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[LOGO]
MFS(SM)
INVESTMENT MANAGEMENT
Annual Report
August 31, 1997
MFS(R) MANAGED SECTORS FUND
[Graphic Omitted]
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TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
A Discussion with the Portfolio Manager ................................... 2
Portfolio Manager's Profile ............................................... 6
Portfolio Concentration .................................................... 6
Fund Facts ................................................................ 7
Performance Summary ....................................................... 7
Tax Form Summary ........................................................... 9
Portfolio of Investments ...................................................10
Financial Statements .......................................................14
Notes to Financial Statements ..............................................21
Independent Auditors' Report ...............................................27
The MFS Family of Funds(R) .................................................28
Trustees and Officers ......................................................29
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HIGHLIGHTS
o FOR THE 12 MONTHS ENDED AUGUST 31, 1997, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 43.92%, CLASS B SHARES
42.95%, AND CLASS I SHARES 43.37%. (SEE PERFORMANCE SUMMARY FOR MORE
INFORMATION.)
o THE FUND'S STRONG PERFORMANCE CAN BE ATTRIBUTED TO A NUMBER OF FACTORS,
INCLUDING ITS HOLDINGS IN TECHNOLOGY AND ENERGY, PARTICULARLY
SEMICONDUCTORS IN THE TECHNOLOGY AREA AND OIL SERVICES IN THE ENERGY
SECTOR.
o SOME OF THE POSITIVE PERFORMANCE WAS OFFSET BY UNDERPERFORMING HOLDINGS
IN THE GAMING INDUSTRY AND IN A FEW HEALTH MAINTENANCE ORGANIZATIONS.
o CONDITIONS FOR FINANCIAL ASSETS HAVE CONTINUED TO BE EXTREMELY POSITIVE,
AS MODEST ECONOMIC GROWTH AND TECHNOLOGY- DRIVEN PRODUCTIVITY GAINS HAVE
HELPED KEEP INFLATIONARY PRESSURES IN CHECK.
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of A. Keith Brodkin]
Dear Shareholders:
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still
uncomfortably high. While some lenders are beginning to tighten standards to
address this problem, consumer debt and personal bankruptcies continue to
rise. The rapid pace of growth seen in the first quarter slowed slightly in
the second quarter, to an annual rate of 3.3%. While real (inflation-adjusted)
growth could moderate further in the third quarter, we believe economic
momentum will carry well into the first quarter of 1998. The money supply is
increasing at a rapid rate, the housing and automobile markets are
strengthening, and it now appears that Christmas sales could be quite good.
Because economic growth continues to be impressive, markets are likely to
begin focusing on the Federal Reserve Board's willingness to raise interest
rates.
Although the U.S. equity market has seen increased price volatility of late,
we have been surprised by its overall strength thus far in 1997. Much of this
is the result of continuing gains in corporate earnings. Even as the current
recovery enters its seventh year, more and more U.S. companies have been
exceeding analysts' earnings estimates. In the first quarter of 1997, for
example, two-thirds of all companies met or exceeded analysts' expectations, a
trend that could be an important indicator of the U.S. equity market's future
direction. However, 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.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A Keith Brodkin
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A. Keith Brodkin
Chairman and President
September 15, 1997
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A DISCUSSION WITH THE PORTFOLIO MANAGER
[Photo of Kenneth J. Enright]
Kenneth J. Enright
For the 12 months ended August 31, 1997, Class A shares of the Fund provided a
total return of 43.92%, Class B shares 42.95%, and Class I shares 43.37%.
These returns, which include the reinvestment of distributions but exclude the
effects of any sales charges, compare to a 40.78% return for the Standard &
Poor's 500 Composite Index, a popular, unmanaged index of common stock total
return performance. The Lipper Capital Appreciation Fund Index, which more
closely reflects the Fund's objectives, returned 24.95% during the same
period.
Q. WHAT DO YOU SEE AS SOME OF THE MAJOR REASONS FOR THE FUND'S PERFORMANCE
OVER THE PAST YEAR?
A. The strong performance can be attributed to a number of factors. First,
technology and energy, two of the Fund's four sectors, had very strong
results -- particularly semiconductors in the technology area and oil
services in the energy sector. Both of these subsectors were dominant
holdings for the Fund within their respective categories. Second, the Fund
benefited when a number of its holdings, including McDonnell Douglas,
Healthsource, Smith's Food and Drug, Equitable of Iowa, and ADT Ltd., were
acquired during the year. Finally, Tyco International,
one of the Fund's largest holdings, was up over 85% during the past 12
months, and its prospects for continued strong earnings growth have been
bolstered by both strong internal fundamentals and a number of
acquisitions, including that of ADT, which have added to earnings.
Q. A YEAR AGO, YOU SAID THE FUND HAD NARROWED ITS SECTOR FOCUS TO FOUR AREAS:
TECHNOLOGY, ENERGY, HEALTH CARE, AND LEISURE. HAVE YOU MADE ANY IMPORTANT
SHIFTS IN EMPHASIS AMONG SECTORS?
A. While the Fund continues to be invested in the four sectors outlined last
year, as well as in the "other" category -- consisting of additional
sectors that we feel have attractive prospects for the future --
significant changes within each sector have occurred. Specifically, the
overall weighting in the energy sector was reduced modestly through the
sales of two marine-supply boat companies, Tidewater and Seacor, on full
valuation; a reduction in the Fund's Occidental Petroleum position; and the
trimming of other oil service stocks on the basis of price strength. The
technology weighting is about the same as last year, although there were
numerous changes within the sector. The health care weighting was increased
by over 3%, primarily through additions of both wholesale and retail drug
distribution companies, as we believe the prospects for these segments of
the industry are quite positive. Although gaming issues were sold due to
weak fundamentals, the leisure category was increased by over 2% with the
additions of a number of cellular telephone holdings and full-service hotel
stocks. The latter group is expected to continue to prosper from strong
demand and restricted supply for a number of years to come. Finally, the
"other" category was reduced by 5% of total assets, and the number of
holdings within that area were concentrated.
Q. WHAT ABOUT PARTICULAR STOCKS? ANY MAJOR CHANGES THERE?
A. Yes, as I mentioned, a number of companies were acquired, and those stocks
were either sold, tendered, or are awaiting the consummation of their
respective deals. In technology, the Fund's Intel holding was materially
reduced during the summer as near-term earnings waned, while National
Semiconductor and BMC Software were sold on price strength and Cabletron
and Sybase were sold due to what we viewed as deteriorating prospects. On
the buy side, positions were taken in Compaq Computer, Computer Associates
International, Texas Instruments, IBM, Sony, and Teradyne.
In health care, Pacific Health Systems, Coventry, and Pharmacia-Upjohn were
sold, while other positions were established to take advantage of what we saw
as more favorable prospects for the drug distribution industry, which is
being driven by both earnings growth and continued consolidation. Smith's
Food and Drug, Rite Aid, and CVS were purchased in the retail segment of that
category, while new positions in Cardinal Health, McKesson, and AmeriSource
gave us exposure to the wholesale segment. In addition, we initiated a
significant position in Bristol-Myers Squibb because we believe this
company's strong product flow should continue and even accelerate, despite
its already attractive valuation relative to its peer group. Among leisure
companies, weak-performing gaming stocks such as Showboat, MGM Grand, and
Argosy were sold, while hotel stocks such as Host Marriott, Hilton Hotels,
ITT, and LaQuinta were purchased. We also purchased the stocks of the
cellular telephone companies AirTouch and Sprint.
Q. COULD YOU TALK ABOUT SOME OF YOUR HOLDINGS THAT PERFORMED BETTER THAN
EXPECTED, AND WHY YOU THINK THEY DID WELL?
A. Our holdings in the oil services industry were a real standout for the
Fund, as several companies contributed strongly to performance. These
included Cooper Cameron, the Fund's largest holding in this area, which
gained 146%; Camco, up 108%; BJ Services, up 92%; and Weatherford Enterra,
up 60%. This industry has consolidated to a point at which there are now a
few leaders in each segment; they have lowered their operating costs,
upgraded their managements, and are operating in a positive environment
that, in turn, is lending itself to higher capacity utilization and, thus,
better pricing. In technology, the semiconductor area exhibited strong
demand, benefiting well-positioned companies such as Intel, which gained
135%; National Semiconductor, up 62%; and Texas Instruments, up 70% since
its purchase. Also, Compaq, which is up 98% since it was purchased,
continues to gain market share, reduce costs, and move toward the "build-
to-suit" model successfully executed by Dell Computer. Sun Microsystems,
Computer Associates, and IBM also contributed to the Fund's technology-
sector performance. AirTouch has increased 36% since its purchase, while
Tyco International and ADT (which was acquired by Tyco this year) were both
very strong performers.
Q. NOW, WHAT ABOUT SOME STOCKS OR SECTORS THAT DID NOT PERFORM AS WELL AS YOU
WOULD HAVE LIKED?
A. Some of the positive performance was offset by holdings in the gaming
industry and a few health care stocks, specifically those of health
maintenance organizations (HMOs). As a result of deteriorating
fundamentals, the Fund sold the gaming-related holdings Showboat, MGM
Grand, and Argosy, and the HMOs Pacificare Health and Coventry. The Fund
continues to hold Harrah's Entertainment, a geographically diverse gaming
concern with a strong management team. We expect its 1998 results to
improve materially, which should lead to better stock performance.
Disappointing results were also associated with three companies, each
undergoing corporate restructuring, and each in different industries:
Telephone & Data Systems, Digital Equipment, and Occidental Petroleum. The
Fund continues to believe that the value of each of these stocks is
significantly above its current share price and that each company's
management is taking positive steps to narrow the gap between its intrinsic
value and its marketplace value.
Q. IN GENERAL, HOW WOULD YOU CHARACTERIZE THE BUSINESS AND ECONOMIC
ENVIRONMENT OF THE PAST YEAR, PARTICULARLY AS IT RELATES TO THE FUND?
A. Economic conditions for financial assets have continued to be extremely
positive over the past year, as modest economic growth and technology-
driven productivity gains have kept inflationary pressures in check.
Contributing to this near-perfect backdrop has been the prospect of
additional fiscal discipline in Washington. These attributes have not gone
unnoticed by investors, and stock market performance has been quite robust
for each of the past three years. Unlike the previous two years, though,
this market has been characterized by narrow breadth, with performance
being driven by large-cap, multinational leaders in their respective
industries, creating an environment in which stock selection, as opposed to
sector weighting, has generally been the key to positive performance. As a
result, valuations for many of those companies with visible, steady growth
are at all-time highs. Fortunately, the Fund has had strong performance
without significant exposure to many of these stocks, but we are
increasingly wary of the impact these stocks may have on the overall
market, given their historically high valuations.
Q. WHAT KIND OF INVESTMENT ENVIRONMENT DO YOU ANTICIPATE GOING FORWARD, AND
HOW MIGHT THIS AFFECT SOME OF YOUR DECISIONS FOR THE FUND?
A. While we currently see few reasons to believe this positive backdrop should
not continue, investors have incorporated much of this good news into the
market, so there appears to be little room for error at either the company
or sector level. Regardless of the sector, we believe stock selection,
driven by strong fundamental research, will continue to be the key factor
in determining overweightings or underweightings versus the overall market.
/s/ Kenneth J. Enright
------------------------------------
Kenneth J. Enright
Portfolio Manager
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PORTFOLIO MANAGER'S PROFILE
KENNETH J. 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() R MANAGED SECTORS FUND IN 1993. HE IS A CHARTERED FINANCIAL
ANALYST (C.F.A.).
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PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1997
TOP 10 EQUITY HOLDINGS
TYCO INTERNATIONAL LTD. COMPUTER ASSOCIATES INTERNATIONAL, INC.
Manufacturer of fire protection, Computer software company
packaging, and electronic equipment
DIGITAL EQUIPMENT CORP.
TELEPHONE & DATA SYSTEMS, INC. Computer manufacturing and networking
Provider of rural and local company
telephone services
HARRAH'S ENTERTAINMENT, INC.
COMPAQ COMPUTER CORP. Owner of gaming operations in several
Personal computer company states
UNITED HEALTHCARE CORP. ATMEL CORP.
Health maintenance organization Manufacturer of electronic components
and semiconductors
COOPER CAMERON CORP.
Manufacturer of oil and gas EQUITABLE OF IOWA COS.
production equipment Life and health insurance company
LARGEST EQUITY SECTORS
Leisure 20.9%
Technology 32.7%
Miscellaneous 3.4%
(Conglomerates, special
products/sevices)
Energy 10.3%
Medical and Health
Technology and Services 15.9%
Other Sectors 16.8%
For a more complete breakdown, refer to the Portfolio of Investments.
<PAGE>
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FUND FACTS
OBJECTIVE: THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE CAPITAL
APPRECIATION. AS MUCH AS 50% OF THE FUND'S ASSETS MAY
BE IN ONE SECTOR OR CASH.
COMMENCEMENT OF
INVESTMENT OPERATIONS: CLASS A: SEPTEMBER 20, 1993
CLASS B: DECEMBER 29, 1986
CLASS I: JANUARY 2, 1997
SIZE: $447.6 MILLION NET ASSETS AS OF AUGUST 31, 1997
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PERFORMANCE SUMMARY
The information below and on the following pages illustrates the historical
performance of MFS Managed Sectors Fund - Class B shares in comparison to
various market indicators. Class B share results do not reflect the deduction
of any contingent deferred sales charge (CDSC) since the CDSC is not
applicable after a six-year period. 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 the differences in
charges and fees paid by shareholders investing in different classes. It is
not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-year period ended August 31, 1997)
MFS Managed S&P 500 Lipper Capital
Sectors Fund - Composite Appreciation Consumer Price
Class B Index Funds Index Index - U.S.
-------------- --------- --------------- --------------
8/92 $10,000 $10,000 $10,000 $10,000
8/93 $11,900 $11,500 $12,300 $10,300
8/94 $12,100 $12,200 $12,900 $10,600
8/95 $15,200 $14,800 $15,800 $10,900
8/96 $15,700 $17,500 $17,700 $11,200
8/97 $22,393 $24,644 $22,082 $11,405
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GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended August 31, 1997)
MFS Managed S&P 500 Lipper Capital
Sectors Fund - Composite Appreciation Consumer Price
Class B Index Funds Index Index - U.S.
-------------- --------- --------------- --------------
8/87 $10,000 $10,000 $10,000 $10,000
8/89 $10,700 $11,400 $11,000 $10,900
8/91 $12,400 $13,800 $12,800 $11,900
8/93 $16,000 $17,200 $16,600 $12,700
8/95 $20,300 $22,000 $21,100 $13,300
8/97 $30,029 $36,711 $29,820 $14,044
AVERAGE ANNUAL TOTAL RETURNS AS OF AUGUST 31, 1997
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C>
MFS Managed Sectors Fund (Class A)
including 5.75% sales charge (SEC results) +35.67% +21.13% +17.02% +11.40%
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MFS Managed Sectors Fund (Class A)
at net asset value +43.92% +23.55% +18.16% +11.94%
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MFS Managed Sectors Fund (Class B)
with CDSC (SEC results) +38.95% +22.01% +17.29% +11.62%
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MFS Managed Sectors Fund (Class B)
at net asset value +42.95% +22.68% +17.50% +11.62%
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MFS Managed Sectors Fund (Class I)
at net asset value +43.37% +22.80% +17.57% +11.66%
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Average specialty/miscellaneous fund+ +22.49% +16.07% +17.08% +11.03%
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Lipper Capital Appreciation Funds Index+ +24.95% +19.67% +17.17% +11.47%
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Standard & Poor's 500 Composite Index++ +40.78% +26.58% +19.77% +13.89%
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Consumer Price Index*++ + 2.19% + 2.55% + 2.66% + 3.45%
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</TABLE>
+ Source: Lipper Analytical Services, Inc.
++ Source: CDA/Wiesenberger.
* The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
All results are historical and assume the reinvestment of dividends and
capital gains. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
Past performance is no guarantee of future results.
Class A share SEC results include the maximum 5.75% sales charge. Class B
share SEC results reflect the applicable CDSC, which declines over six years
as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%. Class I shares, which became available
on January 2, 1997, have no sales charge or Rule 12b-1 fees and are only
available to certain institutional investors.
Class A share results include the performance and the operating expenses
(e.g., Rule 12b-1 fees) of the Fund's Class B shares for periods prior to the
commencement of offering of Class A shares. Because operating expenses
attributable to Class B shares are greater than those of Class A shares, Class
A share performance generally would have been higher than Class B share
performance. The Class B share performance included within the Class A share
SEC performance has been adjusted to reflect the maximum initial sales charge
generally applicable to Class A shares rather than the CDSC generally
applicable to Class B shares.
Class I share results include the performance and the operating expenses
(e.g., Rule 12b-1 fees) of the Fund's Class B shares for periods prior to the
commencement of offering of Class I shares. Because operating expenses
attributable to Class B shares are greater than those of Class I shares, Class
I share performance generally would have been higher than Class B share
performance. The Class B share performance included within the Class I share
performance has been adjusted to reflect the fact that Class I shares have no
CDSC.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Current subsidies
and waivers may be discontinued at any time.
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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
MFS MANAGED SECTORS FUND HAS DESIGNATED $23,914,768 AS A LONG-TERM
CAPITAL GAIN.
DIVIDENDS RECEIVED DEDUCTION
FOR THE YEAR ENDED AUGUST 31, 1997, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS-RECEIVED DEDUCTION FOR
CORPORATIONS CAME TO 10.29%.
<PAGE>
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PORTFOLIO OF INVESTMENTS - August 31, 1997
Stocks - 96.6%
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ISSUER SHARES VALUE
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Energy - 10.3%
Apache Corp. 142,500 $ 5,655,469
BJ Services Co.* 75,000 5,418,750
Camco International, Inc. 79,000 5,441,125
Cooper Cameron Corp.* 205,000 13,299,375
Noble Drilling Corp.* 125,000 3,554,688
Occidental Petroleum Corp. 219,770 5,150,859
Weatherford Enterra, Inc.* 165,000 7,600,312
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$ 46,120,578
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Leisure - 20.9%
Aerial Communications, Inc.* 275,000 $ 2,389,063
AirTouch Communications, Inc.* 137,000 4,632,313
Harrah's Entertainment, Inc.* 525,000 11,779,687
HFS, Inc.* 155,000 8,631,562
Hilton Hotels Corp. 230,000 7,058,125
Host Marriott Corp.* 300,000 5,850,000
ITT Corp.* 57,000 3,580,313
LIN Television Corp.* 145,500 6,902,156
LaQuinta Inns, Inc. 153,300 3,219,300
Promus Hotel Corp.* 175,000 6,792,187
Telephone & Data Systems, Inc. 830,000 32,785,000
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$ 93,619,706
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Medical and Health Technology and Services - 15.9%
Aetna, Inc. 23,100 $ 2,204,606
AmeriSource Health Corp., "A"* 66,800 3,344,175
Bristol-Myers Squibb Co. 105,500 8,018,000
Cardinal Health, Inc. 35,000 2,318,750
Cigna Corp. 29,700 5,446,237
Columbia/HCA Healthcare Corp. 95,000 2,998,438
CVS Corp. 60,000 3,382,500
Genesis Health Ventures, Inc.* 137,100 4,781,363
McKesson Corp.## 56,600 5,302,712
Medpartners, Inc.* 206,000 4,403,250
Mid Atlantic Medical Services, Inc.* 33,400 515,613
Rite Aid Corp. 95,000 4,755,938
Smith's Food & Drug Centers, Inc., "B"* 77,500 4,243,125
St. Jude Medical, Inc.* 142,000 5,404,875
United Healthcare Corp. 286,100 13,911,612
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$ 71,031,194
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Technology - 32.7%
3Com Corp.* 83,500 $ 4,169,781
Analog Devices, Inc.* 139,400 4,617,625
Ascend Communications, Inc.* 65,000 2,758,438
Aspect Telecommunications Corp.* 225,000 4,950,000
Atmel Corp.* 325,000 11,496,875
Cisco Systems, Inc.* 42,000 3,165,750
Compaq Computer Corp.* 239,000 15,654,500
Computer Associates International, Inc. 180,000 12,037,500
Digital Equipment Corp.* 275,000 11,825,000
Intel Corp. 45,000 4,145,625
International Business Machines Corp. 76,000 7,666,500
Loral Space & Communications Corp.* 435,000 7,612,500
Microsoft Corp.* 35,000 4,626,563
Oracle Systems Corp.* 158,500 6,042,812
Sony Corp. (Japan) 64,000 5,572,139
Spectrum Holobyte, Inc.* 869,200 4,183,025
Sprint Corp. 110,000 5,170,000
Sun Microsystems, Inc.* 135,000 6,480,000
Synopsys, Inc.* 145,000 5,020,625
Teradyne, Inc.* 132,000 7,350,750
Texas Instruments, Inc. 70,000 7,953,750
WorldCom, Inc.* 133,000 3,981,688
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$ 146,481,446
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Other - 16.8%
AGCO Corp. 190,000 $ 6,175,000
Equitable of Iowa Cos. 145,000 9,443,125
Jefferson Smurfit Corp.* 135,000 2,624,063
Keystone International, Inc. 145,000 5,464,687
Office Depot, Inc.* 323,600 5,966,375
Stone Container Corp. 253,900 4,379,775
Tyco International Ltd.* 445,000 34,904,687
Wisconsin Central Transportation Corp.* 205,800 6,379,800
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$ 75,337,512
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Total Stocks (Identified Cost, $340,795,515) $ 432,590,436
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Convertible Bond
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PRINCIPAL AMOUNT
(000 OMITTED)
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Spectrum Holobyte, Inc., 6.5s, 2002 (Technology)##
(Identified Cost, $560,000) $ 560 $ 403,900
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Short-Term Obligations - 2.0%
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General Electric Capital Corp., due 9/02/97, at
Amortized Cost $ 8,800 $ 8,798,626
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<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Put Options Purchased - 1.6%
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ISSUER/EXPIRATION MONTH/STRIKE PRICE CONTRACTS VALUE
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S & P 500 Index/March/875
(Premiums Paid, $5,320,429) 1,810 $ 7,285,250
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Total Investments (Identified Cost, $355,474,570) $ 449,078,212
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Call Options Written - (1.2)%
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3Com Corp.
October/60 835 $ (114,812)
Aetna, Inc.
January/115 230 (60,375)
AirTouch Communications, Inc.
January/35 1,370 (368,188)
Atmel Corp.
November/40 2,000 (400,000)
Bristol-Myers Squibb Co.
December/95 1,000 (62,500)
Cigna Corp.
October/200 150 (26,250)
Computer Associates International, Inc.
October/80 1,000 (31,250)
Compaq Computer Corp.
January/60 450 (1,350,000)
Cooper Cameron Corp.
November/60 1,350 (1,147,500)
Digital Equipment Corp.
October/45 1,500 (300,000)
Genesis Health Ventures, Inc.
December/40 1,000 (56,250)
Harrah's Entertainment, Inc.
November/25 2,350 (146,875)
HFS, Inc.
January/65 1,400 (315,000)
International Business Machines Corp.
January/120 460 (155,250)
Loral Space & Communications Corp.
January/20 2,250 (210,938)
Microsoft Corp.
October/150 350 (78,750)
Office Depot, Inc.
October/20 1,500 (56,250)
Smith's Food & Drug Centers, Inc., "B"
January/65 770 (38,500)
Telephone & Data Systems, Inc.
November/45 2,000 (62,500)
Texas Instruments, Inc.
October/125 700 (306,250)
Tyco International Ltd.
October/95 2,178 (54,450)
United Healthcare Corp.
December/60 1,400 (105,000)
Wisconsin Central Transportation Corp.
January/40 1,750 (120,312)
WorldCom, Inc.
December/37.5 1,320 (99,000)
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Total Call Options Written (Premiums Received,
$5,098,759) $ (5,666,200)
Other Assets, Less Liabilities - 1.0% 4,216,209
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Net Assets - 100.0% $ 447,628,221
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*Non-income producing security.
##SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
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AUGUST 31, 1997
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $355,474,570) $449,078,212
Cash 71,733
Receivable for investments sold 6,955,635
Receivable for Fund shares sold 1,720,442
Dividends and interest receivable 75,692
Other assets 3,297
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Total assets $457,905,011
-------------
Liabilities:
Payable for investments purchased $ 4,052,035
Payable for Fund shares reacquired 138,726
Written options outstanding, at value
(premiums received, $5,098,759) 5,666,200
Payable to affiliates -
Management fee 27,611
Administrative fee 552
Shareholder servicing agent fee 4,786
Distribution and service fee 200,801
Accrued expenses and other liabilities 186,079
-------------
Total liabilities $ 10,276,790
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Net assets $ 447,628,221
=============
Net assets consist of:
Paid-in capital $292,536,744
Unrealized appreciation on investments and translation of
assets and liabilities in
foreign currencies 93,036,201
Accumulated undistributed net realized gain on
investments and foreign currency transactions 62,106,077
Accumulated net investment loss (50,801)
-------------
Total $447,628,221
=============
Shares of beneficial interest outstanding 26,628,795
==========
Class A shares:
Net asset value per share
(net assets of $288,226,715 / 17,148,342 shares of
beneficial interest outstanding) $16.81
======
Offering price per share (100 / 94.25) $17.84
======
Class B shares:
Net asset value and offering price per share
(net assets of $157,052,242 / 9,341,131 shares of
beneficial interest outstanding) $16.81
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $2,349,264 / 139,322 shares of
beneficial interest outstanding) $16.86
======
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
- --------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1997
- --------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 1,584,274
Interest 253,981
Foreign taxes withheld (2,322)
------------
Total investment income $ 1,835,933
------------
Expenses -
Management fee $ 2,864,061
Trustees' compensation 46,635
Shareholder servicing agent fee 338,341
Shareholder servicing agent fee (Class A) 112,975
Shareholder servicing agent fee (Class B) 101,851
Distribution and service fee (Class A) 836,020
Distribution and service fee (Class B) 1,405,119
Administrative fee 29,828
Custodian fee 147,918
Postage 78,101
Printing 59,523
Auditing fees 43,779
Legal fees 5,056
Miscellaneous 306,624
------------
Total expenses $ 6,375,831
Fees paid indirectly (67,900)
------------
Net expenses $ 6,307,931
------------
Net investment loss $ (4,471,998)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 69,776,619
Written options transactions 86,142
Foreign currency transactions (18,487)
------------
Net realized gain on investments and foreign
currency transactions $ 69,844,274
------------
Change in unrealized appreciation -
Investments $ 73,137,532
Written option transactions (567,441)
Translation of assets and liabilities in foreign currencies (69)
------------
Net unrealized gain on investments and foreign currency
translation $ 72,570,022
------------
Net realized and unrealized gain on investments
and foreign currency $142,414,296
------------
Increase in net assets from operations $137,942,298
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1997 1996
- --------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C> <C>
Net investment loss $ (4,471,998) $ (3,156,831)
Net realized gain on investments and foreign currency
transactions 69,844,274 62,458,699
Net unrealized gain (loss) on investments and foreign
currency translation 72,570,022 (45,740,086)
-------------- --------------
Increase in net assets from operations $ 137,942,298 $ 13,561,782
-------------- --------------
Distributions declared to shareholders -
From net realized gain on investments and foreign
currency transactions (Class A) $ (26,355,849) $ (37,126,652)
From net realized gain on investments and foreign
currency transactions (Class B) (15,051,923) (28,912,351)
-------------- --------------
Total distributions declared to shareholders $ (41,407,772) $ (66,039,003)
-------------- --------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 128,378,865 $ 105,543,935
Net asset value of shares issued to shareholders in
reinvestment of distributions 38,469,332 60,342,057
Cost of shares reacquired (153,117,052) (154,185,704)
-------------- --------------
Increase in net assets from Fund share transactions $ 13,731,145 $ 11,700,288
-------------- --------------
Total increase (decrease) in net assets $ 110,265,671 $ (40,776,933)
Net assets:
At beginning of period 337,362,550 378,139,483
-------------- --------------
At end of period (including accumulated net investment
loss of $50,801 and $257,410, respectively) $ 447,628,221 $ 337,362,550
============== ==============
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS
YEAR ENDED AUGUST 31, ENDED PERIOD ENDED
---------------------------------------- AUGUST 31, NOVEMBER 30,
1997 1996 1995 1994 1993*
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share
outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 13.16 $ 15.55 $ 13.41 $ 15.50 $ 15.68
---------- ---------- ---------- ---------- ----------
Income from investment operations# -
Net investment loss $ (0.13) $ (0.08) $ (0.05) $ (0.03) $ (0.02)
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions 5.46 0.58 3.22 0.77 (0.16)
---------- ---------- ---------- ---------- ----------
Total from investment
operations $ 5.33 $ 0.50 $ 3.17 $ 0.74 $ (0.18)
---------- ---------- ---------- ---------- ----------
Less distributions declared to
shareholders from net realized gain
on investments and foreign currency transactions $ (1.68) $ (2.89) $ (1.03) $ (2.83) $ --
---------- ---------- ---------- ---------- ----------
Net asset value - end of period $ 16.81 $ 13.16 $ 15.55 $ 13.41 $ 15.50
========== ========== ========== ========== ==========
Total return(+) 43.92% 3.92% 26.12% 5.12%++ (5.99)%+
Ratios (to average net assets)/Supplemental data:
Expenses## 1.43% 1.43% 1.46% 1.52%+ 1.59%+
Net investment loss (0.93)% (0.56)% (0.34)% (0.26)%+ (0.75)%+
Portfolio turnover 96% 117% 115% 76% 106%
Average commission rate### $ 0.0569 $ 0.0411 $ -- $ -- $ --
Net assets at end of period
(000 omitted) $ 288,227 $ 207,504 $ 178,367 $ 121,498 $ 136,179
</TABLE>
*For the period from the commencement of the Fund's offering of Class A
shares, September 20, 1993, through November 30, 1993.
+Annualized.
++Not annualized.
(+)Total returns for Class A shares do not include the applicable sales charge.
If the charge had been included, the results would have been lower.
#Per share data for the periods subsequent to November 30, 1993, are based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS
YEAR ENDED AUGUST 31, ENDED YEAR ENDED
---------------------------------------- AUGUST 31, NOVEMBER 30,
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout each period):
Net asset value - beginning of period $ 13.14 $ 15.46 $ 13.35 $ 15.49 $ 15.42
---------- ---------- ---------- ---------- ----------
Income from investment operations# -
Net investment loss $ (0.23) $ (0.18) $ (0.14) $ (0.10) $ (0.25)
Net realized and unrealized gain
on investments and foreign currency transactions 5.47 0.58 3.20 0.75 0.94
---------- ---------- ---------- ---------- ----------
Total from investment operations $ 5.24 $ 0.40 $ 3.06 $ 0.65 $ 0.69
---------- ---------- ---------- ---------- ----------
Less distributions declared to
shareholders from net realized gain
on investments and foreign currency transactions $ (1.57) $ (2.72) $ (0.95) $ (2.79) $ (0.62)
---------- ---------- ---------- ---------- ----------
Net asset value - end of period $ 16.81 $ 13.14 $ 15.46 $ 13.35 $ 15.49
========== ========== ========== ========== ==========
Total return 42.95% 3.17% 25.19% 4.47%++ 4.50%
Ratios (to average net assets)/Supplemental data:
Expenses## 2.11% 2.15% 2.18% 2.26%+ 2.21%
Net investment loss (1.60)% (1.27)% (1.06)% (1.01)%+ (1.55)%
Portfolio turnover 96% 117% 115% 76% 106%
Average commission rate### $ 0.0569 $ 0.0411 $ -- $ -- $ --
Net assets at end of period
(000 omitted) $ 157,052 $ 129,858 $ 199,773 $ 214,055 $ 232,982
</TABLE>
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to November 30, 1993, are based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1992 1991 1990 1989 1988 1987**
- ----------------------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout each period):
Net asset value - beginning of period $ 13.00 $ 9.23 $ 11.32 $ 7.86 $ 6.94 $ 6.50
-------- -------- -------- -------- -------- --------
Income from investment operations -
Net investment income (loss) $ (0.24) $ (0.12) $ (0.03) $ 0.03 $ 0.09 $ 0.03
Net realized and unrealized
gain (loss) on investments and
foreign currency transactions 2.66 3.89 (2.06) 3.51 0.89 0.42
-------- -------- -------- -------- -------- --------
Total from investment operations $ 2.42 $ 3.77 $ (2.09) $ 3.54 $ 0.98 $ 0.45
-------- -------- -------- -------- -------- --------
Less distributions declared to
shareholders from net realized
gain on investments and foreign
currency transactions $ -- $ -- $ -- $ (0.08) $ (0.06) $ (0.01)
-------- -------- -------- -------- -------- --------
Net asset value - end of period $ 15.42 $ 13.00 $ 9.23 $ 11.32 $ 7.86 $ 6.94
======== ======== ======== ======== ======== ========
Total return 18.62% 40.85% (18.46)% 45.35% 14.06% 7.47%+
Ratios (to average net assets)/Supplemental data:
Expenses 2.37% 2.44% 2.50% 2.52% 2.31% 2.25%+
Net investment income (loss) (1.85)% (1.00)% (0.27)% 0.37% 1.08% 0.09%+
Portfolio turnover 22% 59% 79% 84% 146% 163%
Net assets at end of period
(000 omitted) $249,493 $190,232 $152,132 $180,416 $137,311 $134,762
</TABLE>
**For the period from the commencement of the Fund's investment operations,
December 29, 1986, through November 30, 1987.
+Annualized.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
PERIOD ENDED AUGUST 31, 1997***
- ------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $13.18
------
Income from investment operations# -
Net investment loss $(0.07)
Net realized and unrealized gain on investments
and foreign currency
transactions 3.75
------
Total from investment operations $ 3.68
------
Net asset value - end of period $16.86
======
Total return 27.92%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.07%+
Net investment loss (0.65)%+
Portfolio turnover 96%
Average commission rate $0.0569
Net assets at end of period (000 omitted) $ 2,349
***For the period from the commencement of the Fund's offering of Class I
shares, January 2, 1997, through August 31, 1997.
+Annualized.
++Not annualized.
#Per share data for the period are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid
indirectly.
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS 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.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, 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. 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.
Written Options - The Fund may also write call or put options in exchange for
a premium. The premium is initially recorded as a liability which is
subsequently adjusted to the current value of the option contract. When a
written option expires, the Fund realizes a gain equal to the amount of the
premium received. When a written call option is exercised or closed, the
premium received is offset against the proceeds to determine the realized gain
or loss. When a written put is exercised, the premium reduces the cost basis
of the security purchased by the Fund. The Fund, as writer of an option, may
have no control over whether the underlying securities may be sold (call) or
purchased (put) and, as a result, bears the market risk of an unfavorable
change in the price of the securities underlying the written option. In
general, written call options may serve as a partial hedge against decreases
in value in the underlying securities to the extent of the premium received.
Written options may also be used as part of an income producing strategy
reflecting the view of the Fund's management on the direction of interest
rates.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividends received in cash are recorded on the ex-dividend date. Dividend and
interest payments received in additional securities are recorded on the ex-
dividend or ex-interest date in an amount equal to the value of the security
on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's average daily net assets. 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 August 31, 1997, $4,678,607 was reclassified from
accumulated undistributed net realized gain on investments and foreign
currency transactions to accumulated net investment loss due to differences
between book and tax accounting for currency transactions and the offset of
short-term capital gains against accumulated net investment loss. 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 multiple
classes of shares. The classes of shares differ in their respective
distribution and service fees. All shareholders bear the common expenses of
the Fund pro rata based on average daily net assets of each class, without
distinction between share classes. Dividends are declared separately for each
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of average daily net assets.
Administrator - Effective March 1, 1997, the Fund has an administrative
services agreement with MFS to provide the Fund with certain financial, legal,
and other administrative services. As a partial reimbursement for the cost of
providing these services, the Fund pays MFS an administrative fee of up to
0.015% per annum of the Fund's average daily net assets, provided that the
administrative fee is not assessed on Fund assets that exceed $3 billion.
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
$13,010 for the year ended August 31, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$20,163 for the year ended August 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 and Class B 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 $98,942 for the year ended August 31, 1997. Fees incurred under
the distribution plan during the year ended August 31, 1997, were 0.35% of
average daily net assets attributable to Class A shares on an annualized
basis.
The Fund's distribution plan provides that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per
annum, of the Fund's average daily net assets attributable to Class B 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. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $43,967
for Class B shares for the year ended August 31, 1997. Fees incurred under the
distribution plans during the year ended August 31, 1997, were 1.00% of
average daily net assets attributable to Class B shares on an annualized
basis.
Purchases over $1 million of Class A shares and certain purchases by
retirement plans are subject to a contingent deferred sales charge in the
event of a shareholder redemption within 12 months following such purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended August 31, 1997, were
$190 and $101,980 for Class A and Class B 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 of each class of shares at
an effective annual rate of up to 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% 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
$363,613,893 and $398,257,524, 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 $355,994,583
============
Gross unrealized appreciation $103,042,265
Gross unrealized depreciation (9,958,636)
------------
Net unrealized appreciation $ 93,083,629
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Class A Shares
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1997 YEAR ENDED AUGUST 31, 1996
-------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,344,407 $ 80,513,731 4,380,258 $ 63,996,858
Shares issued to shareholders in
reinvestment of distributions 1,814,003 24,108,369 2,625,824 33,269,508
Shares transferred to Class I (167,732) (2,210,708) -- --
Shares reacquired (5,609,695) (83,104,253) (2,712,657) (38,139,937)
--------- ------------- ---------- -------------
Net increase 1,380,983 $ 19,307,139 4,293,425 $ 59,126,429
========= ============= ========== =============
Class B Shares
YEAR ENDED AUGUST 31, 1997 YEAR ENDED AUGUST 31, 1996
-------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
Shares sold 3,284,660 $ 47,554,552 2,993,295 $ 41,547,077
Shares issued to shareholders in
reinvestment of distributions 1,075,701 14,360,963 2,128,326 27,072,549
Shares reacquired (4,899,090) (69,295,923) (8,163,355) (116,045,767)
---------- ------------- ---------- --------------
Net decrease (538,729) $ (7,380,408) (3,041,734) $ (47,426,141)
========== ============= ========== ==============
Class I Shares
PERIOD ENDED
AUGUST 31, 1997*
--------------------------
SHARES AMOUNT
- -------------------------------------------------------------------
Shares sold 23,376 $ 310,582
Shares transferred from Class A 167,732 2,210,708
Shares reacquired (51,786) (716,876)
------- ------------
Net increase 139,322 $ 1,804,414
======= ============
</TABLE>
*For the period from the commencement of the Fund's offering of Class I
shares, January 2, 1997, through August 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 August 31, 1997, was $3,405.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options. The notional or contractual
amounts of these instruments represent the investment the Fund has in
particular classes of financial instruments and does not necessarily represent
the amounts potentially subject to risk. The measurement of the risks
associated with these instruments is meaningful only when all related and
offsetting transactions are considered.
Written Option Transactions
1997 CALLS
-----------------------
CONTRACTS PREMIUMS
- ------------------------------------------------------------------------------
Outstanding, Beginning of Period -- --
Options written 30,985 $5,306,231
Options terminated in closing transactions 1,672 207,472
------ ----------
Outstanding, End of Period 29,313 $5,098,759
====== ==========
At August 31, 1997, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust I and Shareholders of MFS Managed Sectors
Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Managed Sectors Fund (one of
the series constituting MFS Series Trust I) as of August 31, 1997, the related
statement of operations for the year the ended, the statement of changes in
net assets for the years ended August 31, 1997 and 1996, and the financial
highlights for each of the years in the three-year period ended August 31,
1997, the nine months ended August 31, 1994, and each of the years in the
seven-year period ended November 30, 1993. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at August 31, 1997 by correspondence with custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Managed
Sectors Fund at August 31, 1997, the results of its operations, the changes in
its net assets, and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 3, 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>
MFS(R) MANAGED SECTORS FUND
<S> <C>
TRUSTEES SECRETARY
Stephen E. Cavan*
A. Keith Brodkin* - Chairman and President
ASSISTANT SECRETARY
Richard B. Bailey* - Private Investor; James R. Bordewick, Jr.*
Former Chairman and Director (until 1991),
Massachusetts Financial Services Company; CUSTODIAN
Director, Cambridge Bancorp; Director, State Street Bank and Trust Company
Cambridge Trust Company
AUDITORS
Marshall N. Cohan - Private Investor Ernst & Young LLP
Lawrence H. Cohn, M.D. - Chief of Cardiac INVESTOR INFORMATION
Surgery, Brigham and Women's Hospital; For MFS stock and bond market outlooks,
Professor of Surgery, Harvard Medical School call toll free: 1-800-637-4458 anytime
from a touch-tone telephone.
The Hon. Sir J. David Gibbons, KBE - Chief
Executive Officer, Edmund Gibbons Ltd.; For information on MFS mutual funds, call your
Chairman, Bank of N.T. Butterfield & Son Ltd. financial adviser or, for an information kit,
call toll free: 1-800-637-2929 any business day
Abby M. O'Neill - Private Investor; from 9 a.m. to 5 p.m. Eastern time (or leave a
Director, Rockefeller Financial Services, Inc. message anytime).
(investment advisers)
INVESTOR SERVICE
Walter E. Robb, III - President and Treasurer, MFS Service Center, Inc.
Benchmark Advisors, Inc. (corporate financial P.O. Box 2281
consultants); President, Benchmark Boston, MA 02107-9906
Consulting Group, Inc. (office services);
Trustee, Landmark Funds (mutual funds) For general information, call toll free:
1-800-225-2606 any business day from
Arnold D. Scott* - Senior Executive Vice 8 a.m. to 8 p.m. Eastern time.
President, Director and Secretary,
Massachusetts Financial Services Company For service to speech- or hearing-impaired, call
toll free: 1-800-637-6576 any business day from
Jeffrey L. Shames* - President and Director, 9 a.m. to 5 p.m. Eastern time. (To use this
Massachusetts Financial Services Company service, your phone must be equipped with a
Telecommunications Device for the Deaf.)
J. Dale Sherratt - President, Insight Resources,
Inc. (acquisition planning specialists) For share prices, account balances, and
exchanges, call toll free: 1-800-MFS-TALK
Ward Smith - Former Chairman (until 1994), (1-800-637-8255) anytime from a touch-tone
NACCO Industries; Director, Sundstrand telephone.
Corporation
WORLD WIDE WEB
INVESTMENT ADVISER www.mfs.com
Massachusetts Financial Services Company
500 Boylston Street [Dalbar For the fourth year in a row, MFS
Boston, MA 02116-3741 Logo] earned a #1 ranking in the DALBAR,
Inc. Broker/Dealer Survey, Main Office
DISTRIBUTOR Operations Service Quality Category.
MFS Fund Distributors, Inc. The firm achieved a 3.42 overall score on a
500 Boylston Street scale of 1 to 4 in the 1997 survey. A total of
Boston, MA 02116-3741 111 firms responded, offering input on the
quality of service they received from 29 mutual
PORTFOLIO MANAGER fund companies nationwide. The survey contained
Kenneth J. Enright* questions about service quality in 11
categories, including "knowledge of operations
TREASURER contact," "keeping you informed," and "ease of
W. Thomas London* doing business" with the firm.
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
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MFS(R) MANAGED BULK RATE
SECTORS FUND U.S. POSTAGE
PAID
MFS
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500 Boylston Street
Boston, MA 02116-3741
[LOGO] M F S(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
[DALBAR
LOGO]
TOP-RATED SERVICE
(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MMS-2 10/97 49M 08/208/808
