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[logo] M F S(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
MFS(R) MANAGED
SECTORS FUND
ANNUAL REPORT o AUGUST 31, 1998
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DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 30)
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TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 9
Portfolio of Investments .................................................. 13
Financial Statements ...................................................... 15
Notes to Financial Statements ............................................. 22
Independent Auditors' Report .............................................. 28
Trustees and Officers ..................................................... 33
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HIGHLIGHTS
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o THE FUND RECEIVED STRONG PERFORMANCES FROM ITS HOLDINGS IN RETAIL DRUG STORE
CHAINS, COMMUNICATIONS, FINANCIAL SERVICES, AND INDUSTRY-LEADING TECHNOLOGY
COMPANIES.
o THOUGH THE FUND'S INVESTMENTS IN THE OIL SERVICES SECTOR EXPERIENCED
DIFFICULTY THIS YEAR AS THE RESULT OF DEEP DROPS IN OIL PRICES, THE STOCKS
IN THE SECTOR STILL SHOW GOOD FUNDAMENTALS, STRONG CASH POSITIONS, AND
MANAGEMENT STOCK BUYBACKS. WE FEEL THE SECTOR IS POISED FOR GROWTH WHEN OIL
PRICES REBOUND.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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LETTER FROM THE CHAIRMAN
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[Photo of Jeffrey L. Shames]
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Jeffrey L. Shames
Dear Shareholders,
In the coming year, MFS will celebrate its 75th anniversary. In 1924, our
Massachusetts Investors Trust, the nation's first mutual fund, opened to the
public and helped launch a revolution in investing that continues today. In the
75 years since, MFS has grown with its investors not only through bear markets,
economic and political turmoil, wars, and oil shortages, but also through long
periods of growth and prosperity. We are very proud of our record of investment
management and service to shareholders throughout our history.
One of the best ways for us to serve our shareholders is to help them understand
some of the reasons behind developments in the investment markets and, when
necessary, to take a more cautious outlook. This is particularly important
during periods of market volatility such as we are experiencing this year, when
equity prices do not follow a straight course. In light of this summer's
volatility, it is clear that equity valuations have risen to a point at which
stock prices have become vulnerable to changes in the investment environment
such as a slowing economy, earnings disappointments, and global economic and
political turmoil. While we continue to hold a favorable long-term outlook for
the equity markets, we also believe that this market correction is overdue and
could continue for several months. However, in our view, this is a healthy
near-term event that should rid the financial system of excesses that have
developed.
Currently, equity investors seem to be focused on the slowdown in corporate
earnings and, more recently, on the continuing uncertainty overseas,
particularly in Russia and some of the emerging markets. In the second quarter,
for example, average earnings growth for companies in the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock total
return performance, was about 3%, well below what people were expecting a year
ago. As a result of this and continuing concerns about Asia and emerging
markets, the stock markets pulled back from the record-high levels set in
mid-July. This retreat has helped correct some -- but not all -- of the
overvaluations that have been building in the markets for some time. Prior to
July, equity prices had been rising without a corresponding increase in
corporate earnings. As a result, price-to-earnings (P/E) ratios, or the amount
investors paid for stocks in relation to companies' earnings per share, also
went up. A year ago this July, the average P/E ratio for stocks in the S&P 500
stood at approximately 23; this July, it was at about 28, and it declined to
approximately 25 by early September. If this summer's downturn helps create more
reasonable valuations, we believe it could provide a sounder long-term
foundation for the equity markets. On another positive note, interest rates have
been relatively stable for several months as inflation has remained low. In an
environment of low interest rates, stocks become more attractive than most
fixed-income investments, while low inflation helps control companies' costs.
Internationally, the economic turmoil in Asia continues to be a concern to us,
while Russia is facing political gridlock and economic uncertainty and Latin
American economies are feeling substantial pressure. We believe the United
States has yet to see the full impact of this crisis. There have been brief
periods of improvement in a few countries but, for the most part, most of these
economies are still very weak and the situation could turn worse before getting
better. At the same time, the Asian turmoil has had the beneficial effect of
moderating U.S. growth and keeping inflation in check, which has helped
establish a favorable interest-rate environment.
Countering the situation in Asia has been the growing strength of European
economies, although European equity markets have also seen some volatility this
summer. But as these countries move toward economic union, they are benefiting
from a convergence of interest rates to lower levels, a rapid expansion of
manufacturing and service businesses, and an increasingly strong consumer
sector. This has helped American exporters offset some of their Asian losses
while providing investment opportunities in developed and emerging European
markets.
Given the uncertainty arising from these conflicting developments, we believe
that it is prudent to remind investors of the need to take a long-term view and
to diversify their investments across a range of asset classes. This includes
portfolios that focus on bond and international investments as well as on the
U.S. stock market. At MFS, we also believe our decades-long commitment to
original, company-by-company research gives us an advantage by helping us find
companies that we think can keep growing or gain market share during periods of
turmoil. To help fulfill this commitment and to provide the broadest possible
coverage of industry sectors and individual companies, MFS continues to increase
its number of full-time research analysts, who thoroughly investigate each
company's earnings potential and position in its industry as well as the overall
prospects for that industry.
We also use active portfolio management on the fixed-income side, using our
extensive research and credit analysis to help reduce the potential for price
declines and enhance the opportunity for appreciation. Every year, both
fixed-income and equity managers meet with thousands of credit issuers and
companies. They also attend many presentations, closely follow sources of
industry research, and keep track of competitors.
As we have for 75 years, we will continue to apply this discipline of thorough,
bottom-up research to both the equity and fixed-income markets because we
believe it offers the best potential for providing favorable long-term
performance for our shareholders -- regardless of changes in the overall market
environment.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
September 14, 1998
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MANAGEMENT REVIEW AND OUTLOOK
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[Photo of Kenneth J. Enright]
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Kenneth J. Enright
For the 12 months ended August 31, 1998, Class A shares of the Fund provided a
total return of -18.04%, Class B shares -18.52%, and Class I shares -17.72%.
(Past performance is no guarantee of future results. See Performance Summary for
more information.) These returns, which include the reinvestment of
distributions but exclude the effects of any sales charges, compare to an 8.05%
return for the Standard & Poor's 500 Composite Index (the S&P 500), a popular,
unmanaged index of common stock total return performance, and to a -4.40% return
for the Lipper Capital Appreciation Fund Index (the Lipper Index), an unmanaged
net asset value-weighted measure of the largest qualifying mutual funds with
capital appreciation as their investment objective. We believe the Lipper Index
more closely reflects the Fund's objectives.
Q. WHAT WERE SOME OF THE MAJOR FACTORS THAT CONTRIBUTED TO PERFORMANCE IN THE
PAST YEAR?
A. In general, the broad market's performance has been driven by a narrow range
of the largest-capitalization stocks. As a result, the valuations of these
stocks relative to their earnings growth remains unattractive, in our
opinion. Investors should also bear in mind that the Fund is a nondiversified
mutual fund concentrated in a limited number of industry sectors. This means
that the Fund's performance will be amplified both positively and negatively
when compared to a fully diversified index such as the S&P 500. We've seen
this effect in the past year, as two of our sectors, energy and health care,
experienced severe corrections that have been deep and largely unprecedented
in recent history. The impact of economic turmoil in Asia and Russia and
uncertainty over the political situation in Washington have also contributed
to this volatility.
Q. WHAT ARE YOUR MAIN FOCUS SECTORS, AND WHY ARE THEY ATTRACTIVE?
A. The sector focus has remained the same over the past six months. We have
concentrated our holdings in technology, health care, financial services, and
leisure. The latter is a broad category that is devoted predominantly to
telecommunications and broadcasting. Another large sector is the energy
group. In technology, we're finding good stocks among companies that continue
to lead in their respective markets, specifically in software companies whose
products provide productivity enhancements and operating efficiencies to
businesses. Our financial services holdings are focused on insurance and
domestic retail banking stocks, which are benefiting from substantial
consolidation that can lead to stronger balance sheets and earnings growth.
These stocks are also relatively insulated from loan or business exposure to
emerging markets. Health care holdings include health maintenance
organizations (HMOs) and nursing homes. Currently, these stocks are facing
uncertainty as Washington debates a shift in the way these businesses are
compensated through Medicare. We believe that once this issue is resolved the
strongest players will thrive while weaker companies will be weeded out, and
that the sector will become stronger as a whole. Our leisure holdings are
invested in wireless and data communication companies, which are exploiting
the Internet boom, and in growing broadcast companies. In energy, we're
focusing on oil services companies with strong managements, high market
shares in their respective arenas, good balance sheets, and management stock
repurchases. Though this sector has come under tremendous pressure as a
result of depressed oil prices, we believe the long-term outlook for these
stocks is excellent, as ongoing consolidation could better protect earnings
during a downturn and leverage operating efficiencies when oil prices
rebound.
Q. CAN YOU DISCUSS THE PERFORMANCE HIGHLIGHTS DURING THE PAST YEAR FOR A FEW
OF YOUR TOP HOLDINGS?
A. We've gotten strong performances from our large positions in retail drug
distributors such as CVS and Rite Aid and the grocery chain store Safeway.
These companies have been helped by favorable demographic trends that point
to an aging population and a rise in prescription drug volume. The largest-
capitalization technology stocks in the portfolio have done well also. Here
we've focused on industry leaders Microsoft, Cisco, and EMC. Over the course
of the year, other stocks that have performed well include Lincoln National,
Tyco International, American Home Products, and Sprint.
Q. WHAT STOCKS HAVEN'T PERFORMED UP TO PAR OR IN LINE WITH YOUR EXPECTATIONS
SO FAR?
A. As we've discussed, nonretail health care and oil services stocks came under
pressure this year, though we believe in the long-term outlooks for many
stocks in both areas. We are tightening our research focus to select
companies in these areas that have the best chances for sustainable earnings
now and in the future when the market stabilizes. The tone of the market, in
which companies that disappoint even slightly on earnings are severely
punished by Wall Street, has caused Oracle and Computer Associates to
underperform recently, yet we continue to believe in the long-term prospects
for each company. Semiconductor companies have been hit hard by weak demand
from Asia, so they have performed poorly, and we've eliminated most of our
holdings in that sector area.
Q. WHAT HAS BEEN THE IMPACT OF THE ASIAN AND RUSSIAN ECONOMIC CRISES ON
THE PORTFOLIO?
A. Lower demand for oil from the Asian economies has hurt the oil services
stocks, though we believe this is transitory in nature as these stocks should
rebound toward their historical trading range as oil prices move higher. As
previously mentioned, technology companies that do large amounts of business
in the region have also underperformed. The Fund has no direct exposure to
Russia, so troubles there have not had an impact. On the positive side, large
holdings in our retail drug stocks and many of our financial services
investments are relatively insulated from the regions in turmoil and have
been solid performers.
Q. HOW WILL A PERIOD OF SLOWING EARNINGS GROWTH AND A POSSIBLE BEAR MARKET
CHANGE THE WAY YOU MANAGE THE FUND OR CHANGE THE TYPES OF STOCKS IN WHICH
YOU INVEST?
A. While it is always difficult to predict the depth and breadth of a market
correction, it does seem safe to say that we will be in for more volatility
as the business cycle progresses. However, this won't change the essential
nature of the Fund and puts a sharper focus on our abilities as stock-
pickers and our intense research efforts. What you may see in the future is a
further concentration of holdings in stocks that we believe, based on our
research, can provide sustained earnings in a market downturn and that are
best positioned to grow at a healthy pace once the market has stabilized. As
a result, our analysis will be biased toward companies that deliver
relatively good earnings growth in comparison to the broad market, as opposed
to focusing on absolute growth rates.
Q. WHAT ARE SOME OF THE OTHER MAJOR CHANGES TO THE PORTFOLIO'S SECTORS OVER
THE PAST 12 MONTHS?
A. When energy sector stocks declined earlier this year, we added to our
positions in those companies. As a result the sector weighting has held
steady for the past six months. The financial services sector has grown to
about 12% of assets, as we've added quality, conservative bank stocks to the
portfolio such as PNC Bank and National City and insurers like ReliaStar and
Ace Limited. We've also reduced some of our leisure and gaming investments,
such as MGM Grand and Mirage Hotels. In communications and broadcasting, a
new holding is MediaOne, and we've increased our investment in Jacor
Communications. We've sold our positions in Teleport, Century Telephone, and
Telecommunications, Inc. Technology is down to 20% of assets from 28%, due
primarily to market volatility and the elimination of most of our
semiconductor holdings. We bought additional stock in Computer Associates and
Oracle when we saw a weakness in their share prices that we felt was
unwarranted by the companies' fundamental outlooks.
Q. WHAT'S YOUR INVESTMENT OUTLOOK FOR THE PORTFOLIO FOR THE BALANCE OF 1998
AND EARLY 1999?
A. We believe the market will continue to be volatile and that investors will
face some uncertainty as the international economic situation works toward
renewed stability. The impact of the political turmoil in this country may
still be further felt in the market. We are using this opportunity to
carefully scrutinize the portfolio through intensive research efforts, with
an eye toward refocusing on attractive stocks that can sustain relative
earnings growth in this market environment.
/s/ Kenneth J. Enright
Kenneth J. Enright
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
only through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
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PORTFOLIO MANAGER'S PROFILE
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KENNETH J. ENRIGHT IS A VICE PRESIDENT -- INVESTMENTS OF MFS INVESTMENT
MANAGEMENT(R) AND PORTFOLIO MANAGER OF MFS(R) MANAGED SECTORS FUND AND
THE MANAGED SECTORS SERIES, OFFERED THROUGH MFS/SUN LIFE ANNUITY
PRODUCTS.
MR. ENRIGHT JOINED MFS IN 1986 IN THE RESEARCH DEPARTMENT. HE WAS NAMED
ASSISTANT VICE PRESIDENT -- INVESTMENTS IN 1987 AND VICE PRESIDENT --
INVESTMENTS IN 1988. HE FOLLOWED THE BUSINESS SERVICES, COAL, NATURAL GAS,
OIL, RETAIL STORES, AND SUPERMARKETS STOCKS AS AN ANALYST PRIOR TO BEING
NAMED PORTFOLIO MANAGER OF THE MANAGED SECTORS FUND IN JULY 1993.
MR. ENRIGHT IS A GRADUATE OF BOSTON STATE COLLEGE AND RECEIVED AN M.B.A.
FROM BABSON COLLEGE. HE IS A MEMBER OF THE BOSTON SECURITY ANALYSTS
SOCIETY, INC., AND IS A CHARTERED FINANCIAL ANALYST.
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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. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS TO PROVIDE CAPITAL APPRECIATION. DIVIDEND INCOME,
IF ANY, IS INCIDENTAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: DECEMBER 29, 1986
CLASS INCEPTION: CLASS A SEPTEMBER 20, 1993
CLASS B DECEMBER 29, 1986
CLASS I JANUARY 2, 1997
SIZE: $326.8 MILLION NET ASSETS AS OF AUGUST 31, 1998
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PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include any applicable contingent deferred sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends.
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. (See Notes to Performance Summary for more information.) 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, 1998)
MFS Managed S&P 500 Lipper Capital Consumer
Sectors Fund Composite Appreciation Price Index
-- Class B Index Fund Index -- U.S.
- ------------------------------------------------------------
8/93 $ 9,802 $10,000 $10,000 $10,000
8/94 9,989 10,547 10,400 10,290
8/95 12,506 12,809 12,800 10,559
8/96 12,902 15,208 14,300 10,861
8/97 18,443 21,390 17,900 11,105
8/98 15,028 23,121 17,102 11,285
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended August 31, 1998)
MFS Managed S&P 500 Lipper Capital Consumer
Sectors Fund Composite Appreciation Price Index
-- Class B Index Fund Index -- U.S.
- ------------------------------------------------------------
8/88 $10,000 $10,000 $10,000 $10,000
8/90 12,454 13,230 12,400 11,059
8/92 17,913 18,120 16,500 11,840
8/94 21,726 22,018 21,300 12,521
8/96 28,061 31,748 29,200 13,216
8/98 32,685 48,268 34,906 13,731
AVERAGE ANNUAL TOTAL RETURNS THROUGH AUGUST 31, 1998
CLASS A
1 Year 3 Years 5 Years 10 Years/Life
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Average Annual Total Return -18.04% + 7.02% + 9.54% +12.89%
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SEC Results -22.76% + 4.93% + 8.25% +12.22%
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CLASS B
1 Year 3 Years 5 Years 10 Years/Life
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Average Annual Total Return -18.52% + 6.31% + 8.92% +12.57%
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SEC Results -21.15% + 5.68% + 8.72% +12.57%
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CLASS I
1 Year 3 Years 5 Years 10 Years/Life
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Average Annual Total Return -17.72% + 6.93% + 9.30% +12.77%
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COMPARATIVE INDICES
1 Year 3 Years 5 Years 10 Years/Life
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Lipper Capital Appreciation Fund
Index** -4.40% +10.21% +11.33% +13.32%
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Standard & Poor's 500 Composite
Index+ +8.05% +21.76% +18.25% +17.05%
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Consumer Price Index+# +1.61% + 2.24% + 2.45% + 3.22%
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** 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).
<PAGE>
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 5.75% sales charge. Class B
share ("B") SEC results reflect the applicable contingent deferred sales charge
(CDSC), which declines over six years from 4% to 0%. Class I shares have no
sales charge or Rule 12b-1 fees and are only available to certain institutional
investors.
A results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of B for periods prior to the inception of A. Because operating expenses
of B are greater than those of A, A performance generally would have been higher
than B performance. The B performance included within the A SEC performance has
been adjusted to reflect the maximum initial sales charge generally applicable
to A rather than the CDSC generally applicable to B.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of B for periods prior to the inception of I. Because operating expenses
of B are greater than those of I, I performance generally would have been higher
than B performance. The B performance included in the I performance has been
adjusted to reflect the fact that I have no CDSC.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and waivers
may be rescinded at any time. See the prospectus for details. 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.
The Fund may focus its investments in certain sectors, thereby increasing its
vulnerability to any single economic, political, or regulatory development.
PORTFOLIO CONCENTRATION AS OF AUGUST 31, 1998
FIVE LARGEST STOCK SECTORS
TECHNOLOGY 20.6%
HEALTH CARE 14.7%
FINANCIAL SERVICES 12.3%
UTILITIES AND COMMUNICATIONS 10.6%
CONGLOMERATES, SPECIAL PRODUCTS/SERVICES 10.4%
TOP 10 STOCK HOLDINGS
TYCO INTERNATIONAL LTD. 10.4% ASSOCIATES FIRST CAPITAL CORP. 3.0%
Security systems, packaging, and Consumer finance company
electronic equipment conglomerate
RITE AID CORP. 2.9%
UNITED HEALTHCARE CORP. 3.9% Drug store chain
Health maintenance organization
MICROSOFT CORP. 2.7%
ORACLE CORP. 3.8% Computer software and systems company
Database software developer and
manufacturer HARRAH'S ENTERTAINMENT, INC. 2.7%
Gaming operator in several states
TELEPHONE & DATA SYSTEMS, INC. 3.7%
Rural and local telephone company SAFEWAY, INC. 2.3%
Grocery store chain
COMPUTER ASSOCIATES INTERNATIONAL,
INC. 3.6%
Computer software company
Portfolio information is as of August 31, 1998. The portfolio is actively
managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS -- August 31, 1998
Stocks - 99.6%
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ISSUER SHARES VALUE
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Energy - 9.3%
BJ Services Co.* 485,800 $ 6,133,225
Cooper Cameron Corp.* 350,000 7,437,500
EVI Weatherford, Inc.* 413,400 6,304,350
Noble Drilling Corp.* 650,500 7,155,500
Schlumberger Ltd. 78,900 3,456,806
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$ 30,487,381
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Financial Institutions - 12.4%
Ace Ltd. (Bermuda) 148,600 $ 4,309,400
Associates First Capital Corp., "A" 165,000 9,755,625
Lincoln National Corp. 86,500 7,439,000
Morgan Stanley, Dean Witter & Co. 62,000 3,599,875
National City Corp. 100,000 5,875,000
PNC Bank Corp. 86,000 3,698,000
ReliaStar Financial Corp. 28,600 1,122,550
Transamerica Corp. 45,000 4,615,313
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$ 40,414,763
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Leisure - 16.1%
Aerial Communications, Inc.* 231,400 $ 795,438
Cellular Communications International, Inc.* 110,400 5,851,200
Cendant Corp.* 110,000 1,271,875
Harrah's Entertainment, Inc.* 602,100 8,692,819
Hilton Hotels Corp. 212,400 4,407,300
Jacor Communications, Inc.* 32,600 1,923,400
MediaOne Group, Inc.* 97,600 4,001,600
Mirage Resorts, Inc.* 84,400 1,255,450
Promus Hotel Corp.* 130,700 4,019,025
Qwest Communications International, Inc.* 90,000 2,250,000
Sprint Corp. 86,400 5,794,200
Telephone & Data Systems, Inc. 369,500 12,239,687
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$ 52,501,994
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Medical and Health Technology and Services - 23.6%
American Home Products Corp. 150,000 $ 7,518,750
Bristol-Myers Squibb Co. 33,500 3,278,813
Columbia/HCA Healthcare Corp. 185,000 4,174,062
CVS Corp. 160,000 5,820,000
Genesis Health Ventures, Inc.* 375,900 4,463,812
HealthSouth Corp.* 400,000 7,575,000
Meyer (Fred), Inc.* 152,130 5,980,611
Mid Atlantic Medical Services, Inc.* 300,000 1,668,750
Oxford Health Plans, Inc.* 250,700 1,535,538
Rite Aid Corp. 262,500 9,499,219
Safeway, Inc.* 194,000 7,638,750
United Healthcare Corp. 356,700 12,885,787
Wellpoint Health Networks, Inc., "A"* 95,000 5,070,625
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$ 77,109,717
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Technology - 22.1%
Analog Devices, Inc.* 375,000 $ 5,273,437
Aspect Telecommunications Corp.* 195,000 4,643,438
BMC Software, Inc.* 140,000 5,923,750
Cisco Systems, Inc.* 77,000 6,304,375
Compaq Computer Corp. 173,000 4,833,188
Computer Associates International, Inc. 431,400 11,647,800
EMC Corp.* 108,000 4,880,250
Global TeleSystems Group, Inc.* 150,000 4,800,000
Microsoft Corp.* 93,400 8,960,562
Oracle Corp.* 625,000 12,460,937
Teradyne, Inc.* 150,000 2,606,250
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$ 72,333,987
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Other - 16.1%
Gulfstream Aerospace Corp.* 118,300 $ 4,155,287
Intermedia Communications, Inc.* 126,000 3,134,250
Jefferson Smurfit Corp.* 195,100 2,194,875
Stone Container Corp.* 355,000 3,705,313
Tyco International Ltd. 612,000 33,966,000
Union Pacific Corp. 70,000 2,786,875
Wisconsin Central Transportation Corp.* 211,300 2,654,456
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$ 52,597,056
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Total Stocks (Identified Cost, $371,318,740) $325,444,898
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Convertible Preferred Stock - 0.7%
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Other
Union Pacific Capital Trust##
(Identified Cost, $2,820,000) 56,400 $ 2,467,500
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Short-Term Obligations - 0.3%
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General Electric Capital Corp., due 9/01/98,
at Amortized Cost 900 $ 900,000
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Total Investments (Identified Cost, $375,038,740) $328,812,398
Other Assets, Less Liabilities - (0.6)% (2,025,883)
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Net Assets - 100.0% $326,786,515
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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, 1998
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Assets:
Investments, at value (identified cost, $375,038,740) $328,812,398
Cash 1,839
Receivable for Fund shares sold 106,720
Receivable for investments sold 3,082,955
Dividends receivable 79,564
Other assets 2,856
------------
Total assets $332,086,332
------------
Liabilities:
Payable for Fund shares reacquired $ 946,470
Payable for investments purchased 3,930,823
Payable to affiliates -
Management fee 21,961
Shareholder servicing agent fee 3,294
Distribution and service fee 197,660
Administrative fee 439
Accrued expenses and other liabilities 193,363
Accrued interest expense 5,807
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Total liabilities $ 5,299,817
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Net assets $326,786,515
============
Net assets consist of:
Paid-in capital $324,660,531
Unrealized depreciation on investments (46,226,342)
Accumulated undistributed net realized gain on
investments and foreign currency transactions 48,412,515
Accumulated net investment loss (60,189)
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Total $326,786,515
============
Shares of beneficial interest outstanding 29,529,072
==========
Class A shares:
Net asset value per share
(net assets of $227,348,443/20,553,008 shares of
beneficial interest outstanding) $11.06
======
Offering price per share (100/94.25) $11.74
======
Class B shares:
Net asset value and offering price per share
(net assets of $97,682,169/8,817,817 shares of
beneficial interest outstanding) $11.08
======
Class I shares:
Net asset value, offering price, and redemption price
per share (net assets of $1,755,903/158,247 shares
of beneficial interest outstanding) $11.10
======
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, 1998
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 1,976,678
Interest 553,619
Foreign taxes withheld (5,083)
-------------
Total investment income $ 2,525,214
-------------
Expenses -
Management fee $ 3,384,634
Trustees' compensation 46,039
Shareholder servicing agent fee 533,909
Distribution and service fee (Class A) 1,038,207
Distribution and service fee (Class B) 1,522,288
Administrative fee 63,971
Custodian fee 166,398
Interest expense 11,923
Printing 66,225
Postage 72,325
Auditing fees 33,245
Legal fees 2,340
Miscellaneous 242,713
-------------
Total expenses $ 7,184,217
Fees paid indirectly (140,610)
-------------
Net expenses $ 7,043,607
-------------
Net investment loss $ (4,518,393)
-------------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $ 69,925,578
Written option transactions 3,835,506
Foreign currency transactions 6,574
-------------
Net realized gain on investments and foreign
currency transactions $ 73,767,658
-------------
Change in unrealized appreciation (depreciation) -
Investments $(139,829,984)
Written options 567,441
-------------
Net unrealized loss on investments and foreign
currency translations $(139,262,543)
-------------
Net realized and unrealized loss on investments
and foreign currency transactions $ (65,494,885)
-------------
Decrease in net assets from operations $ (70,013,278)
=============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- ---------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (4,518,393) $ (4,471,998)
Net realized gain on investments and foreign currency
transactions 73,767,658 69,844,274
Net unrealized gain (loss) on investments and foreign
currency translation (139,262,543) 72,570,022
------------- ------------
Increase (decrease) in net assets from operations $ (70,013,278) $137,942,298
------------- ------------
Distributions declared to shareholders -
From net realized gain on investments and foreign
currency transactions (Class A) $ (52,766,286) $(26,355,849)
From net realized gain on investments and foreign
currency transactions (Class B) (28,280,294) (15,051,923)
From net realized gain on investments and foreign
currency transactions (Class I) (445,020) --
------------- ------------
Total distributions declared to shareholders $ (81,491,600) $(41,407,772)
------------- ------------
Net increase in net assets from Fund share transactions $ 30,663,172 $ 13,731,145
------------- ------------
Total increase (decrease) in net assets $(120,841,706) $110,265,671
Net assets:
At beginning of period 447,628,221 337,362,550
------------- ------------
At end of period (including accumulated net investment
loss of $60,189 and $50,801, respectively) $ 326,786,515 $447,628,221
============= ============
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,
1998 1997 1996 1995 1994 1993*
- ------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $16.81 $13.16 $15.55 $13.41 $15.50 $15.68
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.12) $(0.13) $(0.08) $(0.05) $(0.03) $(0.02)
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions (2.49) 5.46 0.58 3.22 0.77 (0.16)
------ ------ ------ ------ ------ ------
Total from investment
operations $(2.61) $ 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 $(3.14) $(1.68) $(2.89) $(1.03) $(2.83) $ --
------ ------ ------ ------ ------ ------
Net asset value - end of period $11.06 $16.81 $13.16 $15.55 $13.41 $15.50
====== ====== ====== ====== ====== ======
Total return(+) (18.04)% 43.92% 3.92% 26.12% 5.12%++ (5.99)%+
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.38% 1.43% 1.43% 1.46% 1.52%+ 1.59%+
Net investment loss (0.79)% (0.93)% (0.56)% (0.34)% (0.26)%+ (0.75)%+
Portfolio turnover 112% 96% 117% 115% 76% 106%
Net assets at end of period
(000 omitted) $227,348 $288,227 $207,504 $178,367 $121,498 $136,179
* For the period from the inception of Class A, 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.
</TABLE>
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,
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
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 $16.81 $13.14 $15.46 $13.35 $15.49 $15.42
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.22) $(0.23) $(0.18) $(0.14) $(0.10) $(0.25)
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions (2.48) 5.47 0.58 3.20 0.75 0.94
------ ------ ------ ------ ------ ------
Total from investment
operations $(2.70) $ 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 $(3.03) $(1.57) $(2.72) $(0.95) $(2.79) $(0.62)
------ ------ ------ ------ ------ ------
Net asset value - end of period $11.08 $16.81 $13.14 $15.46 $13.35 $15.49
====== ====== ====== ====== ====== ======
Total return (18.52)% 42.95% 3.17% 25.19% 4.47%++ 4.50%
Ratios (to average net assets)/
Supplemental data:
Expenses## 2.02% 2.11% 2.15% 2.18% 2.26%+ 2.21%
Net investment loss (1.43)% (1.60)% (1.27)% (1.06)% (1.01)%+ (1.55)%
Portfolio turnover 112% 96% 117% 115% 76% 106%
Net assets at end of period
(000 omitted) $97,682 $157,052 $129,858 $199,773 $214,055 $232,982
+ 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.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $13.00 $ 9.23 $11.32 $ 7.86 $ 6.94
------ ------ ------ ------ ------
Income from investment operations -
Net investment income (loss) $(0.24) $(0.12) $(0.03) $ 0.03 $ 0.09
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 2.66 3.89 (2.06) 3.51 0.89
------ ------ ------ ------ ------
Total from investment operations $ 2.42 $ 3.77 $(2.09) $ 3.54 $ 0.98
------ ------ ------ ------ ------
Less distributions declared to shareholders
from net realized gain on investments and
foreign currency transactions $ -- $ -- $ -- $(0.08) $(0.06)
------ ------ ------ ------ ------
Net asset value - end of period $15.42 $13.00 $ 9.23 $11.32 $ 7.86
====== ====== ====== ====== ======
Total return 18.62% 40.85% (18.46)% 45.35% 14.06%
Ratios (to average net assets)/Supplemental data:
Expenses 2.37% 2.44% 2.50% 2.52% 2.31%
Net investment income (loss) (1.85)% (1.00)% (0.27)% 0.37% 1.08%
Portfolio turnover 22% 59% 79% 84% 146%
Net assets at end of period (000 omitted) $249,493 $190,232 $152,132 $180,416 $137,311
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, 1998 AUGUST 31, 1997***
- --------------------------------------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $16.86 $13.18
------ ------
Income from investment operations# -
Net investment loss $(0.07) $(0.07)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (2.50) 3.75
------ ------
Total from investment operations $(2.57) $ 3.68
------ ------
Less distributions declared to shareholders from net realized
gain on investments and foreign currency tranactions
$(3.19) $ --
------ ------
Net asset value - end of period $11.10 $16.86
====== ======
Total return (17.72)% 27.92%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.02% 1.07%+
Net investment loss (0.44)% (0.65)%+
Portfolio turnover 112% 96%
Net assets at end of period (000 omitted) $1,756 $2,349
*** For the period from the inception of Class I, January 2, 1997, through August 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(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) 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 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 options 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 option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options may
also be used as part of an income producing strategy reflecting the view of the
Fund's management on the direction of interest rates.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
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 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.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an arrangement
that 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.
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 net realized gains. During
the year ended August 31, 1998, $4,509,005, and $1,460,615 were reclassified
from accumulated undistributed net realized gain on investments and foreign
currency transactions to accumulated net investment loss, and paid-in-capital,
respectively, due to differences between book and tax accounting for currency
transactions, capital gain distributions and the offset of net investment loss
against short-term capital 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 multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund 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. Class B shares will convert to Class A
shares approximately eight years after purchase.
(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.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain officers and Trustees of the
Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD), and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
for all of its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $13,816 for the year ended
August 31, 1998.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee at
the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$30,155 for the year ended August 31, 1998, 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 paid 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 which are
attributable to that securities dealer and 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. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $85,444 for the year ended August 31, 1998.
Fees incurred under the distribution plan during the year ended August 31, 1998,
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 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 $34,122 for Class B shares, for the year
ended August 31, 1998. Fees incurred under the distribution plan during the year
ended August 31, 1998, were 1.00% of average daily net assets attributable to
Class B shares on an annualized basis.
Certain Class A shares are subject to a contingent deferred sales charge in the
event of a shareholder redemption within 12 months following 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, 1998, were $311 and $104,962
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 at an effective annual rate of
0.1125%. Prior to January 1, 1998, the fee was calculated as a percentage of the
average daily net assets at an effective annual rate of up to 0.13%.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
PURCHASES SALES
- -------------------------------------------------------------------------------
U.S. government securities $ 2,695,236 $ 2,996,459
------------ ------------
Investments (non-U.S. government securities) $485,909,154 $522,221,644
------------ ------------
The cost and unrealized appreciation of depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $376,225,586
------------
Gross unrealized depreciation $(90,493,661)
Gross unrealized appreciation 43,080,473
------------
Net unrealized depreciation $(47,413,188)
============
(5) SHARES OF BENEFICIAL INTEREST
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED AUGUST 31, 1998 YEAR ENDED AUGUST 31, 1997
---------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 11,341,138 $ 169,332,850 5,344,407 $ 80,513,731
Shares issued to shareholders in
reinvestment of distributions 3,802,878 48,562,904 1,814,003 24,108,369
Shares transferred to Class I -- -- (167,732) (2,210,708)
Shares reacquired (11,739,350) (176,573,117) (5,609,695) (83,104,253)
----------- ------------- ---------- ------------
Net increase 3,404,666 $ 41,322,637 1,380,983 $ 19,307,139
=========== ============= ========== ============
<CAPTION>
Class B Shares
YEAR ENDED AUGUST 31, 1998 YEAR ENDED AUGUST 31, 1997
---------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,576,959 $ 40,213,735 3,284,660 $ 47,554,552
Shares issued to shareholders in
reinvestment of distributions 2,100,408 26,970,429 1,075,701 14,360,963
Shares reacquired (5,200,681) (78,070,802) (4,899,090) (69,295,923)
----------- ------------- ---------- ------------
Net decrease (523,314) $ (10,886,638) (538,729) $ (7,380,408)
=========== ============= ========== ============
<CAPTION>
Class I Shares
YEAR ENDED AUGUST 31, 1998 PERIOD ENDED AUGUST 31, 1997*
---------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 8,446 $ 129,553 23,376 $ 310,582
Shares transferred from Class A -- -- 167,732 2,210,708
Shares issued to shareholders in
reinvestment of distributions 34,822 445,020 -- --
Shares reacquired (24,343) (347,400) (51,786) (716,876)
----------- ------------- ---------- ------------
Net increase 18,925 $ 227,173 139,322 $ 1,804,414
=========== ============= ========== ============
*For the period from the inception of Class I, January 2, 1997, through August 31, 1997.
</TABLE>
(6) LINE OF CREDIT
The Fund and other affiliated funds participate in a $805 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, 1998, was $3,183.
(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 29,313 $5,098,759
Options written -- --
Options terminated in closing transactions 5,728 1,553,998
Options exercised 3,700 348,666
Options expired 19,885 3,196,095
------ ----------
Outstanding, end of period -- $ --
====== ==========
<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, 1998, the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended August 31, 1998 and 1997, and the financial highlights for each
of the years in the four-year period ended August 31, 1998, the nine months
ended August 31, 1994, and each of the years in the six-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, 1998 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, 1998, 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 9, 1998
<PAGE>
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- -------------------------------------------------------------------------------
IN JANUARY 1999, SHAREHOLDERS WILL BE MAILED A FORM 1099 REPORTING THE FEDERAL
TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR 1998.
THE FUND HAS DESIGNATED $57,241,625 AS A CAPITAL GAIN DIVIDEND.
FOR THE YEAR ENDED AUGUST 31, 1998, THE AMOUNT OF DISTRIBUTIONS FROM INCOME
ELIGIBLE FOR THE 70% DIVIDENDS RECEIVED DEDUCTION FOR CORPORATIONS CAME TO
10.29%.
- --------------------------------------------------------------------------------
<PAGE>
MFS(R) MANAGED SECTORS FUND
TRUSTEES SECRETARY
Richard B. Bailey* - Private Stephen E. Cavan*
Investor; Former Chairman and
Director (until 1991), MFS Investment ASSISTANT SECRETARY
Management James R. Bordewick, Jr.*
Marshall N. Cohan - Private Investor CUSTODIAN
State Street Bank and Trust Company
Lawrence H. Cohn, M.D. - Chief of
Cardiac Surgery, Brigham and Women's AUDITORS
Hospital; Professor of Surgery, Deloitte & Touche LLP
Harvard Medical School
INVESTOR INFORMATION
The Hon. Sir J. David Gibbons, KBE - For MFS stock and bond market
Chief Executive Officer, Edmund outlooks, call toll free:
Gibbons Ltd.; Chairman, Colonial 1-800-637-4458 anytime from a
Insurance Company, Ltd. touch-tone telephone.
For information on MFS mutual funds,
Abby M. O'Neill - Private Investor call your financial adviser or, for
an information kit, call toll free:
Walter E. Robb, III - President and 1-800-637-2929 any business day from
Treasurer, Benchmark Advisors, Inc. 9 a.m. to 5 p.m. Eastern time (or
(corporate financial consultants); leave a message anytime).
President, Benchmark Consulting
Group, Inc. (office services) INVESTOR SERVICE
MFS Service Center, Inc.
Arnold D. Scott* - Senior Executive P.O. Box 2281
Vice President, Director, and Boston, MA 02107-9906
Secretary, MFS Investment Management
For general information, call toll
Jeffrey L. Shames* - Chairman, Chief free: 1-800-225-2606 any business day
Executive Officer, and Director, MFS from 8 a.m. to 8 p.m. Eastern time.
Investment Management
For service to speech- or
J. Dale Sherratt - President, Insight hearing-impaired, call toll free:
Resources, Inc. (acquisition planning 1-800-637-6576 any business day from
specialists) 9 a.m. to 5 p.m. Eastern time. (To
use this service, your phone must be
Ward Smith - Former Chairman equipped with a Telecommunications
(until 1994), NACCO Industries Device for the Deaf.)
(holding company)
For share prices, account balances,
INVESTMENT ADVISER and exchanges, call toll free:
Massachusetts Financial Services 1-800-MFS-TALK (1-800-637-8255)
Company anytime from a touch-tone telephone.
500 Boylston Street
Boston, MA 02116-3741 WORLD WIDE WEB
www.mfs.com
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
Kenneth J.Enright*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
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INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) --------------
500 Boylston Street
Boston, MA 02116-3741
(c)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MMS-2 10/98 52M 08/208/808
