<PAGE>
[LOGO] MFS(SM)
INVESTMENT MANAGEMENT
ANNUAL REPORT
FOR YEAR ENDED
OCTOBER 31, 1997
MFS(R) UTILITIES FUND
[GRAPHIC OMITTED - Utility Lines]
LEARNING FINANCIAL BASICS THE EASY WAY (see page 31)
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
A Discussion with the Portfolio Manager ................................... 3
Portfolio Manager's Profile ............................................... 6
Fund Facts ................................................................ 7
Performance Summary ....................................................... 7
Tax Form Summary .......................................................... 9
Portfolio Concentration ................................................... 10
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 17
Notes to Financial Statements ............................................. 23
Independent Auditors' Report .............................................. 30
The ABCs of Investing ..................................................... 31
The MFS Family of Funds(R) ................................................ 32
Trustees and Officers ..................................................... 33
HIGHLIGHTS
o FOR THE 12 MONTHS ENDED OCTOBER 31, 1997, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 28.62%, CLASS B SHARES
27.59%, CLASS C SHARES 27.71%, AND CLASS I SHARES 28.81%. (SEE PERFORMANCE
SUMMARY FOR MORE INFORMATION.)
o WHILE DEREGULATION HAS BROUGHT SOME UNCERTAINTY TO THE ELECTRIC UTILITY
INDUSTRY AND HINDERED PERFORMANCE FOR THE GROUP AS A WHOLE, SEVERAL
COMPANIES IN THE FUND HAVE ADAPTED WELL TO THE CHANGING ENVIRONMENT.
o AS DEREGULATION SPREADS AND THE NEED FOR EFFICIENCY INCREASES, THE UTILITY
INDUSTRY IS SEEING MORE MERGERS AND ACQUISITIONS, WITH NATURAL GAS
COMPANIES BUYING ELECTRIC COMPANIES AND ELECTRIC COMPANIES BUYING GAS
COMPANIES.
o REAL ESTATE INVESTMENT TRUSTS (REITS) MAKE UP ABOUT 9% OF THE FUND AND
HELP PROVIDE INCOME WHILE ALLOWING THE FUND TO AVOID HIGHER-YIELDING, BUT
POTENTIALLY RISKIER, ELECTRIC UTILITIES.
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of A. Keith Brodkin]
A. Keith Brodkin
Dear Shareholders:
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still
uncomfortably high. The rapid pace of growth seen in the first quarter slowed
to an annual rate of 3.3% in the second quarter and 3.5% in the third. We
believe economic momentum will carry well into the first quarter of 1998, as
the money supply is increasing at a rapid rate, and it still appears that
Christmas sales could be quite good. Because economic growth continues to be
impressive, markets are likely to continue to focus on the Federal Reserve
Board's (the Fed's) willingness to raise interest rates.
The extreme volatility of the U.S. equity market in October was, we believe,
the consequence of overvaluations that had been evident for some months. As a
result, the stock market has been vulnerable to some type of correction and
has been impacted in the near term by chaotic market conditions in the Pacific
Rim. In the face of all this, however, the equity market continues to exhibit
surprising strength, much of it the result of continued gains in corporate
earnings, a trend that could be an important indicator of the market's future
direction. Certainly the situation in Southeast Asia bears close scrutiny
because it appears to be clearly deflationary and raises the prospect of trade
wars developing throughout the area. We are not convinced that U.S. markets
have escaped totally from October's volatility. Thus, while the near-term
outlook for profits is generally favorable, we believe equity valuations have
risen to a point where a cautious investment approach seems warranted, with a
need for particular attention to be paid to the effect of Pacific Rim
volatility on the earnings of U.S. companies.
The U.S. government bond market has benefited from the deflationary events in
Southeast Asia, while the high-yield and emerging-debt markets have come under
severe pressure. Inflation remains under control, and the Fed will most likely
take a wait-and-see attitude toward raising interest rates. As a result, our
near-term outlook for high-grade markets is neutral to moderately positive. At
the same time, high-yield markets, having gone through a substantial
correction, could offer reasonable value but require careful selection.
Overall, fixed-income markets appear to be reasonably 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
November 14, 1997
<PAGE>
A DISCUSSION WITH THE PORTFOLIO MANAGER
[Photo of Maura A. Shaughnessy]
Maura A. Shaughnessy
For the 12 months ended October 31, 1997, Class A shares of the Fund provided
a total return of 28.62%, Class B shares 27.59%, Class C shares 27.71%, and
Class I shares 28.81%. These returns, which include the reinvestment of
distributions but exclude the effects of any sales charges, compare to a 9.68%
return for the Standard & Poor's Utility Index (the Utility Index), an
unmanaged, market-value-weighted, total return index of all utility stocks in
the Standard & Poor's 500 Composite Index (the S&P 500). For the same period,
the S&P 500, an unmanaged index of common stock total return performance,
returned 31.12%.
Q. WHY HAS THE FUND PERFORMED SO WELL AGAINST ITS BENCHMARK THIS YEAR?
A. We've had some good stock picks in the telecommunication area. We had big
bets on Worldcom, MCI, and many of the competitive local exchange
companies. Also, we had a position in Latin American telecommunication and
electric utility stocks, which performed well until the last week of the
Fund's fiscal year, when they got caught up in the emerging-market
upheaval. But, until then, they had very good performance. We have recently
added to our Latin American exposure.
Q. WHAT KIND OF STOCKS IN LATIN AMERICA ARE YOU BUYING?
A. Telecommunication and electric utility stocks, in places like Mexico,
Brazil, Argentina, and Chile. We are currently finding many companies in
Latin America trading at very low valuations relative to their cash flow
growth rates.
Q. HOW WOULD YOU DESCRIBE THE FUND'S INVESTMENT PHILOSOPHY?
A. It's a very bottom-up, eclectic investment process. We like to look at
special situations, which is why the Fund tends not to be closely
correlated with the utility market or the overall market. We'll look at
ideas anywhere, domestically and internationally. Generally, we tend to
focus on three issues: (1) the regulatory environment, (2) growth
prospects, and (3) management.
Q. COULD YOU TALK ABOUT HOW DEREGULATION HAS AFFECTED THE ELECTRIC UTILITY
INDUSTRY?
A. Some people portray deregulation as if it is something new. It's been
around for three years, and it's the reason the group has underperformed so
dramatically over the past couple of years. It has brought a lot of
uncertainty to the business, especially in the electric generation
business. While the overall group has not performed well in this
environment, there have been some good stocks. So now, given the current
uncertainties in the electric business, our stock picks are more a function
of our assessment of management than a pure valuation decision using price-
to-earnings ratios or dividend yields.
Q. WHAT'S THE DIFFERENCE BETWEEN MANAGERS OF UTILITIES WHO HAVE RESPONDED
EFFECTIVELY TO DEREGULATION AND THOSE WHO HAVE NOT?
A. In some cases, they came from the natural gas business, where they already
had to deal with what it means to operate in a deregulated world. A
successful electric utility manages their utility as a business, not as a
regulated monopoly.
Q. COULD YOU DESCRIBE SOME OF THE LARGER ELECTRIC UTILITY POSITIONS?
A. New Century Energies, which is the old Public Service Company of Colorado;
Cinergy, which operates Cincinnati Gas & Electric; and Sierra Pacific
Resources in northern California and Nevada. Sierra Pacific, for example,
has very low costs, no nuclear exposure, a growth rate at twice the average
for the industry, and good relations with regulators.
Q. WHAT SECTOR MAKES UP THE LARGEST PORTION OF THE FUND?
A. The domestic electrics make up 17% of the portfolio, domestic
telecommunication companies 15%, domestic gas 14%, and
international utilities 28%.
Q. WHAT ABOUT THE NATURAL GAS PIPELINE COMPANIES?
A. In 1995 and 1996, they were great stocks because their earnings exceeded
expectations and their multiples expanded. But in the first half of this
year, the weather was warm and there was little gas price volatility, which
means they didn't make much money on the marketing side. Several companies
reported poor earnings. However, on a positive note, we have seen several
mergers take place as many companies attempt to position themselves for the
gas and electric markets. Over the past 18 months, the largest public deals
have been Enron buying Portland General, Duke Power buying Panenergy, and
Shell buying Tejas Gas. The Fund had positions in all these takeovers,
which helped performance.
Q. WHAT ABOUT REITS, OR REAL ESTATE INVESTMENT TRUSTS?
A. They make up about 9% of the Fund. We want the Fund to have a current yield
at least equal to that of the Lipper Utility Index, and we can get that
income primarily from bonds, electric utilities, and/or REITs. We would
prefer not to chase the higher-yielding, riskier electrics and have chosen
to obtain the income from bonds, REITs, and lower-yielding, higher-growth
electrics.
Q. COULD YOU TALK ABOUT SOME STOCKS THAT HAVE PERFORMED BETTER
THAN EXPECTED?
A. We would not have expected MCI to do as well as it did. The company's
fundamentals were deteriorating, but takeover bids by both GTE and WorldCom
caused MCI's stock to outperform. But, overall, there haven't been many
big upside surprises in the Fund this year.
Q. AND WHAT ABOUT STOCKS OR SECTORS THAT HAVE NOT PERFORMED AS WELL AS YOU
WOULD HAVE LIKED?
A. As I mentioned, the natural gas companies in general have been somewhat
disappointing as many companies have reported weak earnings.
Q. WHAT KIND OF ENVIRONMENT DO YOU SEE FOR THIS BUSINESS GOING FORWARD, AND
HOW MIGHT IT AFFECT SOME OF YOUR INVESTMENTS FOR
THE FUND?
A. We think there will be more mergers and acquisitions in the electric and
gas businesses over the next six to 12 months. There hasn't been much of
this in 1997, mainly because of extreme regulatory lag. But as regulation
on the state and federal levels becomes more clear, we expect merger and
acquisition activity to pick up. This should benefit multiples in all
industries involved.
/s/ Maura Shaughnessy
- --------------------------
Maura A. Shaughnessy
Portfolio Manager
<PAGE>
PORTFOLIO MANAGER'S PROFILE
MAURA A. SHAUGHNESSY JOINED MFS IN 1991 AS AN EQUITY ANALYST AND WAS
PROMOTED TO ASSISTANT VICE PRESIDENT IN 1992 AND VICE PRESIDENT IN 1993.
A GRADUATE OF COLBY COLLEGE AND THE AMOS TUCK SCHOOL OF BUSINESS OF
DARTMOUTH COLLEGE, SHE IS A CHARTERED FINANCIAL ANALYST (C.F.A.) AND HAS
MANAGED MFS(R) UTILITIES FUND SINCE 1992.
FUND FACTS
OBJECTIVE: THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK CAPITAL
GROWTH AND CURRENT INCOME (INCOME ABOVE THAT AVAILABLE
FROM A PORTFOLIO INVESTED ENTIRELY IN EQUITY SECURITIES).
COMMENCEMENT OF INVESTMENT OPERATIONS: FEBRUARY 14, 1992
CLASS INCEPTION: CLASS A FEBRUARY 14, 1992
CLASS B SEPTEMBER 7, 1993
CLASS C JANUARY 3, 1994
CLASS I JANUARY 2, 1997
SIZE: $205.6 MILLION NET ASSETS AS OF OCTOBER 31, 1997
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Utilities
Fund -- Class A shares in comparison to various market indicators. Class A
share performance results reflect the deduction of the 4.75% maximum sales
charge; benchmark comparisons are unmanaged and do not reflect any fees or
expenses. The performance of other share classes will be greater than or less
than the line shown, based on differences in charges and fees paid by
shareholders investing in different classes. It is not possible to invest
directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from March 1, 1992, through October 31, 1997)
LEHMAN BROTHERS
CORPORATE BOND CONSUMER
MFS UTILITIES S&P UTILITY UTILITY TOTAL PRICE
FUND - CLASS A INDEX RETURN INDEX INDEX - U.S.
3/92 $ 9,520 $ 9,850 $10,000 $10,000
10/92 10,218 11,360 10,700 10,231
10/93 12,653 14,240 12,200 10,512
10/94 12,211 12,500 11,400 10,786
10/95 14,956 16,150 13,600 11,089
10/96 17,806 17,730 14,500 11,421
10/97 22,777 19,486 15,929 11,660
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS AS OF OCTOBER 31, 1997
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Life of Fund*
- --------------------------------------------------------------------------------------------------------------------------------
MFS Utilities Fund (Class A)
<S> <C> <C> <C> <C>
including 4.75% sales charge (SEC results) +22.57% +21.11% +16.26% +15.61%
- --------------------------------------------------------------------------------------------------------------------------------
MFS Utilities Fund (Class A) at net asset value +28.62% +23.10% +17.38% +16.58%
- --------------------------------------------------------------------------------------------------------------------------------
MFS Utilities Fund (Class B) with CDSC
(SEC results) +23.59% +21.43% +16.27% +15.72%
- --------------------------------------------------------------------------------------------------------------------------------
MFS Utilities Fund (Class B) at net asset value +27.59% +22.10% +16.49% +15.81%
- --------------------------------------------------------------------------------------------------------------------------------
MFS Utilities Fund (Class C) with CDSC
(SEC results) +26.71% +22.09% +16.54% +15.85%
- --------------------------------------------------------------------------------------------------------------------------------
MFS Utilities Fund (Class C) at net asset value +27.71% +22.09% +16.54% +15.85%
- --------------------------------------------------------------------------------------------------------------------------------
MFS Utilities Fund (Class I) at net asset value +28.81% +23.16% +17.42% +16.62%
- --------------------------------------------------------------------------------------------------------------------------------
Average utility funds index** +17.81% +15.24% +11.44% +12.04%
- --------------------------------------------------------------------------------------------------------------------------------
Standard & Poor's Utility Index+ + 9.68% +15.64% +10.59% +11.58%
- --------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Corporate Bond Utility
Total Return Index++(+) + 9.88% +11.88% + 8.35% +10.42%
- --------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index+# + 2.09% + 2.63% + 2.65% + 2.79%
- --------------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations, February 14,
1992, through October 31, 1997.
** Source: Lipper Analytical Services, Inc.
+ Source: CDA/Wiesenberger.
++ Source: Lehman Brothers.
(+) The Lehman Brothers Corporate Bond Utility Total Return Index is an unmanaged index that
includes all publicly issued, fixed-rate, noncovertible investment-grade domestic utility
debt.
# The Consumer Price Index is published by the U.S. Bureau of Labor Statistics and measures
the cost of living (inflation).
</TABLE>
All results are historical and assume the reinvestment of dividends and
capital gains. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
Past performance is no guarantee of future results.
Class A share SEC results include the maximum 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 have no sales charge or Rule 12b-1 fees and are only available
to certain institutional investors.
Class B and Class C share results include the performance and the operating
expenses (e.g., Rule 12b-1 fees) of the Fund's Class A shares for periods
prior to the inception of Class B and Class C shares. Because operating
expenses attributable to Class B and Class C shares are higher than those of
Class A shares, Class B and Class C share performance generally would have
been lower than Class A share performance. The Class A share performance
included within the Class B and Class C share SEC performance has
been adjusted to reflect the CDSC generally applicable to Class B and
Class C shares rather than the initial sales charge generally applicable to
Class A shares.
Class I share results include the performance and the operating expenses
(e.g., Rule 12b-1 fees) of the Fund's Class A shares for periods prior to the
inception of Class I shares. Because operating expenses attributable to Class
A shares are greater than those of Class I shares, Class I share performance
generally would have been higher than Class A share performance. The Class A
share performance included within the Class I share performance has been
adjusted to reflect the fact that Class I shares have no initial sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details.
TAX FORM SUMMARY
IN JANUARY 1998, SHAREHOLDERS WILL BE MAILED A TAX FORM SUMMARY
REPORTING THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE
CALENDAR YEAR 1997.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
THE FUND HAS DESIGNATED $4,059,832 AS A LONG-TERM CAPITAL GAIN
DISTRIBUTION.
DIVIDENDS-RECEIVED DEDUCTION
FOR THE YEAR ENDED OCTOBER 31, 1997, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS-RECEIVED DEDUCTION FOR
CORPORATIONS WAS 10.0%.
PORTFOLIO CONCENTRATION AS OF OCTOBER 31, 1997
TOP 10 HOLDINGS
<TABLE>
<CAPTION>
<S> <C>
COLUMBIA GAS SYSTEMS, INC. SBC COMMUNICATIONS, INC.
Natural gas production and pipeline company Integrated telecommunications company
NEW CENTURY ENERGIES, INC. CINERGY CORP.
Electric utility Electric utility
CENTURY TELEPHONE ENTERPRISES, INC. NGC CORP.
Local and long-distance telephone company Natural gas and oil company
MCI COMMUNICATIONS CORP. SPRINT CORP.
Telecommunications company Long-distance telephone company
SIERRA PACIFIC RESOURCES PUBLIC SERVICE COMPANY OF NEW MEXICO
Gas utility Utility company
</TABLE>
LARGEST SECTORS
<TABLE>
<CAPTION>
Miscellaneous
Utilities (Conglomerates,
and special products/ Financial Other
Communications services) Services Technology Energy Sectors
<S> <C> <C> <C> <C> <C>
82.4% 1.3% 10.8% 2.4% 2.1% 1.0%
</TABLE>
For a more complete breakdown, refer to the Portfolio of Investments.
<PAGE>
PORTFOLIO OF INVESTMENTS - October 31, 1997
<TABLE>
<CAPTION>
Stocks - 79.8%
- ------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- ------------------------------------------------------------------------------------------------
U.S. Stocks - 55.1%
Cellular Telephones - 1.8%
<S> <C> <C>
Century Telephone Enterprises, Inc. 87,500 $ 3,713,281
- ------------------------------------------------------------------------------------------------
Conglomerates - 0.6%
Eastern Enterprises 32,000 $ 1,254,000
- ------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.8%
Philip Morris Cos., Inc. 42,000 $ 1,664,250
- ------------------------------------------------------------------------------------------------
Oils - 0.6%
Enron Oil & Gas Co. 63,000 $ 1,326,938
- ------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 9.0%
American General Hospitality Corp. 29,100 $ 792,975
Boston Properties, Inc.* 31,400 1,004,800
Boykin Lodging Co. 42,200 1,126,212
FelCor Suite Hotels, Inc. 40,000 1,465,000
First Industrial Realty Trust, Inc. 40,000 1,385,000
Highwood Properties, Inc. 59,500 2,052,750
Innkeepers USA Trust 88,000 1,468,500
Kilroy Realty Corp. 71,600 1,897,400
Liberty Property Trust 24,100 674,800
Mid-America Apartment Communities, Inc. 28,100 793,825
National Health Investors, Inc. 24,200 948,338
Shurgard Storage Centers, Inc. 10,000 282,500
Sovran Self Storage, Inc. 45,000 1,321,875
Storage Trust Realty 52,400 1,339,475
Tower Realty Trust, Inc.* 8,600 217,150
TriNet Corporate Realty Trust, Inc. 46,500 1,682,719
------------
$ 18,453,319
- -----------------------------------------------------------------------------------------------
Telecommunications - 5.5%
Brooks Fiber Properties, Inc.* 30,000 $ 1,676,250
Cellular Communications International, Inc.* 45,000 1,800,000
Cincinnati Bell, Inc. 60,000 1,620,000
Intermedia Communications, Inc.* 35,700 1,619,888
IXC Communications Inc.* 40,000 1,320,000
Nextlink Communications, Inc.* 26,200 592,775
Tel-Save Holdings, Inc.* 22,400 481,600
Teleport Communications Group, Inc., "A"* 23,000 1,112,625
WorldCom, Inc.* 30,120 1,012,785
------------
$ 11,235,923
- -----------------------------------------------------------------------------------------------
Utilities - Electric - 15.5%
Calenergy, Inc.* 80,100 $ 2,743,425
Carolina Power & Light Co. 25,000 893,750
Central Hudson Gas & Electric Corp. 40,000 1,417,500
Cinergy Corp. 104,000 3,432,000
CMS Energy Corp. 21,000 766,500
Florida Progress Corp. 61,000 1,986,312
GPU, Inc. 74,000 2,677,875
Long Island Lighting Co. 51,000 1,284,563
New Century Energies, Inc. 93,800 3,916,150
Pacificorp 60,700 1,316,431
Pinnacle West Capital Corp. 53,300 1,855,506
Public Service Co. of New Mexico 158,000 3,071,125
Sierra Pacific Resources 116,900 3,558,144
Southern Co. 44,200 1,013,838
Texas Utilities Co. 52,300 1,876,262
------------
$ 31,809,381
- ------------------------------------------------------------------------------------------------
Utilities - Gas - 13.4%
Coastal Corp. 39,000 $ 2,344,875
Columbia Gas System, Inc. 84,800 6,126,800
El Paso Natural Gas Co. 24,000 1,438,500
Energen Corp. 36,800 1,331,700
Enron Corp. 25,000 950,000
Keyspan Energy Corp. 41,000 1,273,563
KN Energy, Inc. 51,700 2,248,950
NGC Corp. 175,300 3,330,700
NICOR, Inc. 26,400 1,018,050
NUI Corp. 122,500 2,763,906
Oneok, Inc. 36,000 1,235,250
Questar Corp. 45,000 1,738,125
Sonat, Inc. 37,800 1,736,437
------------
$ 27,536,856
- ------------------------------------------------------------------------------------------------
Utilities - Telephone - 7.9%
Bell Atlantic Corp. 20,060 $ 1,602,293
BellSouth Corp. 40,000 1,892,500
MCI Communications Corp. 100,300 3,560,650
SBC Communications, Inc. 55,532 3,533,223
Sprint Corp. 60,000 3,120,000
US West Communications Group 65,000 2,587,812
------------
$ 16,296,478
- ------------------------------------------------------------------------------------------------
Total U.S. Stocks $113,290,426
- ------------------------------------------------------------------------------------------------
Foreign Stocks - 24.7%
Argentina - 1.8%
Capex S.A., GDR (Utilities - Electric)## 16,700 $ 200,400
Central Costanera, ADR (Utilities - Electric)## 44,000 880,000
Central Puerta S.A. (Utilities - Electric)## 20,100 175,875
Telecom Argentina S.A., ADR (Utilities - Telephone) 32,000 810,000
Telefonica de Argentina, S.A., "B" ADR (Utilities -
Telephone) 60,000 1,687,500
------------
$ 3,753,775
- ------------------------------------------------------------------------------------------------
Brazil - 4.1%
Cia Electric est Rio Janeiro (Utilities - Electric) 1,597,600 $ 999,949
Espirito Santo Centrais Electricas S.A. (Utilities -
Electric) 10,200 1,850,508
Light Servicos de Eletricidade S.A. (Utilities -
Electric) 2,000 664,006
Telecel - Comunicacaoes Pessoais S.A. (Utilities -
Telephone)* 28,500 2,579,557
Telecomunicacoes Brasileiras S.A., ADR (Utilities -
Telephone) 22,600 2,293,900
------------
$ 8,387,920
- ------------------------------------------------------------------------------------------------
Canada - 2.0%
BCE, Inc. (Telecommunications) 79,000 $ 2,207,062
Bell Canada International, Inc. (Utilities -
Telephone)* 110,100 1,844,175
------------
$ 4,051,237
- ------------------------------------------------------------------------------------------------
Chile - 2.4%
Chilectra S.A., ADR (Utilities - Electric) 111,500 $ 2,931,001
Compania de Telecom de Chile, ADR (Utilities -
Telephone) 24,800 688,200
Empresa Nacional de Electricidad, ADR (Utilities -
Electric) 70,000 1,408,750
------------
$ 5,027,951
- ------------------------------------------------------------------------------------------------
France - 0.6%
Alcatel Alsthom, ADR (Telecommunications) 55,000 $ 1,337,188
- ------------------------------------------------------------------------------------------------
Greece - 0.4%
Hellenic Telecommunication Organization S.A.
(Utilities - Telephone) 34,900 $ 730,883
- ------------------------------------------------------------------------------------------------
Hong Kong - 0.1%
Asia Satellite Telecommunications Holdings Ltd.
(Telecommunications) 52,000 $ 125,123
- ------------------------------------------------------------------------------------------------
Indonesia - 0.6%
PT Indosat, ADR (Telecommunications) 56,100 $ 1,328,869
- ------------------------------------------------------------------------------------------------
Italy - 2.5%
Telecom Italia S.p.A. (Telecommunications)* 277,900 $ 1,122,496
Telecom Italia S.p.A. (Telecommunications)* 362,600 2,271,871
Telecom Italia S.p.A., Saving Shares
(Telecommunications) 810,000 1,659,797
------------
$ 5,054,164
- ------------------------------------------------------------------------------------------------
Japan - 0.8%
Nippon Telephone & Telegraph Co. (Utilities -
Telephone) 189 $ 1,605,162
- ------------------------------------------------------------------------------------------------
Mexico - 0.5%
Grupo Iusacell S.A. (Telecommunications)* 60,200 $ 1,083,600
- ------------------------------------------------------------------------------------------------
New Zealand - 0.6%
Telecom Corp. of New Zealand (Utilities - Telephone) 30,000 $ 1,168,125
- ------------------------------------------------------------------------------------------------
Peru - 1.3%
Luz del Sur S.A. (Utilities - Electric) 802,459 $ 983,087
Telefonica del Peru S.A., "B" (Utilities - Telephone) 264,700 528,423
Telefonica del Peru S.A., ADR, "B" (Utilities -
Telephone) 60,800 1,200,800
------------
$ 2,712,310
- -----------------------------------------------------------------------------------------------
Portugal - 1.0%
Portugal Telecom S.A. (Utilities - Telephone) 24,600 $ 1,005,501
Portugal Telecom S.A., ADR (Utilities - Telephone) 27,100 1,117,875
------------
$ 2,123,376
- -----------------------------------------------------------------------------------------------
South Korea
Korea Mobile Telecommunications (Telecommunications) 15 $ 5,168
- -----------------------------------------------------------------------------------------------
Spain - 2.7%
Endesa S.A. (Utilities - Electric) 92,800 $ 1,728,400
Iberdrola S.A. (Utilities - Electric) 223,600 2,669,759
Telefonica de Espana S.A., ADR (Utilities -
Telephone) 13,000 1,069,250
----------------
$ 5,467,409
- ------------------------------------------------------------------------------------------------
United Kingdom - 3.3%
Cable & Wireless Communications PLC
(Telecommunications)* 233,100 $ 844,061
Cable & Wireless PLC, ADR (Telecommunications) 91,000 2,229,500
Colt Telecom Group PLC, ADR (Telecommunications)* 15,000 517,500
National Grid Group (Utilities - Electric) 200,000 942,137
National Power (Utilities - Electric) 118,600 988,141
PowerGen PLC (Utilities - Electric)* 113,050 1,256,499
----------------
$ 6,777,838
- ------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 50,740,098
- ------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $151,813,990) $ 164,030,524
- ------------------------------------------------------------------------------------------------
Preferred Stock - 1.5%
- ------------------------------------------------------------------------------------------------
Cia Parana Energia (Utilities - Electric) 105,200 $ 1,270,149
Cia Riogrand Telec (Utilities - Telephone)* 2,400,500 1,850,893
- ------------------------------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $4,512,644) $ 3,121,042
- ------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 0.3%
- ------------------------------------------------------------------------------------------------
Argentina - 0.3%
Compania Inversiones Telephone, 7% (Utilities -
Telephone) (Identified Cost, $561,475)* 10,900 $ 604,950
- ------------------------------------------------------------------------------------------------
Bonds - 14.0%
- ------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------------------------
U.S. Bonds - 13.4%
Airlines - 0.3%
Delta Air Lines, Inc., 8.5s, 2002 $ 500 $ 538,425
- ------------------------------------------------------------------------------------------------
Construction Services - 0.5%
Georgia Pacific Corp., 9.5s, 2022 $1,000 $ 1,110,560
- ------------------------------------------------------------------------------------------------
Electronics - 1.1%
ADT Operations, Inc., 0s, 2010 $2,130 $ 2,193,900
- ------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.2%
Boise Cascade Co., 7.43s, 2005 $ 450 $ 470,088
- ------------------------------------------------------------------------------------------------
Gas - 0.5%
Texas Gas Transmission Corp., 7.25s, 2027 $1,100 $ 1,142,471
- ------------------------------------------------------------------------------------------------
Insurance - 0.9%
NGC Corp. Capital Trust I, 8.316s, 2027 $1,670 $ 1,850,343
- ------------------------------------------------------------------------------------------------
Oils - 0.3%
Oryx Energy Co., 10s, 2001 $ 500 $ 551,245
- ------------------------------------------------------------------------------------------------
Telecommunications - 0.1%
Rogers Cablesystems, Inc., 10.125s, 2012 $ 200 $ 210,000
- ------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 7.2%
Government National Mortgage Association - 1.8%
GNMA, 7.5s, 2026 $ 986 $ 1,007,808
GNMA, 8s, 2025 410 432,931
GNMA, 8.5s, 2026 - 2026 2,191 2,297,298
------------
$ 3,738,037
- ------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 5.4%
U.S. Treasury Bonds, 6.625s, 2027 $2,185 $ 2,316,777
U.S. Treasury Bonds, 9.875s, 2015 450 629,649
U.S. Treasury Bonds, 10.75s, 2005 400 519,376
U.S. Treasury Notes, 5.5s, 2000 1,000 993,125
U.S. Treasury Notes, 9.125s, 1999 5,785 6,076,969
U.S. Treasury Notes, 9.25s, 1998 500 513,905
------------
$ 11,049,801
- ------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 14,787,838
- ------------------------------------------------------------------------------------------------
Utilities - Electric - 1.5%
Commonwealth Edison Co., 7.625s, 2007 $ 500 $ 519,780
Long Island Lighting Co., 9s, 2022 1,000 1,145,240
Midland Cogeneration Venture Corp., 10.33s, 2002 408 447,913
Montana Power Co., 7.875s, 2026 500 544,150
Texas & New Mexico Power Co., 12.5s, 1999 435 463,349
------------
$ 3,120,432
- ------------------------------------------------------------------------------------------------
Utilities - Gas - 0.8%
Tennessee Gas Pipeline Co., 7.625s, 2037 $1,000 $ 1,044,530
Utilicorp United, Inc., 8.45s, 1999 500 521,320
------------
$ 1,565,850
- ------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 27,541,152
- ------------------------------------------------------------------------------------------------
Foreign Bonds - 0.6%
Argentina - 0.1%
Hidroelectrica Alicura, 8.375s, 1999 (Utilities -
Electric)## $ 150 $ 148,500
- -----------------------------------------------------------------------------------------------
Chile - 0.5%
Empresa Electrica Del Norts, 7.75s, 2006
(Utilities - Electric)## $ 600 $ 596,028
Empresa Electric Guacolda S.A., 7.6s, 2001
(Utilities - Electric)## 500 515,190
------------
$ 1,111,218
- ------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 1,259,718
- ------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $26,278,621) $ 28,800,870
- ------------------------------------------------------------------------------------------------
Convertible Bond - 0.6%
- ------------------------------------------------------------------------------------------------
Huaneng Power International, Inc., 1.75s, 2004
(Utilities - Electric) (Identified Cost $1,220,000)## $1,220 $ 1,165,100
- ------------------------------------------------------------------------------------------------
Short-Term Obligations - 2.8%
- ------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 11/03/97 - 11/13/97 $3,850 $ 3,846,098
Federal National Mortgage Assn., due 11/06/97 - 11/24/97 1,920 1,914,998
- ------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 5,761,096
- ------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $190,147,826) $203,483,582
Other Assets, Less Liabilities - 1.0% 2,085,708
- ------------------------------------------------------------------------------------------------
Net Assets - 100.0% $205,569,290
- ------------------------------------------------------------------------------------------------
</TABLE>
*Non-income producing security.
##SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $190,147,826) $203,483,582
Cash 79,205
Receivable for Fund shares sold 1,970,830
Receivable for investments sold 5,709,996
Interest and dividends receivable 1,149,593
Other assets 1,151
------------
Total assets $212,394,357
------------
Liabilities:
Distributions payable $ 93,650
Payable for Fund shares reacquired 266,253
Payable for investments purchased 6,296,366
Payable to affiliates -
Management fee 2,789
Shareholder servicing agent fee 650
Distribution fee 61,045
Accrued expenses and other liabilities 104,314
------------
Total liabilities $ 6,825,067
------------
Net assets $205,569,290
============
Net assets consist of:
Paid-in capital $163,260,703
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 13,336,229
Accumulated undistributed net realized gain on investments
and foreign currency transactions 28,894,870
Accumulated undistributed net investment income 77,488
------------
Total $205,569,290
============
Shares of beneficial interest outstanding 19,817,164
==========
Class A shares:
Net asset value per share
(net assets of $90,083,298 / 8,672,797 shares of
beneficial interest outstanding) $10.39
======
Offering price per share (100 / 95.25 of net value per
share) $10.91
======
Class B shares:
Net asset value and offering price per share
(net assets of $91,973,248 / 8,877,579 shares
of beneficial interest outstanding) $10.36
======
Class C shares:
Net asset value and offering price per share
(net assets of $22,787,500 / 2,197,002 shares of
beneficial interest outstanding) $10.37
======
Class I shares:
Net asset value, offering price and redemption
price per share (net assets of $725,244 /69,786
shares of beneficial interest outstanding) $10.39
======
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, 1997
- --------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 4,738,413
Interest 2,256,285
Foreign taxes withheld (154,893)
------------
Total investment income $ 6,839,805
------------
Expenses -
Management fee $ 1,015,624
Administrative fee 17,086
Trustees' compensation 42,250
Shareholder servicing agent fee 176,327
Shareholder servicing agent fee (Class A) 15,832
Shareholder servicing agent fee (Class B) 19,552
Shareholder servicing agent fee (Class C) 2,315
Distribution and service fee (Class A) 184,363
Distribution and service fee (Class B) 687,744
Distribution and service fee (Class C) 143,154
Custodian fee 69,956
Printing 61,287
Auditing fees 38,211
Postage 30,565
Amortization of organization expenses 12,474
Legal fees 3,177
Miscellaneous 132,716
------------
Total expenses $ 2,652,633
Fees paid indirectly (10,829)
Reduction of expenses by investment adviser (294,109)
------------
Net expenses $ 2,347,695
------------
Net investment income $ 4,492,110
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 29,207,258
Foreign currency transactions (8,916)
------------
Net realized gain on investments and foreign
currency transactions $ 29,198,342
------------
Change in unrealized appreciation (depreciation) -
Investments $ 3,178,645
Translation of assets and liabilities in foreign currencies (185)
------------
Net unrealized gain on investments and foreign currency
translation $ 3,178,460
------------
Net realized and unrealized gain on investments and
foreign currency $ 32,376,802
------------
Increase in net assets from operations $ 36,868,912
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1997 1996
- --------------------------------------------------------------------------------------------------------
Increase in net assets:
From operations -
<S> <C> <C>
Net investment income $ 4,492,110 $ 4,111,581
Net realized gain on investments and foreign currency
transactions 29,198,342 10,538,725
Net unrealized gain on investments and foreign currency
translation 3,178,460 2,216,109
------------- -------------
Increase in net assets from operations $ 36,868,912 $ 16,866,415
------------- -------------
Distributions declared to shareholders -
From net investment income (Class A) $ (2,595,146) $ (2,063,623)
From net investment income (Class B) (1,850,367) (1,256,601)
From net investment income (Class C) (373,755) (199,785)
From net investment income (Class I) (23,347) --
From net realized gain on investments and foreign currency
transactions (Class A) (5,350,418) (1,254,112)
From net realized gain on investments and foreign currency
transactions (Class B) (4,454,053) (921,552)
From net realized gain on investments and foreign currency
transactions (Class C) (782,366) (134,537)
------------- -------------
Total distributions declared to shareholders $ (15,429,452) $ (5,830,210)
------------- -------------
Net increase in net assets from Fund share transactions $ 65,677,277 $ 16,760,183
------------- -------------
Total increase in net assets $ 87,116,737 $ 27,796,388
Net assets:
At beginning of period 118,452,553 90,656,165
------------- -------------
At end of period (including accumulated undistributed net
investment income of $77,488 and $436,026, respectively) $ 205,569,290 $ 118,452,553
============= =============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 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 $ 9.12 $ 8.20 $ 7.00 $ 7.86 $ 6.68 $ 6.33
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.32 $ 0.38 $ 0.31 $ 0.33 $ 0.40 $ 0.17
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 2.08 1.07 1.22 (0.63) 1.19 0.30
------ ------ ------ ------ ------ ------
Total from investment operations $ 2.40 $ 1.45 $ 1.53 $(0.30) $ 1.59 $ 0.47
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.34) $(0.32) $(0.33) $(0.35) $(0.38) $(0.12)
From net realized gain on investments
and foreign currency transactions (0.79) (0.21) -- (0.21) (0.03) --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.13) $(0.53) $(0.33) $(0.56) $(0.41) $(0.12)
------ ------ ------ ------ ------ ------
Net asset value - end of period $10.39 $ 9.12 $ 8.20 $ 7.00 $ 7.86 $ 6.68
====== ====== ====== ====== ====== ======
Total return(+) 28.62% 18.41% 22.48% (3.89)% 24.39% 11.02%+
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.10% 1.08% 0.83% 0.65% 0.65% 0.65%+
Net investment income 3.27% 4.37% 4.30% 4.58% 4.57% 5.44%+
Portfolio turnover 153% 137% 152% 115% 119% 63%
Average commission rate### $0.0359 $0.0422 $ -- $ -- $ -- $ --
Net assets at end of period (000
omitted) $90,083 $60,345 $52,474 $42,027 $43,423 $12,859
*For the period from the commencement of the Fund's investment operations,
February 14, 1992, through October 31, 1992.
+Annualized.
#Per share data for the periods subsequent to October 31, 1993, are based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(+)Total returns for Class A shares do not include the applicable sales
charge. If the charge had been included, the results would have been lower.
(S)The investment adviser and/or the distributor voluntarily waived a
portion of their management fee and/or distribution fee, respectively,
for certain of the periods indicated. If the fee had been incurred by the
Fund, the net investment income per share and the ratios would have been:
Net investment income $ 0.30 $ 0.34 $ 0.28 $ 0.28 $ 0.31 $ 0.13
Ratios (to average net assets):
Expenses## 1.29% 1.42% 1.23% 1.41% 1.68% 2.63%+
Net investment income 3.08% 4.03% 3.90% 3.82% 4.20% 3.46%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 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 $ 9.10 $ 8.18 $ 6.98 $ 7.84 $ 7.83
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.24 $ 0.31 $ 0.24 $ 0.25 $ 0.05
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 2.08 1.07 1.22 (0.63) 0.01
------ ------ ------ ------ ------
Total from investment operations $ 2.32 $ 1.38 $ 1.46 $(0.38) $ 0.06
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.27) $(0.25) $(0.26) $(0.27) $(0.05)
From net realized gain on investments and
foreign currency transactions (0.79) (0.21) -- (0.21) --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.06) $(0.46) $(0.26) $(0.48) $(0.05)
------ ------ ------ ------ ------
Net asset value - end of period $10.36 $ 9.10 $ 8.18 $ 6.98 $ 7.84
====== ====== ====== ====== ======
Total return 27.59% 17.50% 21.43% (4.92)% 0.69%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.87% 1.89% 1.74% 1.72% 1.50%+
Net investment income 2.49% 3.53% 3.33% 3.51% 1.80%+
Portfolio turnover 153% 137% 152% 115% 119%
Average commission rate### $0.0359 $0.0422 $ -- $ -- $ --
Net assets at end of period (000 omitted) $91,973 $49,877 $33,239 $19,774 $ 5,412
**For the period from the inception of Class B shares, September 7, 1993,
through October 31, 1993.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to October 31, 1993, are based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S)The investment adviser voluntarily waived a portion of its management fee
for certain of the periods indicated. If the fee had been incurred by the
Fund, the net investment income per share and the ratios would have been:
Net investment income (loss) $ 0.22 $ 0.28 $ 0.21 $ 0.20 $(0.07)
Ratios (to average net assets):
Expenses## 2.06% 2.23% 2.14% 2.48% 3.27%+
Net investment income 2.30% 3.19% 2.93% 2.74% 1.53%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 1997 1996 1995 1994*** 1997****
- ------------------------------------------------------------------------------------------------------------------------------
CLASS C CLASS I
- ------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 9.10 $ 8.18 $ 6.99 $ 7.48 $ 8.90
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.24 $ 0.31 $ 0.24 $ 0.25 $ 0.29
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 2.09 1.07 1.21 (0.54) 1.48
------ ------ ------ ------ ------
Total from investment operations $ 2.33 $ 1.38 $ 1.45 $(0.29) $ 1.77
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.27) $(0.25) $(0.26) $(0.20) $(0.28)
From net realized gain on investments and
foreign currency transactions (0.79) (0.21) -- -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.06) $(0.46) $(0.26) $(0.20) $(0.28)
------ ------ ------ ------ ------
Net asset value - end of period $10.37 $ 9.10 $ 8.18 $ 6.99 $10.39
====== ====== ====== ====== ======
Total return 27.71% 17.57% 21.19% (3.87)%++ 20.15%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.85% 1.82% 1.81% 1.65%+ 0.86%+
Net investment income 2.47% 3.60% 3.32% 3.56%+ 3.39%+
Portfolio turnover 153% 137% 152% 115% 153%
Average commission rate### $0.0359 $0.0422 $ -- $ -- $0.0359
Net assets at end of period (000 omitted) $22,788 $ 8,231 $4,943 $2,399 $ 725
***For the period from the inception of Class C shares, January 3, 1994,
through October 31, 1994.
****For the period from the inception of Class I shares, January 2, 1997,
through October 31, 1997.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for funds with fiscal years
beginning on or after
September 1, 1995.
(S)The investment adviser voluntarily waived a portion of its management
fee for certain of the periods indicated. If the fee had been incurred
by the Fund, the net investment income per share and the ratios would
have been:
Net investment income $ 0.22 $ 0.28 $ 0.21 $ 0.20 $ 0.27
Ratios (to average net assets):
Expenses## 2.04% 2.16% 2.21% 2.41%+ 1.05%+
Net investment income 2.28% 3.26% 2.83% 2.80%+ 3.20%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Utilities Fund (the Fund) is a non-diversified series of MFS Series Trust
VI (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 - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. 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 on securities are valued
by brokers. Over-the-counter currency options are valued through the use of a
pricing model which takes into account foreign currency exchange spot and
forward rates, implied volatility, and short-term repurchase rates. Securities
for which there are no such quotations or valuations are valued at fair value
as determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, 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.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of Fund operations.
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 contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains
or losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount is amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividends received in cash are recorded on the ex-dividend date. Dividend and
interest payments received in additional securities are recorded on the ex-
dividend or ex-interest date in an amount equal to the value of the security
on such date. Some government securities may be purchased on a "when-issued"
or "forward delivery" basis, which means that the securities will be delivered
to the Fund at a future date, usually beyond customary settlement time.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's average daily net assets. The fee is reduced according to an
arrangement which measures 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 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. Capital gains taxes have been provided on unrealized and realized
gains from securities transactions in countries where such a capital gains tax
is applicable. Realized and unrealized gain is reported net of any capital
gains tax in the Statement of Operations.
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, 1997, $8,033 was reclassified from
accumulated undistributed net investment income to accumulated undistributed
net realized gain on investments due to differences between book and tax
accounting for currency transactions. This change had no effect on the net
assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B, Class C, and Class I shares. The classes of shares differ in their
respective distribution and service fees. All shareholders bear the common
expenses of the Fund pro rata based on average daily net assets of each class,
without distinction between share classes. Dividends are declared separately
for each class. No class has preferential dividend rights; differences in per
share dividend rates are generally due to differences in separate class
expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.375%
of average daily net assets and 6.25% 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.
Administrator - Effective March 1, 1997, the Fund has an administrative
services agreement with MFS to provide the Fund with certain financial, legal,
shareholder servicing, compliance, and other administrative services. As a
partial reimbursement for the cost of providing these services, the Fund pays
MFS an administrative fee at the following annual percentages of the Fund's
average daily net assets, provided that the administrative fee is not assessed
on Fund assets that exceed $3 billion:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain of the officers
and Trustees of the Fund are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Fund has an
unfunded defined benefit plan for all its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of $8,625
for the year ended October 31, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$108,685 for the year ended October 31, 1997, as its portion of the sales
charge on sales of Class A shares of the Fund. The Trustees have adopted a
distribution plan for Class A, Class B, and Class C shares pursuant to Rule
12b-1 of the Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets
attributable to Class A shares, commissions to dealers and payments to MFD
wholesalers for sales at or above a certain dollar level, and other such
distribution-related expenses that are approved by the Fund. MFD retains the
service fee for accounts not attributable to a securities dealer which
amounted to $28,149 for the year ended October 31, 1997. Payment of the 0.10%
per annum Class A distribution fee will commence on such date as the Trustees
of the Trust may determine. Fees incurred under the distribution plan during
the year ended October 31, 1997, were 0.25% of average daily net assets
attributable to Class A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per
annum, of the Fund's average daily net assets attributable to Class B and
Class C shares. MFD will pay to securities dealers that enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class B
and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended
to be additional consideration for services rendered by the dealer with
respect to Class B and Class C shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $15,516
and $2,400 for Class B and Class C shares, respectively, for the year ended
October 31, 1997. Fees incurred under the distribution plan during the year
ended October 31, 1997, were 1.00% and 1.00% of average daily net assets
attributable to Class B and Class C shares on an annualized basis,
respectively.
Purchases over $1 million of Class A shares and certain purchases by
retirement plans are subject to a contingent deferred sales charge in the
event of a shareholder redemption within 12 months following such purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class C shares in the event of a shareholder redemption within
12 months of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended October 31,
1997, were $138, $141,942, and $4,517 for Class A, Class B, and Class C
shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Fund's average daily net assets at an effective annual
rate of 0.13%. Prior to January 1, 1997, the fee was calculated as a
percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15%, up to 0.22%, and up to 0.15%
attributable to Class A, Class B, and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
- -------------------------------------------------------------------------------
U.S. government securities $ 31,440,466 $ 20,030,492
------------ ------------
Investments (non-U.S. government securities) $246,974,787 $213,865,882
------------ ------------
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 $190,270,875
------------
Gross unrealized appreciation $ 17,392,795
Gross unrealized depreciation (4,180,088)
------------
Net unrealized appreciation $ 13,212,707
============
(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
YEAR ENDED OCTOBER 31, 1997 YEAR ENDED OCTOBER 31, 1996
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 7,819,952 $ 77,226,921 2,539,349 $ 22,019,033
Shares issued to shareholders
in reinvestment of
distributions 732,324 6,609,825 323,805 2,748,691
Shares transferred to Class I (120,449) (1,071,996) -- --
Shares reacquired (6,378,092) (62,953,332) (2,646,692) (22,729,788)
---------- ------------- ---------- ------------
Net increase 2,053,735 $ 19,811,418 216,462 $ 2,037,936
========== ============= ========== ============
<CAPTION>
Class B Shares
YEAR ENDED OCTOBER 31, 1997 YEAR ENDED OCTOBER 31, 1996
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,757,161 $ 45,918,763 4,096,390 $ 35,220,452
Shares issued to shareholders
in reinvestment of
distributions 572,483 5,137,051 216,988 1,834,501
Shares reacquired (1,935,800) (18,320,311) (2,894,405) (24,930,962)
---------- ------------- ---------- -------------
Net increase 3,393,844 $ 32,735,503 1,418,973 $ 12,123,991
========== ============= ========== =============
<CAPTION>
Class C Shares
YEAR ENDED OCTOBER 31, 1997 YEAR ENDED OCTOBER 31, 1996
--------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,398,533 $ 13,601,081 734,010 $ 6,317,768
Shares issued to shareholders
in reinvestment of
distributions 97,304 875,586 32,617 276,082
Shares reacquired (202,885) (1,938,852) (466,623) (3,995,594)
--------- ------------- --------- ------------
Net increase 1,292,952 $ 12,537,815 300,004 $ 2,598,256
========== ============= ========= ============
<CAPTION>
Class I Shares
PERIOD ENDED OCTOBER 31, 1997*
-----------------------------
SHARES AMOUNT
- ------------------------------------------------------------------
<S> <C> <C>
Shares sold 12,797 $ 121,518
Shares transferred from
Class A 120,449 1,071,996
Shares issued to shareholders
in reinvestment of
distributions 2,421 23,241
Shares reacquired (65,881) (624,214)
------- ----------
Net increase 69,786 $ 592,541
======= ==========
</TABLE>
*For the period from the inception of Class I shares, January 2, 1997, through
October 31, 1997.
(6) Line of Credit
The Fund and other affiliated funds participate in a $400 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
year ended October 31, 1997, was $98.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust VI and Shareholders of MFS Utilities Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Utilities Fund, including the schedule of portfolio investments, as of October
31, 1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the four 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 the periods prior to the year ended
October 31, 1994, indicated herein, were audited by other auditors whose
report dated December 14, 1993 expressed an unqualified opinion on those
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 October 31, 1997, 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
Utilities Fund at October 31, 1997, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 12, 1997
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
<TABLE>
<CAPTION>
MFS(R) Utilities Fund
<S>
Trustees <C>
A. Keith Brodkin* - Chairman and President Secretary
Stephen E. Cavan*
Richard B. Bailey* - Private Investor; Former Chairman and
Director (until 1991), Massachusetts Financial Services Assistant Secretary
Company; Director, Cambridge Bancorp; Director, Cambridge James R. Bordewick, Jr.*
Trust Company
Custodian
Marshall N. Cohan - Private Investor State Street Bank and Trust Company
Lawrence H. Cohn, M.D. - Chief of Cardiac Surgery, Brigham Auditors
and Women's Hospital; Professor of Surgery, Harvard Medical Ernst & Young LLP
School
Investor Information
The Hon. Sir J. David Gibbons, KBE - Chief Executive For MFS stock and bond market outlooks, call toll free:
Officer, Edmund Gibbons Ltd.; Chairman, Bank of N.T. 1-800-637-4458 anytime from a touch-tone telephone.
Butterfield & Son Ltd.
For information on MFS mutual funds, call your financial
Abby M. O'Neill - Private Investor; Director, Rockefeller adviser or, for an information kit, call toll free:
Financial Services, Inc. (investment advisers) 1-800-637-2929 any business day from 9 a.m. to 5 p.m.
Eastern time (or leave a message anytime).
Walter E. Robb, III - President and Treasurer, Benchmark
Advisors, Inc. (corporate financial consultants); President, Investor Service
Benchmark Consulting Group, Inc. (office services); Trustee, MFS Service Center, Inc.
Landmark Funds (mutual funds) P.O. Box 2281
Boston, MA 02107-9906
Arnold D. Scott* - Senior Executive Vice President, Director
and Secretary, Massachusetts Financial Services Company For general information, call toll free:
1-800-225-2606 any business day from 8 a.m. to 8 p.m.
Jeffrey L. Shames* - President and Director, Massachusetts Eastern time.
Financial Services Company
For service to speech- or hearing-impaired, call toll free:
J. Dale Sherratt - President, Insight Resources, Inc. 1-800-637-6576 any business day from 9 a.m. to 5 p.m.
(acquisition planning specialists) Eastern time. (To use this service, your phone must be
equipped with a Telecommunications Device for the Deaf.)
Ward Smith - Former Chairman (until 1994), NACCO Industries;
Director, Sundstrand Corporation For share prices, account balances, and exchanges, call toll
free: 1-800-MFS-TALK (1-800-637-8255) anytime from a
Investment Adviser touch-tone telephone.
Massachusetts Financial Services Company
500 Boylston Street World Wide Web
Boston, MA 02116-3741 www.mfs.com
Distributor
MFS Fund Distributors, Inc. [Dalbar Logo] For the fourth year in a row, MFS earned a
500 Boylston Street #1 ranking in the DALBAR, Inc. Broker/Dealer
Boston, MA 02116-3741 Survey, Main Office Operations Service Quality Category. The
firm achieved a 3.42 overall score on a scale of 1 to 4 in the
Portfolio Manager 1997 survey. A total of 111 firms responded, offering input on
Maura A. Shaughnessy* the quality of service they received from 29 mutual fund
companies nationwide. The survey contained questions about
Treasurer service quality in 11 categories, including "knowledge of
W. Thomas London* operations contact," "keeping you informed," and "ease of
doing business" with the firm.
Assistant Treasurers
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
-------------
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U.S. POSTAGE
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Boston, MA 02116-3741 MFS
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