[Logo]
MFS
THE FIRST NAME IN MUTUAL FUNDS
SEMIANNUAL REPORT
FEBRUARY 28, 1995
MFS(R) MANAGED SECTORS FUND
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MFS(R) MANAGED SECTORS FUND
TRUSTEES CUSTODIAN
<S> <C>
A. Keith Brodkin* - Chairman and President State Street Bank and Trust Company
Richard B. Bailey* - Private Investor; INVESTOR INFORMATION
Former Chairman and Director (until 1991), For MFS stock and bond market outlooks,
Massachusetts Financial Services Company call toll-free: 1-800-637-4458 anytime from
a touch-tone telephone.
Marshall N. Cohan - Private Investor
For information on MFS mutual funds,
Lawrence H. Cohn, M.D. - Chief of Cardiac Surgery, call your financial adviser or, for an
Brigham and Women's Hospital; Professor of information kit, call toll-free:
Surgery, Harvard Medical School 1-800-637-2929 any business day from
9 a.m. to 5 p.m. Eastern time (or leave
The Hon. Sir J. David Gibbons, KBE - Chief a message anytime).
Executive Officer, Edmund Gibbons Ltd.;
Chairman, Bank of N.T. Butterfield & Son Ltd. INVESTOR SERVICE
MFS Service Center, Inc.
Abby M. O'Neil - Private Investor; P.O. Box 2281
Director, Rockefeller Financial Services, Inc. Boston, MA 02107-9906
(Investment Advisers)
For general information, call toll free:
Walter E. Robb, III - President and Treasurer, 1-800-225-2606 any business day from
Benchmark Advisors, Inc. (Corporate Financial 8 a.m. to 8 p.m. Eastern time.
Consultants)
For service to speech- or hearing-impaired,
Arnold D. Scott* - Senior Executive Vice President call toll free: 1-800-637-6576 any business
and Secretary, Massachusetts Financial Services day from 9 a.m. to 5 p.m. Eastern time.
Company (To use this service, your phone must be
equipped with a Telecommunications
Jeffrey L. Shames* - President and Chief Equity Device for the Deaf.)
Officer, Massachusetts Financial Services Company
For share prices, account balances and
J. Dale Sherratt - President, Insight Resources, Inc. exchanges, call toll free: 1-800-MFS-TALK
(Acquisition Planning Specialists) (1-800-637-8255) anytime from a touch-tone
telephone.
Ward Smith - Former Chairman (until 1994),
NACCO Industries; Director, Sundstrand
Corporation
INVESTMENT ADVISER
Massachusetts Financial Services Company TOP RATED SERVICE
500 Boylston Street MFS was rated first when securities firms evaluated the
Boston, Massachusetts 02116-3741 quality of service they receive from 40 mutual fund companies.
MFS got high marks for answering calls quickly, processing
PORTFOLIO MANAGER transactions accurately and sending statements out on time.
Kenneth J. Enright* (Source: 1994 DALBAR Survey)
TREASURER
W. Thomas London*
ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
During the six months ended February 28, 1995, the stock market continued to
reflect a tug of war between investors who were expecting that the Federal
Reserve Board's credit tightening would continue and that it had already
jeopardized the economic recovery, and those with the view that monetary policy
had been appropriate and would lead to a "soft landing." The result has been
limited progress in the upward movement of the overall stock market, with
continued volatility marked by little sector leadership and a high degree of
group rotations. Year-to-date through February, sentiment has shifted slightly
toward the "soft landing" camp, resulting in a fairly broad-based rally, albeit
of modest proportions. For the six months ended February 28, 1995, the stock
market as measured by the Standard & Poor's 500 Composite Index (a popular,
unmanaged index of common stock performance) returned +3.96%. During this same
period, Class A shares of the Fund provided a total return of +2.03%, while
Class B shares had a total return of +1.71%. Both of these returns assume the
reinvestment of distributions but exclude the effects of any sales charges.
Economic Outlook
The economic expansion, entering its fifth year, gained firmer underpinnings in
1994 as employers significantly stepped up hiring levels. Increased employment,
stronger capital spending by businesses, and strengthening overseas economies
resulted in 4% real (adjusted for inflation) gross domestic product growth last
year. Interest rates rose substantially over the past year, which should help
restrain, but not curtail, the economic expansion. Based on sound economic
fundamentals both here and abroad, we expect the business expansion to continue
well into 1995.
Stock Market
During the past two months, the stock market has rebounded from its uninspiring
performance of 1994. Prices recently have responded to growing confidence that
the Federal Reserve is nearing the end of its tightening initiatives and that
gains in corporate earnings may be substantial. Although we expect the economy
to slow in 1995, our outlook for corporate earnings growth remains favorable. We
have been de-emphasizing many cyclical areas such as autos and basic materials
because of their less attractive earnings outlook, and we have been emphasizing
growth areas such as consumer and household products. Despite the potential
impact on the growth rates of corporate profits from a slowing economy, we
believe stock prices will respond to continued momentum in profitability.
Portfolio Performance and Strategy
The Fund's investments continue to be concentrated in four of the same sectors
outlined in our annual report: leisure, technology, financial services and
energy, although the composition of those holdings has changed to some degree,
as have the weightings. Our investments in the energy and leisure sectors were
reduced, while our holdings in financial services and technology were increased.
The auto and housing sector was eliminated, with the exception of General Motors
where we continue to believe the elements of further management restructuring
are in place, which should lead to both better relative earnings performance and
a higher valuation by investors.
<PAGE>
LETTER TO SHAREHOLDERS - continued
The Fund's performance during the past six months was aided by its increased
weighting in technology (which benefited from strong relative earnings growth,
particularly in the media software area) and financial services (which benefited
from the expectations of a slowing or reversal of Federal-Reserve-induced
interest rate hikes). Our holdings in the energy sector were negatively impacted
by weak natural gas prices, a phenomenon we believe is transitory in nature. A
slowdown in U.S. auto sales, primarily related to higher interest rates, and
reduced confidence in the European economic recovery were primary determinants
in our decision to eliminate the auto sector from the portfolio.
Recently, we have established a weighting in the consumer staples sector.
The visibility of earnings of selected stocks in this sector and their
attractive relative valuations, against the backdrop of an increasing likelihood
of a slowing economy, are the common attributes of these holdings.
The Fund remains non-diversified and concentrated in the sectors mentioned
above. However, given the current volatility of the market and the lack of group
leadership, we believe the greater breadth of stocks currently held better
matches today's environment.
As always, we will continue to scrutinize all of our holdings and are
confident that the current structure of the Fund is appropriate in the current
market environment.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
- -------------------------- --------------------------
A 1 1/2 inch by 1 5/8 inch A 1 1/2 inch by 1 5/8 inch
photo of A. Keith Brodkin, photo of Kenneth J. Enright
Chairman and President Portfolio Manager
- -------------------------- --------------------------
A. Keith Brodkin Kenneth J. Enright
Chairman and President Portfolio Manager
March 9, 1995
<PAGE>
PORTFOLIO MANAGER PROFILE
Kenneth Enright joined the MFS Research Department in 1986. A graduate of Boston
State College and of the Babson College Graduate School of Business
Administration, he was named Assistant Vice President - Investments in 1987 and
Vice President - Investments in 1988. Mr. Enright became Portfolio Manager of
MFS Managed Sectors Fund in 1993. He is a Chartered Financial Analyst (C.F.A.).
OBJECTIVE AND POLICIES
The Fund's investment objective is to provide capital appreciation. Dividend
income, if any, is incidental to the Fund's objective. To achieve its objective,
the Fund varies the weighting of its portfolio among 15 industry sectors which
include autos and housing, consumer goods and services, defense and aerospace,
energy, financial services, foreign securities, health care, heavy industry,
leisure, machinery and equipment, precious metals, retailing, technology,
transportation and utilities.
As much as 50% of the Fund's assets may be in one sector or cash. Generally, at
least 90% of the Fund's assets will be invested in up to five of the industry
sectors or cash.
PORTFOLIO CONCENTRATION AS OF FEBRUARY 28, 1995
Percent of
Ten Largest Holdings Net Assets
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Promus Cos., Inc. 5.40
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Rogers Communications, Inc. 4.98
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Intel Corp. 4.57
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Telephone & Data Systems, Inc. 4.10
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Occidental Petroleum Corp. 3.82
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Viacom, Inc., "B" 3.60
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Electronic Arts, Inc. 3.17
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RJR Nabisco Holdings Corp. 3.08
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General Motors Corp. 2.97
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Tidewater, Inc. 2.86
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<PAGE>
PERFORMANCE SUMMARY
Because mutual funds like MFS Managed Sectors Fund are designed for investors
with long-term goals, we have provided cumulative results as well as the average
annual total returns for the past 6-month, 1- and 5-year periods ended February
28, 1995 and for the period from December 29, 1986+ to February 28, 1995.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
Class A Investment Results
(net asset value change including reinvested distributions)
9/20/93+ -
6 Months 1 Year 2/28/95
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Cumulative Total Return++ +2.03% +3.42% +6.02%
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Average Annual Total Return++ -- +3.42% +4.14%
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The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the Securities and Exchange Commission
(the SEC) for the 1-year period ended December 31, 1994 and for the period from
September 20, 1993+ to December 31, 1994, reflecting the maximum sales charge of
5.75%, were -8.44% and -5.20%, respectively. Class B Investment Results (net
asset value change including reinvested distributions)
12/29/86+ -
6 Months 1 Year 5 Years 2/28/95
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Cumulative Total Return* +1.71% +2.63% +69.36% +168.02%
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Average Annual Total Return* -- +2.63% +11.11% + 12.82%
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The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the SEC, with all distributions
reinvested and reflecting the contingent deferred sales charge (CDSC) of 4% and
2% for the 1- and 5-year periods, respectively, and 0% for the period from
December 29, 1986+ to December 31, 1994 were -7.11%, +7.14% and +12.17%,
respectively. All results represent past performance and are not necessarily an
indication of future results. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
+ Commencement of offering of this class of shares.
++ These results do not include the sales charge. If the charge had been
included, the results would have been lower.
* These results do not include the CDSC. If the charge had been included, the
results would have been lower.
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED) - February 28, 1995
Common Stocks - 99.5%
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Issuer Shares Value
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Consumer Staples - 7.9%
Duracell International, Inc. 44,200 $ 1,839,825
PepsiCo, Inc. 135,000 5,281,875
Perrigo Co.* 145,000 2,011,875
RJR Nabisco Holdings Corp. 1,770,000 9,956,250
Tyco International Ltd. 72,500 3,779,062
Warnaco Group, Inc.* 170,300 2,724,800
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$ 25,593,687
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Energy - 13.4%
Apache Corp. 64,300 $ 1,607,500
Occidental Petroleum Corp. 620,000 12,322,500
Schlumberger Ltd. 57,000 3,241,875
Snyder Oil Corp. 653,600 9,150,400
Tidewater, Inc. 471,200 9,247,300
Western Company of North America* 406,700 7,676,462
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$ 43,246,037
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Financial Institutions - 11.3%
Advanta Corp. 193,800 $ 6,104,700
American Re Corp.* 108,000 3,685,500
Equitable of Iowa Cos. 170,000 5,652,500
First Interstate Bancorp 62,000 5,045,250
Schwab (Charles) Corp. 90,600 4,020,375
Torchmark Corp. 111,100 4,652,312
Travelers, Inc. 190,000 7,386,250
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$ 36,546,887
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Leisure - 28.0%
AirTouch Communications, Inc.* 150,000 $ 4,087,500
Argosy Gaming Corp.* 390,000 3,656,250
Brinker International, Inc. 130,000 2,583,750
LIN Broadcasting Corp. 50,000 6,468,750
MCI Communications Corp. 116,900 2,352,612
Promus Cos., Inc.* 487,900 17,442,425
Rogers Communications, Inc. (Canada)* 1,288,200 16,094,394
Showboat, Inc. 196,000 2,817,500
Sydney Harbor Casino Ltd. (Australia)* 5,469,000 4,649,822
Tele-Communications, Inc.* 235,000 5,346,250
Telephone & Data Systems, Inc. 290,000 13,231,250
Viacom, Inc., "B" 260,000 11,635,000
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$ 90,365,503
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Technology - 20.3%
Compuware Corp.* 97,000 $ 3,564,750
EMC Corp.* 247,700 4,241,862
Electronic Arts, Inc.* 476,300 10,240,450
Intel Corp. 185,000 14,753,750
LSI Logic Corp.* 57,700 3,144,650
Microsoft Corp.* 58,000 3,654,000
Motorola, Inc. 60,000 3,450,000
Newbridge Networks Corp.* 68,000 2,303,500
Nokia AB (Finland) 41,700 5,914,631
Oracle Systems Corp.* 112,500 3,529,687
Sierra On-Line, Inc.* 130,000 5,037,500
Spectrum Holobyte, Inc.* 130,600 1,763,100
Xerox Corp. 35,000 3,880,625
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$ 65,478,505
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<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED) - continued
Common Stocks - continued
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Issuer Shares Value
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Other - 18.6%
Boise Cascade Corp. 250,000 $ 8,031,250
Columbia/HCA Healthcare Corp. 100,000 4,137,500
Cominco Fertilizers Ltd. (Canada) 125,000 3,314,428
Dayton-Hudson Corp. 45,000 3,172,500
Federated Department Stores, Inc.* 275,000 6,050,000
General Motors Corp. 225,000 9,590,625
Grace (W.R.) & Co. 122,600 5,517,000
Manor Care, Inc. 133,000 3,940,125
McDonnell Douglas Corp. 90,000 5,040,000
Phar-Mor, Inc.*##+ 98,000 263,620
United Healthcare Corp. 90,000 3,870,000
WMX Technologies, Inc. 180,000 4,747,500
Western Waste Industries* 143,000 2,323,750
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$ 59,998,298
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Total Common Stocks (Identified Cost, $289,306,189) $321,228,917
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Short-Term Obligation - 1.3%
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Principal Amount
(000 Omitted)
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Federal Home Loan Mortgage Corp.,
due 3/01/95, at Amortized Cost $ 4,275 $ 4,275,000
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Total Investments (Identified Cost, $293,581,189) $325,503,917
Other Assets, Less Liabilities - (0.8)% (2,638,107)
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Net Assets - 100.0% $322,865,810
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* Non-income producing security.
## SEC Rule 144A restriction.
+ Security priced by or at the direction of the Trustees.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
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February 28, 1995 (Unaudited)
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $293,581,189) $325,503,917
Cash 50,498
Receivable for investments sold 7,378,984
Receivable for Fund shares sold 1,024,446
Dividends and interest receivable 212,099
Other assets 4,986
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Total assets $334,174,930
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Liabilities:
Payable for investments purchased $ 10,385,577
Payable for Fund shares reacquired 577,954
Payable to affiliates -
Management fee 19,805
Shareholder servicing agent fee 5,145
Distribution fee 143,965
Accrued expenses and other liabilities 176,674
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Total liabilities $ 11,309,120
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Net assets $322,865,810
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Net assets consist of:
Paid-in capital $285,400,056
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 31,923,427
Accumulated undistributed net realized gain on investments
and foreign currency transactions 6,969,593
Accumulated undistributed net investment loss (1,427,266)
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Total $322,865,810
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Shares of beneficial interest outstanding 25,694,408
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Class A shares:
Net asset value and redemption price per share
(net assets of $115,793,720 / 9,205,023 shares of
beneficial interest outstanding) $12.58
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Offering price per share (100/94.25) $13.35
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Class B shares:
Net asset value, redemption price, and offering price per
share (net assets of $207,072,090 / 16,489,385 shares of
beneficial interest outstanding) $12.56
-----
On sales of $50,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A and
Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
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Six Months Ended February 28, 1995 (Unaudited)
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Net investment income:
Income -
Dividends $ 1,507,684
Interest 109,945
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Total investment income $ 1,617,629
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Expenses -
Management fee $ 1,173,112
Trustees' compensation 18,951
Shareholder servicing agent fee (Class A) 84,594
Shareholder servicing agent fee (Class B) 220,041
Distribution and service fee (Class A) 197,387
Distribution and service fee (Class B) 1,000,187
Custodian fee 85,449
Legal fees 40,939
Postage 24,557
Auditing fees 6,544
Printing 5,688
Miscellaneous 162,043
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Total expenses $ 3,019,492
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Net investment loss $ (1,401,863)
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Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 10,838,357
Foreign currency transactions 915,048
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Net realized gain on investments $ 11,753,405
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Change in unrealized appreciation (depreciation) -
Investments $ (5,134,566)
Translation of assets and liabilities in foreign
currencies 458
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Net unrealized loss on investments $ (5,134,108)
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Net realized and unrealized gain on investments and
foreign currency $ 6,619,297
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Increase in net assets from operations $ 5,217,434
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See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
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Six Months Ended
February 28, 1995 Nine Months Ended Year Ended
(Unaudited) August 31, 1994 November 30, 1993
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<S> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (1,401,863) $ (1,895,340) $ (4,098,011)
Net realized gain on investments and
foreign currency transactions 11,753,405 21,025,189 71,272,683
Net unrealized loss on investments and
foreign currency translation (5,134,108) (3,397,459) (57,428,322)
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Increase in net assets from operations $ 5,217,434 $ 15,732,390 $ 9,746,350
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Distributions declared to shareholders -
From net realized gain on investments and
foreign currency transactions $(23,919,080) $(67,124,083) $ (9,939,582)
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Fund share (principal) transactions -
Net proceeds from sale of shares $ 39,155,292 $ 33,660,185 $ 52,495,365
Issued in connection with the acquisition
of MFS Managed Sectors Fund -- -- 142,671,119
Net asset value of shares issued to shareholders
in reinvestment of distributions 21,847,610 59,894,378 8,938,772
Cost of shares reacquired (54,988,035) (75,771,270) (84,243,954)
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Increase in net assets from Fund
share transactions $ 6,014,867 $ 17,783,293 $119,861,302
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Total increase (decrease) in net assets $(12,686,779) $(33,608,400) $119,668,070
Net assets:
At beginning of period 335,552,589 369,160,989 249,492,919
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At end of period (including accumulated
undistributed net investment income (loss) of
$(1,427,266), $(25,403) and $233,258,
respectively) $322,865,810 $335,552,589 $369,160,989
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</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
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Six Months Six Months
Ended Nine Months Ended Nine Months
February 28, Ended Year Ended February 28, Ended
1995 August 31, November 30, 1995 August 31,
(Unaudited) 1994 1993<F3> (Unaudited) 1994
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Class A Class B
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<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of
period $13.41 $15.50 $15.68 $13.35 $15.49
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Income from investment
operations<F5> -
Net investment loss $(0.03) $(0.03) $(0.02) $(0.07) $(0.10)
Net realized and
unrealized gain (loss)
on investments 0.23 0.77 (0.16) 0.23 0.75
----- ----- ----- ----- -----
Total from investment
operations $ 0.20 $ 0.74 $ (0.18) $ 0.16 $ 0.65
----- ----- ----- ----- -----
Less distributions
declared to shareholders
from net realized gain
on investments $(1.03) $(2.83) $ -- $(0.95) $(2.79)
----- ----- ----- ----- -----
Net asset value -
end of period $12.58 $13.41 $15.50 $12.56 $13.35
----- ----- ----- ----- -----
Total return<F4> 2.03%<F2> 5.12%<F2> (5.99)%<F1> 1.71%<F2> 4.47%<F2>
Ratios (to average net assets)/Supplemental data:
Expenses 1.47%<F1> 1.52%<F1> 1.59%<F1> 2.19%<F1> 2.26%<F1>
Net investment loss (0.44)%<F1> (0.26)%<F1> (0.75)%<F1> (1.16)%<F1> (1.01)%<F1>
Portfolio turnover 71% 76% 106% 71% 76%
Net assets at end
of period (000 omitted) $115,794 $121,498 $136,179 $207,072 $214,055
<FN>
<F1> Annualized.
<F2> Unannualized.
<F3> For the period from the commencement of offering of Class A shares, September 20, 1993 to November 30, 1993.
<F4> 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. + Per share data for the periods subsequent to November 30, 1993 are based on
average shares outstanding.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
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Year Ended November 30,
--------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987<F2>
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Class B
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<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $15.42 $13.00 $ 9.23 $11.32 $ 7.86 $ 6.94 $ 6.50
----- ----- ----- ----- ----- ----- -----
Income from investment
operations -
Net investment income
(loss) $(0.25) $(0.24) $(0.12) $(0.03) $ 0.03 $ 0.09 $ 0.03
Net realized and
unrealized gain (loss)
on investments 0.94 2.66 3.89 (2.06) 3.51 0.89 0.42
----- ----- ----- ----- ----- ----- -----
Total from investment
operations $ 0.69 $ 2.42 $ 3.77 $(2.09) $ 3.54 $ 0.98 $ 0.45
----- ----- ----- ----- ----- ----- -----
Less distributions declared
to shareholders -
From net investment income $ -- $ -- $ -- $ -- $(0.08) $(0.06) $(0.01)
From net realized gain on
investments (0.62) -- -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Total distributions
declared to shareholders $(0.62) $ -- $ -- $ -- $(0.08) $(0.06) $(0.01)
----- ----- ----- ----- ----- ----- -----
Net asset value - end of period $15.49 $15.42 $13.00 $ 9.23 $11.32 $ 7.86 $ 6.94
----- ----- ----- ----- ----- ----- -----
Total return 4.50% 18.62% 40.85% (18.46)% 45.35% 14.06% 7.47%<F1>
Ratios (to average net assets)/Supplemental data:
Expenses 2.21% 2.37% 2.44% 2.50% 2.52% 2.31% 2.25%<F1>
Net investment income (loss) (1.55)% (1.85)% (1.00)% (0.27)% 0.37% 1.08% 0.09%<F1>
Portfolio turnover 106% 22% 59% 79% 84% 146% 163%
Net assets at end of period
(000 omitted) $232,982 $249,493 $190,232 $152,132 $180,416 $137,311 $134,762
<F1> Annualized.
<F2> For the period from the commencement of investment operations, December 29, 1986 to November 30, 1987.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) Business and Organization
MFS Managed Sectors Fund (the Fund) is a non-diversified series of MFS Series
Trust I (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. During 1994 the Fund changed its fiscal
year end from November 30 to August 31.
(2) Significant Accounting Policies
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations which mature in 60 days or less), including listed issues
and forward contracts, are valued on the basis of valuations furnished by
dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates 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.
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.
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 and 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 a part of an income-producing strategy reflecting the view of
the Fund's management on the direction of interest rates.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
Futures Contracts - The Fund may enter into interest rate, stock index and
foreign currency futures contracts for the delayed delivery of securities,
currency or contracts based on financial indices at a fixed price on a future
date. In entering such contracts, the Fund is required to deposit either in cash
or securities an amount equal to a certain percentage of the contract amount.
Subsequent payments are made or received by the Fund each day, depending on the
daily fluctuations in the value of the underlying security, and are recorded for
financial statement purposes as unrealized gains or losses by the Fund. The
Fund's investment in futures contracts is designed to hedge against anticipated
future changes in interest or exchange rates or securities prices. The Fund may
also invest in futures contracts for non- hedging purposes. For example,
interest rate futures may be used in the portfolio without incurring the
additional transaction costs involved in buying and selling the underlying
securities. Should interest or exchange rates or securities prices move
unexpectedly, the Fund may not achieve the anticipated benefits of the futures
contracts and may realize a loss.
Security Loans - The Fund may lend its securities to member banks of the Federal
Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. The loans are collateralized at all times by cash or
securities with a market value at least equal to the market value of securities
loaned. As with other extensions of credit, the Fund may bear the risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund receives compensation for lending its
securities in the form of fees or from all or a portion of the income from
investment of the collateral. The Fund would also continue to earn income on the
securities loaned. At February 28, 1995, the Fund had no securities on loan.
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 these contracts from the potential inability of counterparties to meet
the terms of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar. The Fund will enter into forward
contracts for hedging purposes as well as for non-hedging purposes. For hedging
purposes, the Fund may enter into contracts to deliver or receive foreign
currency it will receive from or require for its normal investment activities.
It may also use contracts in a manner intended to protect foreign
currency-denominated securities from declines in value due to unfavorable
exchange rate movements. For non-hedging purposes, the Fund may enter into
contracts with the intent of changing the relative exposure of the Fund's
portfolio of securities to different currencies to take advantage of anticipated
changes. The forward foreign currency exchange contracts are adjusted by the
daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the contract
settlement date.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for both 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 payments received in additional securities are recorded on the
ex-dividend date in an amount equal to the value of the security on such date.
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
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 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 period ended August 31, 1994, $1,636,679 was reclassified from
paid-in capital to accumulated net investment loss and $5,780,184 was
reclassified from accumulated net realized gain on investment and foreign
currency transactions to paid-in capital due to differences between book and tax
accounting for operating losses and distributions of net realized gains. 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 both Class A
and Class B shares. Class A shares were first offered to the public on September
20, 1993. The two classes of shares differ in their respective shareholder
servicing agent, distribution and service fees. Shareholders of each class also
bear certain expenses that pertain only to that particular class. 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, including distribution and shareholder
service fees.
(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, computed daily and paid monthly at an effective annual rate of
0.75% of average daily net assets, amounted to $1,173,112. 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 of its independent Trustees. Included in Trustees' compensation is a net
periodic pension expense of $5,851 for the period ended February 28, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$7,255 as its portion of the sales charge on sales of Class A shares of the
Fund.
The Trustees have adopted separate distributions plans for Class A and Class B
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% of
its average daily net assets attributable to Class A shares annually 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. Fees incurred under the distribution plan during the
period ended February 28, 1995 were 0.35% of average daily net assets
attributable to Class A shares on an annualized basis and amounted to $197,387
(of which MFD retained $28,304).
The Class B Distribution Plan provides that the Fund will pay MFD a monthly
distribution fee, equal to 0.75% per annum, and a quarterly service fee of up to
0.25% per annum, of the Fund's average daily net assets attributable to Class B
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 shares.
The service fee is intended to be additional consideration for services rendered
by the dealer with respect to Class B shares. Fees incurred under the
distribution plan during the period ended February 28, 1995 were 1.00% of
average daily net assets attributable to Class B shares on an annualized basis
and amounted to $1,000,187 (of which MFD retained $33,084).
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within twelve months following the share 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.
MFD receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the period ended February 28, 1995 were $281 and $83,292
for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
$84,594 and $220,041 for Class A and Class B shares, respectively, 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% and up to 0.22% attributable to Class A and Class B shares,
respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions and short-term obligations, aggregated
$191,816,696 and $210,785,971, respectively. The cost and unrealized
appreciation or depreciation in value of the investments owned by the Fund, as
computed on a federal income tax basis, are as follows:
Aggregate cost $293,581,189
------------
Gross unrealized appreciation $ 45,212,275
Gross unrealized depreciation (13,289,547)
------------
Net unrealized appreciation $ 31,922,728
------------
(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
Six Months Ended Nine Months Ended Period Ended
February 28, 1995 August 31, 1994 November 30, 1993*
-------------------------------- -------------------------------- ----------------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 240,900 $ 3,019,045 723,889 $ 10,294,043 120,486 $ 1,946,843
Shares issued in
connection with the
acquisition of MFS
Managed Sectors Fund -- -- -- -- 9,100,413 142,671,119
Shares issued to share-
holders in reinvestment
of distributions 694,017 8,168,604 1,680,518 22,115,635 -- --
Shares reacquired (792,609) (9,964,895) (2,124,598) (28,117,869) (437,993) (6,986,200)
------- ----------- --------- ------------ --------- ------------
Net increase 142,308 $ 1,222,754 279,809 $ 4,291,809 8,782,906 $137,631,762
------- ----------- --------- ------------ --------- ------------
*For the period from the commencement of offering of Class A shares, September 20, 1993 to November 30, 1993.
<CAPTION>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
Class B Shares
Six Months Ended Nine Months Ended Year Ended
February 28, 1995 August 31, 1994 November 30, 1993
-------------------------------- -------------------------------- ----------------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 2,876,249 $36,136,247 1,769,946 $23,366,142 3,337,222 $ 50,548,522
Shares issued to share-
holders in reinvestment
of distributions 1,162,187 13,679,006 2,868,472 37,778,743 584,152 8,938,772
Shares reacquired (3,582,316) (45,023,140) (3,645,250) (47,653,401) (5,063,674) (77,257,754)
--------- ----------- --------- ---------- --------- ----------
Net increase (decrease) 456,120 $ 4,792,113 993,168 $13,491,484 (1,142,300) $ (17,770,460)
--------- ----------- --------- ---------- --------- ----------
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS, or an affiliate of 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
period ended February 28, 1995 was $6,061.
(7) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At February 28, 1995,
the Fund owned the following restricted security (constituting 0.08% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933. The Fund does not have the right to demand that such security be
registered. The value of this security is determined in good faith by or at the
direction of the Trustees. This security may be offered and sold to "qualified
institutional buyers"under Rule 144A of the 1933 Act.
Date of
Description Acquisition Shares Cost Value
- ------------------------------------------------------------------------------
Phar-Mor, Inc. 4/22/92 - 5/05/92 98,000 $2,780,821 $263,620
---------
(8) Acquisitions
At close of business on September 20, 1993, the Fund acquired all of the assets
and liabilities of MFS Managed Sectors Fund (MMS). The acquisition was
accomplished by a tax-free exchange of 9,100,413 Class A shares of the Fund
(valued at $142,671,119), for the 10,372,042 shares of MMS. MMS's net assets on
that date ($142,671,119), including $23,513,889 of unrealized appreciation, were
combined with those of the Fund. The aggregate net assets of the Fund after the
acquisition were $397,298,434.
---------------------------------------------
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) MANAGED NUMBER
SECTORS FUND 1 BULK RATE
DALMAR U.S. POSTAGE
500 Boylston Street TOP-RATED SERVICE PAID
Boston, MA 02116 PERMIT #55638
BOSTON, MA
[Logo]
MFS
THE FIRST NAME IN MUTUAL FUNDS
MMS-3 4/95/49.5M 08/208
