ------------------------------------------------------------------------------------------------------------------------------
MFS Strategic Income Fund (Class B) with CDSC + 5.68% + 5.49% + 7.74% + 9.03%
- ------------------------------------------------------------------------------------------------------------------------------
MFS Strategic Income Fund (Class B) without CDSC + 9.68% + 6.36% + 8.03% + 9.03%
- ------------------------------------------------------------------------------------------------------------------------------
MFS Strategic Income Fund (Class C) with CDSC + 8.80% + 6.52% + 8.16% + 9.10%
- ------------------------------------------------------------------------------------------------------------------------------
MFS Strategic Income Fund (Class C) without CDSC + 9.80% + 6.52% + 8.16% + 9.10%
- ------------------------------------------------------------------------------------------------------------------------------
Average flexible income fund** +12.45% + 6.05% + 9.69% + 8.82%
- ------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Government Corporate Bond Index+ + 5.37% + 5.30% + 7.95% + 8.47%
- ------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers World Government Bond Index++ + 5.36% + 7.94% + 9.91% +10.04%
- ------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Composite High-Yield Bond Index## + 5.46% + 6.03% + 9.53% + 9.78%
- ------------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index*** +23.89% +17.57% +15.47% +14.60%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index* + 3.01% + 2.81% + 2.88% + 3.68%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
#For the period from the commencement of investment operations, October 29,
1987 to October 31, 1996.
*The Consumer Price Index is a popular measure of change in prices.
**Source: Lipper Analytical Services.
+The Lehman Brothers Government Corporate Bond Index is an unmanaged,
market-value-weighted index of U.S. Treasury and government agency
securities, excluding mortgage-backed securities, and
investment-grade debt obligations of domestic corporations.
++The Salomon Brothers World Government Bond Index is an unmanaged,
market-value-weighted index of straight-issue bonds from the complete
universes of 14 government sectors with remaining maturities of at least one
year.
##The Salomon Brothers Composite High-Yield Bond Index is an unmanaged,
market-value- weighted index of public, non-convertible cash pay and
deferred-interest U.S. corporate bonds with a remaining maturity of at least
seven years and a credit rating between "CCC" and "BB+."
***The Standard and Poor's 500 Composite Index is a popular, unmanaged index of
common stock performance.
Class A SEC results include the maximum 4.75% sales charge. Class B SEC results
reflect the applicable contingent deferred sales charge (CDSC), which declines
over six years as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%. See the prospectus for
details. 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 made on or after April 1, 1996 will be subject to a 1% CDSC if
redeemed within 12 months of purchase.
Class B and Class C share performance includes the performance of the Fund's
Class A shares for periods prior to the commencement of offering of Class B
shares on September 7, 1993 and of Class C shares on September 1, 1994. Sales
charges and operating expenses for Class A, Class B, and Class C shares differ.
The Class A share performance, which is included within the Class B and Class C
share 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 B and Class C share performance
has not been adjusted, however, to reflect differences in operating expenses
(e.g., Rule 12b-1 fees), which generally are lower for Class A shares.
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual fund
will vary with changes in market conditions, and shares, when redeemed, may be
worth more or less than their original cost.
<PAGE>
PORTFOLIO OF INVESTMENTS -- October 31, 1996
Bonds - 83.0%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
Foreign - U.S. Dollar Denominated - 19.0%
Banco Nacional de Commerce, 7.25s, 2004 $3,500 $ 2,931,250
Empresas ICA Sociedad S.A., 11.875s, 2001 2,500 2,582,813
Federal Republic of Brazil, 6.688s, 2001 14 13,104
Federal Republic of Brazil, 4.5s, 2014 2,753 1,886,096
Grupo Elektra S.A., 12.75s, 2001 1,500 1,571,250
Hidroelectrica Alicura, 8.375s, 1999## 500 486,250
United Mexican States, 6.398s, 2019 6,000 4,927,500
United Mexican States, 6.453s, 2019 1,000 821,250
-------------
$ 15,219,513
- -----------------------------------------------------------------------------
U.S. Bonds - 56.4%
Airlines - 1.0%
K & F Industries, Inc., 11.875s, 2003 $ 250 $ 270,000
K & F Industries, Inc., 10.375s, 2004 500 515,000
-------------
$ 785,000
- -----------------------------------------------------------------------------
Automotive - 0.6%
Harvard Industries, Inc., 12s, 2004 $ 500 $ 460,000
- -----------------------------------------------------------------------------
Building - 1.2%
Building Materials Corp., 0s, 2004 $ 900 $ 740,250
Nortek, Inc., 9.875s, 2004 250 248,750
-------------
$ 989,000
- -----------------------------------------------------------------------------
Cellular Telephones - 0.6%
Rogers Cantel, Inc., 9.375s, 2008 $ 500 $ 502,500
- -----------------------------------------------------------------------------
Chemicals - 1.4%
NL Industries, Inc., 11.75s, 2003 $ 250 $ 257,813
UCC Investors Holdings, Inc., 0s, 2005 1,000 875,000
-------------
$ 1,132,813
- -----------------------------------------------------------------------------
Consumer Goods and Services - 2.2%
Food Brands America, Inc., 10.75s, 2006 $ 750 $ 780,000
Ithaca Industries, Inc., 11.125s, 2002+ 100 59,000
Revlon, Inc., 10.5s, 2003 200 208,000
Sealy Corp., 9.5s, 2003 500 497,500
Westpoint Stevens, Inc., 9.375s, 2005 250 252,500
-------------
$ 1,797,000
- -----------------------------------------------------------------------------
Containers - 3.8%
Calmar, Inc., 11.5s, 2005 $ 250 $ 255,937
Gaylord Container Corp., 11.5s, 2001 500 531,250
Ivex Packaging Corp., 12.5s, 2002 100 107,500
Owens-Illinois, Inc., 11s, 2003 1,000 1,098,750
Stone Container Corp., 10.75s, 2002 1,000 1,050,000
-------------
$ 3,043,437
- -----------------------------------------------------------------------------
Defense Electronics - 0.7%
Alliant Techsystem, Inc., 11.75s, 2003 $ 500 $ 545,000
- -----------------------------------------------------------------------------
Entertainment - 0.4%
Marvel Holdings, Inc., 0s, 1998 $ 500 $ 210,000
United Artist Theater Circuit, Inc.,
11.5s, 2002 100 106,000
-------------
$ 316,000
- -----------------------------------------------------------------------------
Financial Institutions - 1.2%
First Nationwide Corp., 10.625s, 2003## $ 600 $ 630,000
Penncorp Financial Group, Inc., 9.25s, 2003 330 344,850
-------------
$ 974,850
- -----------------------------------------------------------------------------
Food and Beverage Products - 0.6%
Specialty Foods Corp., 10.25s, 2001 $ 500 $ 460,000
- -----------------------------------------------------------------------------
Forest and Paper Products - 0.6%
Fort Howard Corp., 9.25s, 2001 $ 500 $ 515,000
- -----------------------------------------------------------------------------
Machinery - 0.6%
AGCO Corp., 8.5s, 2006 $ 500 $ 505,000
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 1.3%
Beverly Enterprises, 9s, 2006 $ 460 $ 453,100
Tenet Healthcare Corp., 10.125s, 2005 500 548,750
-------------
$ 1,001,850
- -----------------------------------------------------------------------------
Metals and Minerals - 1.7%
Haynes International, Inc., 11.625s, 2004 $1,000 $ 1,040,000
Kaiser Aluminum & Chemical Corp., 9.875s, 2002 300 297,000
-------------
$ 1,337,000
- -----------------------------------------------------------------------------
Oil Services - 1.0%
Falcon Drilling, Inc., 8.875s, 2003 $ 500 $ 487,500
Ferrell Gas LP, 10s, 2001 200 206,000
Tuboscope Vetco International, Inc.,
10.75s, 2003 100 106,000
-------------
$ 799,500
- -----------------------------------------------------------------------------
Oils - 0.7%
Gulf Canada, 9.25s, 2004 $ 500 $ 518,750
- -----------------------------------------------------------------------------
Restaurants and Lodging - 0.6%
Red Roof Inns, Inc., 9.625s, 2003 $ 500 $ 487,500
- -----------------------------------------------------------------------------
Special Products and Services - 4.6%
Central Transport Rental Finance
Corp., 9.5s, 2003 $ 143 $ 132,249
IMO Industries, Inc., 11.75s, 2006 500 515,000
Interlake Corp., 12.125s, 2002 500 512,500
Mark IV Industries, Inc., 8.75s, 2003 500 512,500
Polymer Group, Inc., 12.25s, 2002 333 362,970
Synthetic Industries, Inc., 12.75s, 2002 1,000 1,085,000
Thermadyne Holdings Corp., 10.75s, 2003 500 515,000
-------------
$ 3,635,219
- -----------------------------------------------------------------------------
Steel - 0.6%
Commonwealth of Aluminum Corp.,
10.75s, 2006## $ 500 $ 507,500
- -----------------------------------------------------------------------------
Stores - 1.1%
Limited, Inc., 7.5s, 2023 $1,000 $ 907,500
- -----------------------------------------------------------------------------
Student Loan Revenue - 0.6%
Talley Manufacturing & Technology,
Inc., 10.75s, 2003 $ 500 $ 517,500
- -----------------------------------------------------------------------------
Supermarkets - 2.6%
Dominick's Finer Foods Co., 10.875s, 2005 $ 500 $ 551,875
Pathmark Stores, Inc., 9.625s, 2003 500 488,750
Ralph's Grocery Co., 10.45s, 2004 500 505,000
Smiths Food & Drug, 11.25s, 2007 500 540,000
-------------
$ 2,085,625
- -----------------------------------------------------------------------------
Telecommunications - 12.1%
American Radio Systems Corp., 9s, 2006 $ 500 $ 477,500
Bell Cablemedia PLC, 0s, 2005 250 181,250
Brooks Fiber Properties, Inc., 0s, 2006 500 292,500
Cablevision Industries Corp., 9.25s, 2008 100 105,855
Comcast Corp., 9.375s, 2005 500 497,500
Continental Cablevision, Inc., 8.3s, 2006 500 530,000
Diamond Cable Communications, 0s, 2005 250 164,375
Echostar Satellite Broadcasting
Corp., 0s, 2004 1,000 705,000
Falcon Holdings Group, Inc., 11s, 2003* 216 196,996
Grand Union Co., 12s, 2004 750 757,500
Intermedia Capital Partners, 11.25s, 2006## 75 75,000
Jones Intercable, Inc., 10.5s, 2008 500 527,500
MFS Communications, Inc., 0s, 2006 1,000 707,500
Marcus Cable Operating Co., 0s, 2004 500 383,750
Mobilemedia Communications, Inc., 1s, 2003 275 132,000
Panamsat Capital Corp., 0s, 2003 500 460,000
Pronet, Inc., 11.875s, 2005 200 184,000
Rogers Cablesystems, Inc., 10.125s, 2012 500 495,000
Teleport Communications Group, 0s, 2007 500 320,000
Total Access Communication Public,
8.375s, 2006## 1,000 1,005,000
Turner Broadcasting Systems, Inc.,
8.375s, 2013 1,000 1,019,310
Western Wireless Corp., 10.5s, 2007## 500 501,250
-------------
$ 9,718,786
- -----------------------------------------------------------------------------
Transportation - 0.1%
Continental Airlines, Inc., 11.75s, 1995+ $ 500 $ 50
Moran Transportation Co., 11.75s, 2004 100 106,000
-------------
$ 106,050
- -----------------------------------------------------------------------------
U.S. Treasury Bond - 2.6%
U.S. Treasury Bonds, 13.375s, 2001 $1,600 $ 2,076,752
- -----------------------------------------------------------------------------
Utilities - Electric - 10.6%
First PV Funding Corp., 10.3s, 2014 $ 750 $ 795,937
First PV Funding Corp., 10.15s, 2016 343 365,295
Midland Cogeneration Funding Venture Corp.,
10.33s, 2002 1,261 1,333,369
Midland Funding Corp., "B", 13.25s, 2006 2,500 2,900,925
Niagara Mohawk Power Corp., 8.77s, 2018 990 943,262
Texas & New Mexico Power Co., 12.5s, 1999 2,000 2,189,600
-------------
$ 8,528,388
- -----------------------------------------------------------------------------
Utilities - Gas - 1.3%
Maxus Energy Corp., 11.25s, 2013 $1,000 $ 1,022,500
- -----------------------------------------------------------------------------
Total U.S. Bonds $ 60,495,533
- -----------------------------------------------------------------------------
Foreign Bonds - 7.6%
Canada - 0.8%
Government of Canada, 9.5s, 2010 CAD 700 $ 648,678
- -----------------------------------------------------------------------------
Germany - 4.5%
Federal Republic of Germany, 6.5s, 2005 DEM 2,643 $ 1,799,434
Federal Republic of Germany, 7.375s, 2005 2,525 1,817,235
-------------
$ 3,616,669
- -----------------------------------------------------------------------------
Italy - 0.8%
Republic of Italy, 8.313s, 2006 ITL 890,000 $ 637,130
- -----------------------------------------------------------------------------
Spain - 1.5%
Government of Spain, 8.3s, 1998 ESP 80,700 $ 649,575
Government of Spain, 8.4s, 2001 71,500 587,932
-------------
$ 1,237,507
- -----------------------------------------------------------------------------
Total Foreign Bonds $ 6,139,984
- -----------------------------------------------------------------------------
Total Bonds (Identified Cost, $66,045,625) $ 66,635,517
- -----------------------------------------------------------------------------
Common Stocks - 1.1%
- -----------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------
Central Transport Rental Group* 69,925 $ 19,666
Gillett Holdings, Inc.*++ 22,594 858,572
- -----------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $271,467) $ 878,238
- -----------------------------------------------------------------------------
Preferred Stocks - 6.4%
- -----------------------------------------------------------------------------
Cablevision Systems Corp. 5,356 $ 488,735
First Nationwide Bank 30,000 3,442,500
Long Island Lighting Co. 25,000 625,000
Renaissance Cosmetics, Inc.++ 500 505,000
Time Warner, Inc.*## 104 110,110
- -----------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $5,223,750) $ 5,171,345
- -----------------------------------------------------------------------------
Convertible Preferred Stock
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
UDC Homes, Inc. 6 $ 5,121
- -----------------------------------------------------------------------------
Warrants
- -----------------------------------------------------------------------------
Warrants
- -----------------------------------------------------------------------------
American Media, Inc.* 27,000 $ 422
Atlantic Gulf Communities Corp.++ 100 538
ICO, Inc.* 62,500 40,625
- -----------------------------------------------------------------------------
Total Warrants (Identified Cost, $0) $ 41,585
- -----------------------------------------------------------------------------
Repurchase Agreement - 4.4%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Goldman Sachs, dated 10/31/96, due 11/01/96,
total to be received $3,687,917 (secured by
various U.S. Treasury and federal agency
obligations in a jointly traded account), at
Amortized Cost $ 3,494 $ 3,494,000
- -----------------------------------------------------------------------------
Short-Term Obligations - 4.2%
- -----------------------------------------------------------------------------
Argentina Treasury Bill, due 1/17/97 $ 1,000 $ 982,797
CSFB Russia Note, due 12/27/96++ 2,000 1,956
Pembangunan Perumahan, due 12/19/96 IDR 1,000,000 580
- -----------------------------------------------------------------------------
Total Short-Term Obligations (Identified Cost, $3,340,758) $ 3,360,860
- -----------------------------------------------------------------------------
Call Options Purchased - 0.1%
- -----------------------------------------------------------------------------
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted)
- -----------------------------------------------------------------------------
German Marks/British Pounds/
November/2.2145 DEM/GBP 2,537 --
Japanese Government Bonds/
November/114.355 JPY 155,000 54,870
- -----------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $13,243) $ 54,870
- -----------------------------------------------------------------------------
Put Option Purchased - 0.1%
- -----------------------------------------------------------------------------
German Marks/British Pounds/
November/2.315
(Premiums Paid, $9,873) DEM/GBP 2,653 $ 116,241
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $78,398,716) $ 79,757,777
- -----------------------------------------------------------------------------
Call Option Written
- -----------------------------------------------------------------------------
German Marks/British Pounds/
November/2.2145
(Premiums Received, $9,873) DEM/GBP 2,537 --
- -----------------------------------------------------------------------------
Put Option Written
- -----------------------------------------------------------------------------
Japanese Government Bonds/
November/114.355
(Premiums Received, $12,885) JPY 155,000 $ (155)
- -----------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.7% $ 514,172
- -----------------------------------------------------------------------------
Net Assets - 100.0% $ 80,271,794
- -----------------------------------------------------------------------------
*Non-income producing security.
+Non-income producing security - in default.
++Restricted security.
##SEC Rule 144A restriction.
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.
<TABLE>
<CAPTION>
<S> <C> <C>
BEF = Belgian Francs GBP = British Pounds JPY = Japanese Yen
CAD = Canadian Dollars HKD = Hong Kong Dollars NLG = Dutch Guilders
CHF = Swiss Francs IDR = Indonesian Rupah SEK = Swedish Kronor
DEM = German Marks IEP = Irish Punts THB = Thai Bahts
ESP = Spanish Pesetas ITL = Italian Lire
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -----------------------------------------------------
October 31, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $78,398,716) $79,757,777
Cash 86,020
Net receivable for forward foreign currency
exchange contracts sold 744,688
Receivable for Fund shares sold 283,037
Receivable for investments sold 215,211
Interest receivable 1,783,698
Other assets 233,376
-----------
Total assets $83,103,807
-----------
Liabilities:
Payable for Fund shares reacquired $ 212,290
Payable for investments purchased 1,672,701
Written options outstanding, at value (premiums
received, $22,758) 155
Net payable for forward foreign currency exchange
contracts purchased 914,665
Net payable for forward foreign currency exchange
contracts 3,350
Payable to affiliates -
Management fee 881
Shareholder servicing agent fee 628
Distribution fee 27,343
-----------
Total liabilities $ 2,832,013
-----------
Net assets $80,271,794
===========
Net assets consists of:
Paid-in capital $78,252,230
Unrealized appreciation on investments and
translation of assets and liabilities in
foreign currencies 1,205,519
Accumulated undistributed
net realized gain on
investments and foreign currency transactions 752,188
Accumulated undistributed net investment income 61,857
-----------
Total $80,271,794
===========
Shares of beneficial interest outstanding 9,826,372
===========
Class A shares:
Net asset value and redemption price per share
(net assets of $49,432,374 / 6,035,708
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 of $25,361,347 / 3,115,960
shares of beneficial interest outstanding) $8.14
=====
Class C shares:
Net asset value and offering price per share
(net assets of $5,478,073 / 674,704
shares of beneficial interest outstanding) $8.12
=====
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
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended October 31, 1996
- ------------------------------------------------------------------------------
Net investment income:
Interest income $6,014,777
----------
Expenses -
Management fee $ 768,788
Trustees' compensation 42,635
Shareholder servicing agent fee (Class A) 71,334
Shareholder servicing agent fee (Class B) 37,393
Shareholder servicing agent fee (Class C) 6,028
Distribution and service fee (Class A) 166,446
Distribution and service fee (Class B) 168,586
Distribution and service fee (Class C) 40,187
Custodian fee 65,789
Auditing fees 53,182
Printing 29,374
Postage 18,490
Legal fees 4,507
Miscellaneous 84,097
----------
Total expenses $1,556,836
Fees paid indirectly (25,807)
Reduction of expenses by investment adviser (643,680)
----------
Net expenses $ 887,349
----------
Net investment income $5,127,428
==========
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $1,019,500
Written option transactions 236,155
Foreign currency transactions (859,916)
Futures contracts 31,930
----------
Net realized gain on investments $ 427,669
----------
Change in unrealized appreciation -
Investments $ 734,533
Written options 6,778
Translation of assets and liabilities in foreign currencies 128,929
----------
Net unrealized gain on investments $ 870,240
----------
Net realized and unrealized gain on investments and
foreign currency $1,297,909
----------
Increase in net assets from operations $6,425,337
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Year Ended October 31, 1996 1995
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 5,127,428 $ 3,769,276
Net realized gain on investments and foreign
currency transactions 427,669 1,067,286
Net unrealized gain on investments and foreign
currency translation 870,240 1,875,133
------------ ------------
Increase in net assets from operations $ 6,425,337 $ 6,711,695
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (3,527,319) $ (3,165,100)
From net investment income (Class B) (1,123,277) (442,955)
From net investment income (Class C) (266,632) (28,052)
From net realized gain on investments and
foreign currency transactions (Class A) (400,584) --
From net realized gain on investments and
foreign currency transactions (Class B) (87,623) --
From net realized gain on investments and
foreign currency transactions (Class C) (10,865) --
------------ ------------
Total distributions declared to
shareholders $ (5,416,300) $ (3,636,107)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 46,730,577 $ 10,564,774
Net asset value of shares issued to
shareholders in reinvestment
of distributions 2,632,478 1,251,060
Cost of shares reacquired (21,213,968) (13,172,718)
------------ ------------
Increase (decrease) in net assets from Fund
share transactions $ 28,149,087 $ (1,356,884)
------------ ------------
Total increase in net assets $ 29,158,124 $ 1,718,704
Net assets:
At beginning of year 51,113,670 49,394,966
------------ ------------
At end of year (including accumulated
undistributed net investment income of
$61,857 and $212,718, respectively) $ 80,271,794 $ 51,113,670
============ ============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------
Year Ended October 31, 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $ 8.07 $ 7.57 $ 8.34 $ 8.00
------ ------ ------ -------
Income from investment operations# -
Net investment income** $ 0.62 $ 0.60 $ 0.48 $ 0.52
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.18 0.48 (0.74) 0.42
------ ------ ------ -------
Total from investment operations $ 0.80 $ 1.08 $ (0.26) $ 0.94
====== ====== ======= =======
Less distributions declared to shareholders -
From net investment income $(0.60) $ (0.58) -- $ (0.24)
From net realized gain on investments
and foreign currency transactions (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)
Total distributions declared to shareholders $(0.68) $ (0.58) $ (0.51) $ (0.60)
------ ------- ------- -------
Net asset value - end of period $ 8.19 $ 8.07 $ 7.57 $ 8.34
====== ====== ====== =======
Total return* 10.42% 15.00% (3.15)% 12.36%
Ratios (to average net assets)/Supplemental data**:
Expenses## 1.13% 1.54% 1.71% 1.98%
Net investment income 7.63% 7.86% 6.11% 5.92%
Portfolio turnover 287% 249% 153% 275%
Net assets at end of period (000 omitted) $49,432 $41,688 $44,032 $60,120
<FN>
#Per share data for 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.
**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 ratios would have been:
</FN>
<S> <C> <C> <C> <C>
Net investment income $ 0.54 $ 0.53 $ 0.44 $ 0.49
Ratios (to average net assets):
Expenses## 2.06% 2.47% 2.21% 2.14%
Net investment income 6.70% 6.89% 5.62% 5.76%
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended October 31, 1992 1991 1990 1989 1988 1987*
- ----------------------------------------------------------------------------------------------------------------------------------
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 $ 8.12 $ 7.56 $ 8.93 $ 9.60 $ 9.21 $ 9.35
------ ------ ------ ------- ------- -------
Income from investment operations -
Net investment income# $ 0.63 $ 0.73 $ 0.86 $ 0.94 $ 0.93 $0.0025
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 0.08 0.95 (1.03) (0.38) 0.56 (0.1425)
------ ------ ------ ------- ------- -------
Total from investment operations $ 0.71 $ 1.68 $(0.17) $ 0.56 $ 1.49 $ (0.14)
====== ====== ====== ====== ======= =======
Less distributions declared to shareholders -
From net investment income $(0.56) $(0.73) $(0.82) $(1.18) $(0.69) $ --
From net realized gain on investments and
foreign currency transactions -- -- -- -- (0.41) --
From paid-in capital (0.27) (0.39) (0.38) (0.05) -- --
------ ------ ------ ------- ------- -------
Total distributions declared to
shareholders $(0.83) $(1.12) $(1.20) $(1.23) $(1.10) $ --
------ ------ ------ ------- ------- -------
Net asset value - end of period $ 8.00 $ 8.12 $ 7.56 $ 8.93 $ 9.60 $ 9.21
====== ====== ====== ====== ====== =======
Total return** 9.02% 23.78% (1.62)% 5.85% 16.60% (1.50)%++
Ratios (to average net assets)/Supplemental data#:
Expenses 2.02% 1.87% 1.47% 1.82% 1.75% 0.57%+
Net investment income 7.47% 9.26% 10.42% 10.05% 9.74% 4.88%+
Portfolio turnover 423% 671% 400% 157% 270% --
Net assets at end of period (000 omitted) $77,487 $76,312 $74,555 $87,978 $93,819 $78,479
<FN>
*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.
#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 ratios would have been:
</FN>
Net investment income $ 0.61 $ 0.71 $ 0.83 -- -- --
Ratios (to average net assets):
Expenses 2.21% 2.16% 1.81% -- -- --
Net investment income 7.55% 8.97% 10.08% -- -- --
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- ----------------------------------------------------------------------------------------
Year Ended October 31, 1996 1995 1994 1993**
- ----------------------------------------------------------------------------------------
Class B
- ----------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $ 8.03 $ 7.53 $ 8.33 $ 8.28
------ ------ ------ ------
Income from investment operations# -
Net investment income* $ 0.56 $ 0.55 $ 0.45 $ 0.04
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 0.18 0.48 (0.78) 0.05
------ ------ ------ ------
Total from investment operations $ 0.74 $ 1.03 $(0.33) $ 0.09
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.55) $ (0.53) -- $(0.03)
From net realized gain
on investments and foreign
currency transactions (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 $(0.63) $(0.53) $(0.47) $(0.04)
------ ------ ------ ------
Net asset value - end of period $ 8.14 $ 8.03 $ 7.53 $ 8.33
====== ====== ====== ======
Total return 9.68% 14.23% (3.97)% 1.15%++
Ratios (to average net assets)/Supplemental data*:
Expenses## 1.80% 2.27% 2.43% 3.03%+
Net investment income 7.02% 7.15% 5.97% 5.22%+
Portfolio turnover 287% 249% 153% 275%
Net assets at end of period
(000 omitted) $25,361 $8,365 $5,350 $265
<FN>
**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 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.
*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 ratios would have been:
</FN>
Net investment income $ 0.49 $ 0.48 $ 0.41 --
Ratios (to average net assets):
Expenses## 2.73% 3.20% 2.92% --
Net investment income 6.09% 6.18% 5.48% --
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -------------------------------------------------------------------------------
Year Ended October 31, 1996 1995 1994***
- -------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $ 8.00 $ 7.53 $ 7.53
------ ------ ------
Income from investment operations# -
Net investment income* $ 0.57 $ 0.54 $ 0.12
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 0.18 0.48 (0.03)
------ ------ ------
Total from investment operations $ 0.75 $ 1.02 $ 0.09
------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.55) $ (0.55) $ --
From net realized gain on investments
and foreign currency transactions (0.08) -- --
From paid-in capital -- -- (0.09)
------ ------ ------
Total distributions declared
to shareholders $(0.63) $(0.55) $(0.09)
------ ------ ------
Net asset value - end of period $ 8.12 $ 8.00 $ 7.53
====== ====== ======
Total return 9.80% 14.17% 1.23%++
Ratios (to average net assets)/Supplemental data*:
Expenses## 1.71% 2.20% 2.16%+
Net investment income 7.12% 7.23% 8.99%+
Portfolio turnover 287% 249% 153%
Net assets at end of period (000 omitted) $5,478 $1,060 $13
<FN>
***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 for 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.
*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 ratios would have been:
</FN>
Net investment income $ 0.51 $ 0.46 $ 0.11
Ratios (to average net assets):
Expenses## 2.64% 3.13% 2.65%+
Net investment income 6.19% 6.26% 8.50%+
</TABLE>
See notes to financial statements
<PAGE>
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 results 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.
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.
During the year ended October 31, 1996, $361,061 was reclassified to accumulated
net realized gain on investments from accumulated undistributed net investment
income due to differences between book and tax accounting for mortgage-backed
securities and currency transactions. This change had no effect on the net
assets or net asset value per share. At October 31, 1996, accumulated
undistributed net investment income (realized gain on investments and foreign
currency transactions) under book accounting were different from tax accounting
due to temporary differences in accounting for currency transactions.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B and Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, distribution and service fees. All
shareholders bear the common expenses of the Fund pro rata based on the average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate of
0.50% 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 $12,160 for the year ended
October 31, 1996.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$26,836 for the year ended October 31, 1996, as its portion of the sales charge
on sales of Class A shares of the Fund. The Trustees have adopted separate
distribution plans for Class A, Class B, and Class C shares pursuant to Rule
12b-1 of the Investment Company Act of 1940 as follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets attributable
to Class A shares, commissions to dealers and payments to MFD wholesalers for
sales at or above a certain dollar level, and other such distribution-related
expenses that are approved by the Fund. MFD retains the service fee for accounts
not attributable to a securities dealer which amounted to $21,242 for the year
ended October 31, 1996. Fees incurred under the distribution plan during the
year ended October 31, 1996 were 0.35% of average daily net assets attributable
to Class A shares on an annualized basis.
The Class B and Class C distribution plans provide that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per annum,
of the Fund's average daily net assets attributable to Class B and Class C
shares. MFD will pay to securities dealers that enter into a sales agreement
with MFD all or a portion of the service fee attributable to Class B and Class C
shares, and will pay to such securities dealers all of the distribution fee
attributable to Class C shares. The service fee is intended to be additional
consideration for services rendered by the dealer with respect to Class B and
Class C shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $3,080 and $82 for Class B and Class C
shares, respectively, for the year ended October 31, 1996. Fees incurred under
the distribution plans during the year ended October 31, 1996 were 1.00% of
average daily net assets attributable to Class B and Class C shares on an
annualized basis.
Purchases over $1 million 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 12 months of
purchases made on or after April 1, 1996. MFD receives all contingent deferred
sales charges. Contingent deferred sales charges imposed during the year ended
October 31, 1996 were $21, $28,744, and $397 for Class A, Class B, and Class C
shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15%, up to 0.22% and up to 0.15% attributable
to Class A, Class B and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
Purchases Sales
- ------------------------------------------------------------------------------
U.S. government securities $ 24,744,016 $ 26,041,452
============ ============
Investments (non-U.S. government securities) $134,794,279 $135,982,530
============ ============
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 $78,398,716
===========
Gross unrealized appreciation $ 2,113,684
Gross unrealized depreciation (754,623)
-----------
Net unrealized appreciation $ 1,359,061
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Class A Shares
Year Ended Year Ended
October 31, 1996 October 31, 1995
-------------------------- --------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,056,255 $16,667,005 599,130 $ 4,692,705
Shares issued to
shareholders in
reinvestment of
distributions 200,640 1,607,490 127,484 978,866
Shares reacquired (1,387,485) (11,133,559) (1,380,515) (10,598,878)
----------- ------------ ----------- ------------
Net increase
(decrease) 869,410 $ 7,140,936 (653,901) $ (4,927,307)
======= =========== ======== ============
Class B Shares
Year Ended Year Ended
October 31, 1996 October 31, 1995
-------------------------- --------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,785,248 $22,357,597 584,310 $ 4,523,648
Shares issued to
shareholders in
reinvestment of
distributions 98,830 787,774 33,442 256,014
Shares reacquired (809,863) (6,470,174) (286,518) (2,212,002)
----------- ------------ ----------- ------------
Net increase 2,074,215 $16,675,197 331,234 $ 2,567,660
========= =========== ======= ============
Class C Shares
Year Ended Year Ended
October 31, 1996 October 31, 1995
-------------------------- --------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 962,710 $ 7,705,975 174,377 $ 1,348,421
Shares issued to
shareholders in
reinvestment of
distributions 29,851 237,214 2,067 16,180
Shares reacquired (450,415) (3,610,235) (45,641) (361,838)
----------- ------------ ----------- ------------
Net increase 542,146 $ 4,332,954 130,803 $ 1,002,763
======= =========== ======= ============
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the year ended October 31,
1996 was $754.
(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 October 31, 1996, is
as follows:
<TABLE>
<CAPTION>
Written Option Transactions
1996 Calls 1996 Puts
----------------------------- ------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- -------------------------------------------------------------------------------------------
OUTSTANDING, BEGINNING OF PERIOD -
<S> <C> <C> <C> <C>
Australian Dollars 420 $ 5,108 409 $ 5,249
German Marks 1,154 3,095 1,492 5,450
German Marks/British Pounds 1,996 12,813 -- --
Italian Lire/German Marks 2,103,796 34,865 2,103,796 77,464
Japanese Yen 70,728 12,307 39,000 4,258
Options written -
Australian Dollars 949 5,462 318 1,945
Canadian Dollars 1,505 1,545 3,102 9,380
German Marks 12,085 70,800 2,213 6,074
German Marks/British Pounds 13,725 50,205 -- --
Italian Lire/German Marks 2,852,538 22,401 -- --
Japanese Yen 144,795 1,819 1,533,666 135,679
Japanese Yen/German Marks -- -- 456,269 16,266
New Zealand Dollars -- -- 2,443 3,632
Spanish Pesetas/German Marks -- -- 274,701 6,815
Options terminated in closing transactions -
Australian Dollars (1,369) (10,570) (318) (1,945)
German Marks (12,085) (70,800) (2,213) (6,074)
German Marks/British Pounds (9,477) (37,306) -- --
Italian Lire/German Marks (4,956,334) (57,266) (2,103,796) (77,464)
Japanese Yen (215,523) (14,126) (1,291,000) (119,534)
Japanese Yen/German Marks -- -- (456,269) (16,266)
New Zealand Dollars -- -- (2,443) (3,632)
Options expired -
Australian Dollars -- -- (409) (5,249)
Canadian Dollars (1,505) (1,545) (3,102) (9,380)
German Marks (1,154) (3,095) (1,492) (5,450)
German Marks/British Pounds (3,707) (15,839) -- --
Japanese Yen -- -- (126,666) (7,518)
Spanish Pesetas/German Marks -- -- (274,701) (6,815)
OUTSTANDING, END OF PERIOD 2,537 $ 9,873 155,000 $ 12,885
========= ========= ========= =========
OPTIONS OUTSTANDING, END OF PERIOD CONSIST OF -
German Marks/British Pounds 2,537 $ 9,873 -- $ --
Japanese Yen -- -- 155,000 12,885
--------- ------ --------- ------
2,537 $ 9,873 155,000 $ 12,885
========= ========= ========= =========
</TABLE>
At October 31, 1996, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
<PAGE>
<TABLE>
<CAPTION>
Forward Foreign Currency Exchange Contracts
NET UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 2/24/97 BEF 40,257,881 $ 1,325,144 $ 1,296,827 $ 28,317
11/01/96 CAD 2,498,636 1,833,426 1,817,822 15,604
2/07/97 CHF 2,969,214 2,502,471 2,360,377 142,094
11/04/96 - 4/28/97 DEM 57,105,476 38,148,537 37,682,990 465,547
11/06/96 GBP 596,100 918,608 969,514 (50,906)
12/04/96 HKD 5,879,360 757,162 760,402 (3,240)
2/24/97 IEP 714,446 1,148,508 1,162,138 (13,630)
11/06/96 - 4/28/97 ITL 5,402,045,202 3,520,394 3,551,426 (31,032)
2/28/97 JPY 493,436,928 4,587,124 4,395,043 192,081
2/03/97 SEK 295,901 44,936 45,083 (147)
----------- ----------- ----------
$54,786,310 $54,041,622 $ 744,688
=========== =========== =========
Purchases 2/24/97 BEF 40,257,881 $ 1,329,863 $ 1,296,827 $ (33,036)
11/01/96 CAD 2,498,636 1,830,905 1,817,822 (13,083)
2/07/97 CHF 2,969,214 2,512,978 2,360,376 (152,602)
11/04/96 - 4/28/97 DEM 54,412,334 36,423,750 35,901,641 (522,109)
11/15/96 ESP 134,814,798 1,055,839 1,053,578 (2,261)
11/06/96 GBP 596,100 926,583 969,514 42,931
2/24/97 IEP 714,446 1,155,688 1,162,138 6,450
11/06/96 - 4/28/97 ITL 4,416,368,956 2,862,544 2,901,864 39,320
2/28/97 JPY 493,436,928 4,678,679 4,395,042 (283,637)
2/03/97 NLG 882,588 518,460 521,959 3,499
12/24/96 THB 13,000,000 506,773 506,636 (137)
---------- ---------- --------
$53,802,062 $52,887,397 $(914,665)
=========== =========== =========
</TABLE>
Forward foreign currency exchange contract purchases and sales under master
netting arrangements and closed forward foreign currency exchange contracts
excluded from above, amounted to a net payable of $3,350 at October 31, 1996.
At October 31, 1996, 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 October 31, 1996,
the Fund owned the following restricted securities (constituting 4.14% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933. The Fund does not have the right to demand that such 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> <C>
Atlantic Gulf Communities 9/21/89 - 9/25/95 100 $ -- $ 538
CSFB Russia Note, 0s, 1996 9/24/96 2,000,000 1,933,494 1,956,580
Gillett Holdings, Inc. 10/08/92 22,594 213,360 858,572
Renaissance Cosmetics, Inc. 8/22/96 500 507,500 505,000
----------
$3,320,690
==========
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust VIII 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
October 31, 1996 and the related statement of operations for the year then ended
and the statement of changes in net assets and financial highlights for each of
the three years in the period then ended. 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 each of
the six years in the period ended October 31, 1993, and for the period October
29, 1987 (commencement of investment operations) to October 31, 1987 for Class A
shares, and for the period September 7, 1993 (commencement of investment
operations) to October 31, 1993 for Class B shares, 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. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers or by 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 October 31, 1996, the results of its operations for the
year then ended, and the changes in its net assets for each of the two years in
the period then ended and its financial highlights for each of the three years
in the period then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 12, 1996
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
MFS(R) STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
<S> <C>
TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and President State Street Bank and Trust Company
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991), AUDITOR
Massachusetts Financial Services Company; Ernst & Young LLP
Director, Cambridge Bancorp;
Director, Cambridge Trust Company INVESTOR INFORMATION
Marshall N. Cohan - Private Investor For MFS stock and bond market outlooks,
Lawrence H. Cohn, M.D. - Chief of Cardiac call toll free: 1-800-637-4458 anytime from
Surgery, Brigham and Women's Hospital; a touch-tone telephone.
Professor of Surgery, Harvard Medical School
The Hon. Sir J. David Gibbons, KBE - Chief For information on MFS mutual funds,
Executive Officer, Edmund Gibbons Ltd.; call your financial adviser or, for an
Chairman, Bank of N.T. Butterfield & Son Ltd. information kit, call toll free:
Abby M. O'Neill - Private Investor; 1-800-637-2929 any business day from
Director, Rockefeller Financial Services, Inc. 9 a.m. to 5 p.m. Eastern time (or leave
(investment advisers) a message anytime).
Walter E. Robb, III - President and Treasurer,
Benchmark Advisors, Inc. (corporate financial INVESTOR SERVICE
consultants); President, Benchmark Consulting MFS Service Center, Inc.
Group, Inc. (office services); Trustee, P.O. Box 2281
Landmark Funds (mutual funds) Boston, MA 02107-9906
Arnold D. Scott* - Senior Executive Vice
President, Director and Secretary, For general information, call toll free:
Massachusetts Financial Services Company 1-800-225-2606 any business day from
Jeffrey L. Shames* - President and Director, 8 a.m. to 8 p.m. Eastern time.
Massachusetts Financial Services Company
J. Dale Sherratt - President, Insight For service to speech- or hearing-impaired,
Resources, Inc. (acquisition planning call toll free: 1-800-637-6576 any business
specialists) day from 9 a.m. to 5 p.m. Eastern time.
Ward Smith - Former Chairman (until 1994), (To use this service, your phone must be equipped
NACCO Industries; Director, Sundstrand with a Telecommunications Device for the Deaf.)
Corporation
For share prices, account balances and
INVESTMENT ADVISER exchanges, call toll free: 1-800-MFS-TALK
Massachusetts Financial Services Company (1-800-637-8255) anytime from a touch-tone
500 Boylston Street telephone.
Boston, MA 02116-3741
WORLD WIDE WEB
DISTRIBUTOR www.mfs.com
MFS Fund Distributors, Inc.
500 Boylston Street TOP RATED SERVICE
Boston, MA 02116-3741 For the third year in a row,
[DALBAR MFS earned a #1 ranking in
PORTFOLIO MANAGER LOGO] DALBAR, Inc.'s Broker/Dealer
James T. Swanson* Survey, Main Office Operations
Service Quality category. The
TREASURER firm achieved a 3.48 overall score - on a
W. Thomas London* scale of 1 to 4 - in the 1996 survey. A total
of 110 firms responded, offering input on the
ASSISTANT TREASURER quality of service they received from 29
James O. Yost* mutual fund companies nationwide. The survey
contained questions about service quality in
SECRETARY 15 categories, including "knowledge of phone
Stephen E. Cavan* service contracts," "accuracy of transaction
processing," and "overall ease of doing
ASSISTANT SECRETARY business with the firm."
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
MFS(R) STRATEGIC -------------
INCOME FUND [DALBAR BULK RATE
LOGO] U.S. POSTAGE
TOP-RATED SERVICE P A I D
PERMIT #55638
500 Boylston Street BOSTON, MA
Boston, MA 02116 -------------
[LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MSI-2 12/96 15M 34/234/334
(C)1996 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116
