<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
MFS(R) UNION STANDARD(R)
EQUITY FUND
ANNUAL REPORT o SEPTEMBER 30, 1998
[Graphic Omitted]
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 15
Notes to Financial Statements ............................................. 22
Independent Auditors' Report .............................................. 27
Trustees and Officers ..................................................... 29
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HIGHLIGHTS
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o FOR THE 12 MONTHS ENDED SEPTEMBER 30, 1998, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 13.31%, CLASS B SHARES
12.65%, CLASS C SHARES 12.70%, AND CLASS I SHARES 13.74%. (SEE PERFORMANCE
SUMMARY FOR MORE INFORMATION. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.)
o PERFORMANCE BENEFITED FROM THE PORTFOLIO'S DEFENSIVE POSITIONING, BASED ON
OUR EXPECTATIONS OF SLOWER ECONOMIC GROWTH.
o THIS DEFENSIVE POSITIONING INCLUDED UNDERWEIGHTING BASIC MATERIALS,
INDUSTRIAL GOODS, AND AUTOMOBILE COMPANIES AND OVERWEIGHTING THE CONSUMER
STAPLES, HEALTH CARE, AND UTILITIES AND COMMUNICATIONS SECTORS.
o WE LOOK FOR COMPANIES THAT WE THINK CAN GENERATE DOUBLE-DIGIT EARNINGS
GROWTH IN A DIFFICULT ECONOMIC ENVIRONMENT. THE MARKET'S RECENT VOLATILITY
HAS GIVEN US AN OPPORTUNITY TO BUY THESE COMPANIES AT ATTRACTIVE
VALUATIONS.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
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 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 the recent market correction was overdue but was also 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. Although the U.S. stock market has responded
positively to reductions in interest rates by the Federal Reserve Board, the
market's retreat helped correct some -- but not all -- of the overvaluations
that had been building 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. If this year'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 begun to decline 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 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 and countries such as Japan and Brazil have
taken positive steps toward economic reform but, for the most part, most of
these economies are still very weak. 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 year. 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)
October 14, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Mitchell D. Dynan]
Mitchell D. Dynan
For the 12 months ended September 30, 1998, Class A shares of the Fund
provided a total return of 13.31%, Class B shares 12.65%, Class C shares
12.70%, and Class I shares 13.74%. These returns include the reinvestment of
distributions but exclude the effects of any sales charges and compare to a
9.05% return for the S&P 500. Prior to October 8, 1998, MFS retained American
Capital Strategies Ltd. (ACS) to identify companies in which the Fund might
invest based on certain labor-sensitive criteria and to maintain the Labor
Sensitivity Index (LSI), a common stock index owned by ACS comprised of these
companies. This relationship terminated on October 8, and the Fund has
discontinued use of the LSI as a benchmark. MFS has retained Teresa
Ghilarducci, Director of the Higgins Labor Research Center of the University
of Notre Dame Department of Economics, and Patrick Mason, a professor of
economics at the University of Notre Dame, to screen companies for the Fund
based on certain labor-sensitive criteria. Professors Ghilarducci and Mason
will provide a list of screened companies to be considered for investment by
MFS for the Fund and will update this list from time to time.
Q. IN SPITE OF THE MARKET TURMOIL, THE FUND HAS PERFORMED FAIRLY WELL. HOW HAVE
YOU ACHIEVED THIS?
A. It's mainly the result of our being defensively positioned all year. We
made that move based on our expectations of slower economic growth. Now,
the market is reflecting that slowdown. When the market corrected in July
and August, the Fund picked up a lot of performance compared to the S&P
500. For the quarter ended September 30, the Fund was down only 5.6%,
compared to a 9.9% decline for the S&P 500.
Q. WHAT STEPS DID YOU TAKE TO BECOME MORE DEFENSIVE?
A. We started by underweighting basic materials, industrial goods, and
automobile companies and overweighting the consumer staples, health care,
and utilities and communications sectors. Also, relative to the S&P 500,
the Fund was underweighted in financial services. It was overweighted
in retail, with all the holdings in supermarkets and drug stores, and those
stocks have performed relatively well.
Q. CAN YOU GIVE US SOME EXAMPLES?
A. We have added to positions in selected consumer staples and food companies
such as Hershey's, Interstate Baking, and Philip Morris. We have also added
to the Fund's telephone holdings, including Alltel, and increased our
positions in some of the regional Bell operating companies, such as Bell
Atlantic. In basic materials, we sold B.F. Goodrich and Air Products and
Chemicals. We added to positions in some aerospace and defense companies
such as General Dynamics and Raytheon. These are inexpensive stocks, and we
think they should be able to meet earnings expectations of double-digit
growth.
Q. WHAT DO YOU LOOK FOR IN A COMPANY YOU'RE CONSIDERING FOR THE FUND?
A. We try to buy high-quality companies that are well positioned in good
businesses. We're particularly interested in companies that can generate
double-digit earnings growth in the anticipated difficult economic
environment. There are still plenty of those companies available, and
the volatility of the market gives us an opportunity to buy them at
attractive valuations.
Q. AFTER CONSUMER STAPLES, THE NEXT LARGEST SECTOR IS UTILITIES AND
COMMUNICATIONS. WHAT COMPANIES DO YOU LIKE HERE?
A. Apart from the telephone companies, utility holdings include CMS, Pinnacle
West, Unicom, FPL, and NIPSCO. The electrics make up about 6% of assets,
while the telephone holdings make up about 9 1/2%.
Q. ANOTHER LARGE SECTOR IS HEALTH CARE.
A. There are only five large pharmaceutical companies that fit the Fund's
labor-friendly criteria, and we own them all. They are American Home
Products, Bristol-Myers Squibb, Merck, Schering Plough, and Johnson &
Johnson. We think they all should be able to generate double-digit earnings
growth for the balance of 1998 and throughout 1999. They're all in good
financial shape, and most of them have decent product portfolios in the
pipeline.
Q. LATE LAST YEAR, THE FUND'S CRITERIA WERE EXPANDED TO INCLUDE FINANCIAL
SERVICES AND TECHNOLOGY. HOW HAS THIS AFFECTED PERFORMANCE?
A. The impact of this move, which was intended to give us more investment
flexibility, has been mixed. In technology, Microsoft and BMC did very well
during the past year, whereas Computer Associates did not. We didn't use
our flexibility to go into technology very aggressively because we wanted
to maintain the conservative nature of the Fund. In financial services, we
bought a number of banks and insurance companies, and the results were
mixed there also. A number of these companies did not outperform the S&P
500, while others, like Hartford Financial, Lincoln Financial, and Federal
Home Loan Mortgage Corp., did reasonably well.
Q. LOOKING AHEAD, WHAT KIND OF MARKET OR ECONOMIC ENVIRONMENT DO YOU ANTICIPATE,
AND HOW IS THIS OUTLOOK REFLECTED IN THE FUND'S PORTFOLIO?
A. We think it's becoming more evident that the global economy is slowing. We
expect this trend to continue in 1999. It looks like our initial
assumptions are panning out. We think the stock market will continue to be
very volatile because of all the uncertainty out there and, given this, we
believe the defensive positioning of the Fund is appropriate.
/s/ Mitchell D. Dynan
Mitchell D. Dynan
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.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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MITCHELL D. DYNAN IS A VICE PRESIDENT -- INVESTMENTS OF MFS INVESTMENT
MANAGEMENT(R) AND PORTFOLIO MANAGER OF MFS(R) UNION STANDARD(R) EQUITY FUND. HE
ALSO IS A MEMBER OF THE PORTFOLIO MANAGEMENT TEAM OF MASSACHUSETTS INVESTORS
TRUST, AMERICA'S OLDEST MUTUAL FUND, AS WELL AS MFS(R) MERIDIAN(SM) U.S. EQUITY
FUND, MFS(R) AMERICAN(SM) U.S. EQUITY FUND AND THE CONSERVATIVE GROWTH SERIES
OFFERED THROUGH MFS/SUN LIFE ANNUITY PRODUCTS.
HE JOINED MFS IN 1986 AS A MEMBER OF THE RESEARCH DEPARTMENT AND WAS NAMED AN
ASSISTANT VICE PRESIDENT -- INVESTMENTS IN 1987, A VICE PRESIDENT -- INVESTMENTS
IN 1988, AND A PORTFOLIO MANAGER OF MASSACHUSETTS INVESTORS TRUST IN 1995.
FROM 1983 TO 1986 MR. DYNAN WORKED AS A SECURITIES ANALYST ON WALL STREET. HE
STARTED HIS CAREER AS A BANK LENDING OFFICER IN 1979. A GRADUATE OF TUFTS
UNIVERSITY, HE IS A MEMBER OF THE BOSTON SOCIETY OF SECURITY ANALYSTS FEDERATION
AND IS A CHARTERED FINANCIAL ANALYST.
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 LONG-TERM GROWTH OF CAPITAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JANUARY 14, 1994
CLASS INCEPTION: CLASS A AUGUST 7, 1997
CLASS B AUGUST 11, 1997
CLASS C AUGUST 11, 1997
CLASS I JANUARY 14, 1994
SIZE: $90.8 MILLION NET ASSETS AS OF SEPTEMBER 30, 1998
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the
Fund's original share class in comparison to various market indicators.
Performance results 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 less than the line shown, based on differences in sales charges and
Rule 12b-1 fees paid by shareholders investing in different classes. (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 period from February 1, 1994, through September 30, 1998)
MFS Union S&P 500 Consumer
Standard Equity Composite Price Index
Fund - Class I Index - U.S.
------------------------------------------------------------
2/94 $10,000 $10,000 $10,000
9/95 11,973 12,716 10,479
9/96 14,483 15,301 10,793
9/97 19,192 21,490 11,026
9/98 21,829 23,434 11,190
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS THROUGH SEPTEMBER 30, 1998
CLASS A
1 Year 3 Years 10 Years/Life*
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Average Annual Total Return +13.31% +21.93% +17.89%
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SEC Results + 6.79% +19.55% +16.41%
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CLASS B
1 Year 3 Years 10 Years/Life*
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Average Annual Total Return +12.65% +21.77% +17.79%
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SEC Results + 8.65% +21.09% +17.56%
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CLASS C
1 Year 3 Years 10 Years/Life*
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Average Annual Total Return +12.70% +21.79% +17.80%
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SEC Results +11.70% +21.79% +17.80%
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CLASS I
1 Year 3 Years 10 Years/Life*
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Average Annual Total Return +13.74% +22.16% +18.03%
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COMPARATIVE INDICES**
1 Year 3 Years 10 Years/Life
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Standard & Poor's 500 Composite Index+ + 9.05% +22.60% +20.04%
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Consumer Price Index+# + 1.49% + 2.21% + 2.44%
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* For the period from the commencement of the Fund's investment operations,
January 14, 1994, through September 30, 1998.
** Because the contract between MFS and American Capital Strategies, Ltd., (ACS)
is no longer in effect, the Fund has discontinued use of the ACS Labor
Sensitivity Index as a benchmark.
+ Source: CDA/Wiesenberger. "Life" refers to the period from February 1, 1994,
through September 30, 1998.
# The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
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 C shares
("C") have no initial sales charge but, along with B, have higher annual fees
and expenses than A. C SEC results reflect the 1% CDSC applicable to shares
redeemed within 12 months. Class I shares ("I"), have no sales charge or Rule
12b-1 fees and are only available to certain institutional investors.
A, B, and C results include the performance and the operating expenses of I
for periods prior to the inception of A, B, and C. Because operating expenses
of I are lower than those of A, B, and C, A, B, and C performance generally
would have been lower than I performance. The I performance included within
the A SEC performance has been adjusted to reflect the maximum initial sales
charge generally applicable to A. The I performance included within the B and
C SEC performance has been adjusted to reflect the CDSC generally applicable
to B and C.
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.
<PAGE>
PORTFOLIO CONCENTRATION AS OF SEPTEMBER 30, 1998
FIVE LARGEST STOCK SECTORS
Consumer Staples 19.7%
Utilities & Communications 16.8%
Health Care 12.7%
Financial Services 11.2%
Industrial Goods & Services 10.0%
TOP 10 STOCK HOLDINGS
PHILIP MORRIS COS., INC. 4.3% JOHNSON & JOHNSON CO. 2.9%
Tobacco, food, and beverage conglomerate Health care and pharmaceutical
products company
EXXON CORP. 4.2% BRISTOL-MYERS SQUIBB CO. 2.8%
International oil and gas company Pharmaceutical products company
GENERAL ELECTRIC CO. 3.7% TYCO INTERNATIONAL LTD. 2.7%
Diversified manufacturing and financial Security systems, packaging, and
services conglomerate electronic equipment conglomerate
MERCK & CO., INC. 3.5% KROGER CO. 2.7%
Pharmaceutical products company Supermarket company
SAFEWAY, INC. 2.9% BELLSOUTH CORP. 2.6%
Grocery store chain Regional telecommunications
company
Portfolio information is as of September 30, 1998. The portfolio is actively
managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS -- September 30, 1998
Stocks - 97.1%
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ISSUER SHARES VALUE
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Aerospace - 4.0%
General Dynamics Corp. 32,780 $ 1,645,146
Lockheed-Martin Corp. 9,600 967,800
Raytheon Co., "A" 20,000 1,036,250
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$ 3,649,196
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Banks and Credit Companies - 2.3%
National City Corp. 13,300 $ 876,969
US Bancorp 16,900 601,006
Washington Mutual, Inc. 17,850 602,438
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$ 2,080,413
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Business Services - 1.3%
DST Systems, Inc.* 22,100 $ 1,165,775
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Chemicals - 1.2%
Air Products & Chemicals, Inc. 12,640 $ 376,040
E. I. du Pont de Nemours & Co. 13,400 752,075
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$ 1,128,115
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Computer Software - Personal Computers - 1.4%
Microsoft Corp.* 11,800 $ 1,298,738
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Computer Software - Systems - 1.8%
BMC Software, Inc.* 15,800 $ 948,988
Computer Associates International, Inc. 17,300 640,100
------------
$ 1,589,088
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Construction Services - 2.1%
Martin Marietta Materials, Inc. 44,479 $ 1,920,937
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Consumer Goods and Services - 12.5%
Clorox Co. 11,870 $ 979,275
Colgate-Palmolive Co. 14,530 995,305
Dial Corp. 77,100 1,590,187
Kimberly-Clark Corp. 16,240 657,720
Philip Morris Cos., Inc. 82,250 3,788,641
Revlon, Inc., "A"* 30,200 960,738
Tyco International Ltd. 43,120 2,382,380
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$ 11,354,246
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Electrical Equipment - 3.6%
General Electric Co. 40,740 $ 3,241,376
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Entertainment - 0.7%
CBS Corp. 13,200 $ 320,100
Disney (Walt) Co. 12,300 311,344
------------
$ 631,444
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Financial Institutions - 2.1%
Associates First Capital Corp., "A" 14,200 $ 926,550
Federal Home Loan Mortgage Corp. 20,700 1,023,356
------------
$ 1,949,906
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Food and Beverage Products - 9.3%
Bestfoods Co. 17,000 $ 823,437
Campbell Soup Co. 14,720 738,760
Coca-Cola Co. 15,550 896,069
Heinz (H.J.) Co. 15,740 804,708
Hershey Foods Corp. 23,580 1,613,756
Interstate Bakeries Corp. 61,900 1,918,900
PepsiCo., Inc. 22,620 665,876
Ralston-Ralston Purina Co. 32,940 963,495
------------
$ 8,425,001
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Insurance - 6.4%
Allstate Corp. 28,800 $ 1,200,600
Chubb Corp. 11,700 737,100
Hartford Financial Services Group, Inc. 22,600 1,072,087
Lincoln National Corp. 12,400 1,019,900
MBIA, Inc. 16,400 880,475
Torchmark Corp. 25,000 898,438
------------
$ 5,808,600
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Medical and Health Products - 12.4%
American Home Products Corp. 37,320 $ 1,954,635
Bristol-Myers Squibb Co. 23,690 2,460,799
Johnson & Johnson Co. 32,160 2,516,520
Merck & Co., Inc. 23,820 3,086,178
Schering Plough Corp. 11,600 1,201,325
------------
$ 11,219,457
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Oils - 9.4%
Chevron Corp. 19,860 $ 1,669,481
Exxon Corp. 52,880 3,711,515
Mobil Corp. 25,060 1,902,994
Texaco, Inc. 19,740 1,237,451
------------
$ 8,521,441
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Printing and Publishing - 0.9%
Gannett Co., Inc. 14,700 $ 787,369
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Railroads - 1.0%
Burlington Northern Santa Fe Railway Co. 27,270 $ 872,640
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Restaurants and Lodging - 0.3%
Cendant Corp.* 22,066 $ 256,517
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Stores - 2.8%
CVS Corp. 26,800 $ 1,174,175
Rite Aid Corp. 38,080 1,351,840
------------
$ 2,526,015
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Supermarkets - 5.4%
Kroger Co.* 47,240 $ 2,362,000
Safeway, Inc.* 54,920 2,546,915
------------
$ 4,908,915
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Telecommunications - 2.3%
Alltel Corp. 22,900 $ 1,084,887
Sprint Corp. 14,370 1,034,640
------------
$ 2,119,527
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Utilities - Electric - 6.0%
CMS Energy Corp. 26,350 $ 1,147,872
FPL Group, Inc. 14,770 1,029,284
Nipsco Industries, Inc. 31,500 1,035,563
Pinnacle West Capital Corp. 27,430 1,229,207
Unicom Corp. 27,600 1,031,550
------------
$ 5,473,476
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Utilities - Gas - 1.3%
Columbia Energy Group, Inc. 20,070 $ 1,176,604
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Utilities - Telephone - 6.6%
Bell Atlantic Corp. 35,100 $ 1,700,156
BellSouth Corp. 29,900 2,249,975
SBC Communications, Inc. 46,608 2,071,143
------------
$ 6,021,274
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Total Stocks (Identified Cost, $67,358,847) $ 88,126,070
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Short-Term Obligations - 0.7%
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PRINCIPAL AMOUNT
(000 OMITTED)
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Federal Home Loan Bank, due 10/01/98,
at Amortized Cost $665 $ 665,000
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Total Investments (Identified Cost, $68,023,847) $ 88,791,070
Other Assets, Less Liabilities - 2.2% 2,003,140
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Net Assets - 100.0% $ 90,794,210
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*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
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SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $68,023,847) $ 88,791,070
Cash 3,666
Receivable for investments sold 1,770,020
Receivable for Fund shares sold 122,552
Dividends receivable 138,117
Deferred organization expenses 1,619
Other assets 507
------------
Total assets $ 90,827,551
------------
Liabilities:
Payable for investments purchased $ 28,911
Payable for Fund shares reacquired 217
Payable to affiliates -
Management fee 1,651
Distribution and service fee 203
Accrued expenses and other liabilities 2,359
------------
Total liabilities $ 33,341
------------
Net assets $ 90,794,210
============
Net assets consist of:
Paid-in capital $ 62,904,506
Unrealized appreciation on investments 20,767,223
Accumulated undistributed net realized gain on investments 6,547,733
Accumulated undistributed net investment income 574,748
------------
Total $ 90,794,210
============
Shares of beneficial interest outstanding 5,359,823
=========
Class A shares:
Net asset value per share
(net assets of $10,914,911 / 647,621 shares of
beneficial interest outstanding) $16.85
======
Offering price per share (100 / 94.25) $17.88
======
Class B shares:
Net asset value and offering price per share
(net assets of $2,404,820 / 143,028 shares of beneficial
interest outstanding) $16.81
======
Class C shares:
Net asset value and offering price per share
(net assets of $1,066,755 / 63,499 shares of beneficial
interest outstanding) $16.80
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $76,407,724 / 4,505,675 of beneficial
interest outstanding) $16.96
======
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, Class
B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations
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YEAR ENDED SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $1,396,671
Interest 149,414
----------
Total investment income $1,546,085
----------
Expenses -
Management fee $ 556,406
Trustees' compensation 5,000
Shareholder servicing agent fee 101,292
Distribution and service fee (Class A) 22,819
Distribution and service fee (Class B) 16,835
Distribution and service fee (Class C) 6,177
Administrative fee 12,180
Custodian fee 30,179
Printing 33,419
Postage 972
Auditing fees 13,154
Legal fees 3,211
Amortization of organization expenses 4,949
Miscellaneous 68,336
----------
Total expenses $ 874,929
Reduction of expenses by investment adviser (93,181)
Fees paid indirectly (8,309)
----------
Net expenses $ 773,439
----------
Net investment income $ 772,646
----------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) on investment transactions $7,335,113
Change in unrealized appreciation on investments 1,856,998
----------
Net realized and unrealized gain on investments $9,192,111
----------
Increase in net assets from operations $9,964,757
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 772,646 $ 665,634
Net realized gain on investments 7,335,113 5,385,099
Net unealized gain on investments 1,856,998 10,238,878
----------- -----------
Increase in net assets from operations $ 9,964,757 $16,289,611
----------- -----------
Distributions declared to shareholders -
From net investment income (Class A) $ (29,580) $ --
From net investment income (Class B) (11,127) --
From net investment income (Class C) (4,445) --
From net investment income (Class I) (760,399) (679,585)
From net realized gain on investments (Class A) (225,065) --
From net realized gain on investments (Class B) (97,691) --
From net realized gain on investments (Class C) (35,466) --
From net realized gain on investments (Class I) (5,806,765) (5,134,200)
----------- -----------
Total distributions declared to shareholders $(6,970,538) $(5,813,785)
----------- -----------
Net increase in net assets from Fund share transactions $18,716,448 $ 9,289,953
----------- -----------
Total increase in net assets $21,710,667 $19,765,779
Net assets:
At beginning of period 69,083,543 49,317,764
----------- -----------
At end of period (including accumulated undistributed net
investment income of $574,748 and $496,238, respectively) $90,794,210 $69,083,543
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997*
- ------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.40 $16.13
------ ------
Income from investment operations# -
Net investment income(S) $ 0.10 $ 0.03
Net realized and unrealized gain on investments 1.92 0.24
------ ------
Total from investment operations $ 2.02 $ 0.27
------ ------
Less distributions declared to shareholders -
From net investment income $(0.18) $ --
From net realized gain on investments (1.39) --
------ ------
Total distributions declared to shareholders $(1.57) $ --
------ ------
Net asset value - end of period $16.85 $16.40
====== ======
Total return(+) 13.31% 1.67%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.20% 1.20%+
Net investment income 0.57% 0.86%+
Portfolio turnover 43% 49%
Net assets at end of period (000 omitted) $10,915 $536
* For the period from the inception of Class A, August 7, 1997, through September 30, 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.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge
had been included, the results would have been lower.
(S) Subject to reimbursement by the Fund, the investment adviser voluntarily agreed to maintain
expenses of the Fund, exclusive of management, distribution, and service fees, at not more
than 0.20% of the Fund's average daily net assets. To the extent actual expenses were
over/under this limitation, the net investment income per share and the ratios would have
been:
Net investment income $ 0.08 $ 0.03
Ratios (to average net assets):
Expenses## 1.32% 1.34%+
Net investment income 0.45% 0.72%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997**
- ---------------------------------------------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.43 $16.24
------ ------
Income from investment operations# -
Net investment loss(S) $(0.01) $(0.01)
Net realized and unrealized gain on investments 1.94 0.20
------ ------
Total from investment operations $ 1.93 $ 0.19
------ ------
Less distributions declared to shareholders -
From net investment income $(0.16) $ --
From net realized gain on investments (1.39) --
------ ------
Total distributions declared to shareholders $(1.55) $ --
------ ------
Net asset value - end of period $16.81 $16.43
====== ======
Total return 12.65% 1.17%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.85% 1.85%+
Net investment income (loss) (0.05)% (0.37)%+
Portfolio turnover 43% 49%
Net assets at end of period (000 omitted) $2,405 $17
** For the period from the inception of Class B, August 11, 1997, through September 30, 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.
(S) Subject to reimbursement by the Fund, the investment adviser voluntarily agreed to maintain
expenses of the Fund, exclusive of management, distribution, and service fees, at not more
than 0.20% of the Fund's average daily net assets. To the extent actual expenses were
over/under this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $(0.03) $(0.01)
Ratios (to average net assets):
Expenses## 1.97% 1.99%+
Net investment loss (0.17)% (0.52)%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997***
- ---------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.43 $16.24
------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.02) $ 0.01
Net realized and unrealized gain on investments 1.95 0.18
------ ------
Total from investment operations $ 1.93 $ 0.19
------ ------
Less distributions declared to shareholders -
From net investment income $(0.17) $ --
From net realized gain on investments (1.39) --
------ ------
Total distributions declared to shareholders $(1.56) $ --
------ ------
Net asset value - end of period $16.80 $16.43
====== ======
Total return 12.70% 1.17%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.85% 1.85%+
Net investment income (loss) (0.10)% 0.63%+
Portfolio turnover 43% 49%
Net assets at end of period (000 omitted) $1,067 $4
*** For the period from the inception of Class C, August 11, 1997, through September 30, 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.
(S) Subject to reimbursement by the Fund, the investment adviser voluntarily agreed to maintain
expenses of the Fund, exclusive of management, distribution, and service fees, at not more
than 0.20% of the Fund's average daily net assets. To the extent actual expenses were
over/under this limitation, the net investment income (loss) per share and the ratios would
have been:
Net investment income (loss) $(0.04) $ 0.01
Ratios (to average net assets):
Expenses## 1.97% 1.99%+
Net investment income (loss) (0.22)% 0.49%+
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, PERIOD ENDED
------------------------------------------------------- SEPTEMBER 30,
1998 1997 1996 1995 1994****
- ----------------------------------------------------------------------------------------------------------------------------
CLASS I
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.43 $13.85 $11.85 $ 9.64 $10.00
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.16 $ 0.17 $ 0.18 $ 0.17 $ 0.12
Net realized and unrealized gain (loss)
on investments 1.94 4.01 2.25 2.14 (0.48)
------ ------ ------ ------ ------
Total from investment operations $ 2.10 $ 4.18 $ 2.43 $ 2.31 $(0.36)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.18) $(0.19) $(0.15) $(0.10) $ --
From net realized gain on investments (1.39) (1.41) (0.28) -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.57) $(1.60) $(0.43) $(0.10) $ --
------ ------ ------ ------ ------
Net asset value - end of period $16.96 $16.43 $13.85 $11.85 $ 9.64
====== ====== ====== ====== ======
Total return 13.74% 32.51% 20.96% 24.21% (3.60)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 0.85% 0.97% 1.00% 1.00% 1.00%+
Net investment income 0.95% 1.12% 1.36% 1.58% 1.55%+
Portfolio turnover 43% 49% 81% 125% 48%
Net assets at end of period (000 omitted) $76,408 $68,527 $49,318 $35,842 $22,184
**** For the period from the commencement of the Fund's investment operations, January 14, 1994, through September 30, 1994.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
(S) Effective February 1, 1997, subject to reimbursement by the Fund, the investment adviser voluntarily agreed to maintain
expenses of the Fund, exclusive of management, distribution, and service fees, at not more than 0.20% of Fund's average
daily net assets. Prior to February 1, 1997, the investment adviser voluntarily agreed to maintain the expenses of the Fund
at not more than 1.00% of the Fund's average daily net assets. To the extent actual expenses were over/under this
limitation, the net investment income per share and the ratios would have been:
Net investment income $ 0.14 $ 0.15 $ 0.18 $ 0.16 $ 0.07
Ratios (to average net assets):
Expenses## 0.97% 1.11% 1.03% 1.12% 1.64%+
Net investment income 0.83% 0.98% 1.33% 1.49% 0.91%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Union Standard Equity Fund (the Fund) is a diversified series of MFS
Series Trust XI (formerly MFS Union Standard Trust) (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. 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.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of Fund
operations.
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 September 30, 1998, $111,415 and $2,541 were reclassified to
accumulated undistributed net investment income and paid-in-capital,
respectively, from accumulated net realized gain on investments due to
differences between book and tax accounting.
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 0.65%
of average daily net assets. The Fund has a temporary expense reimbursement
agreement whereby MFS has voluntarily agreed to pay all of the Fund's
expenses, exclusive of management, distribution, and service fees. The Fund in
turn will pay MFS an expense reimbursement fee not greater than 0.20% of
average daily net assets. To the extent that the expense reimbursement fee
exceeds the Fund's actual expenses, the excess will be applied to amounts paid
by MFS in prior years. At September 30, 1998, the aggregate unreimbursed
expenses owed to MFS by the Fund amounted to $265,782.
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%
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
renumeration 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).
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$8,185 for the year ended September 30, 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, Class B, and Class
C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
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 shares 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 $0 for the
year ended September 30, 1998. Fees incurred under the distribution plan
during the year ended September 30, 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 and
Class C shares. MFD will pay to securities dealers that enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class B
and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended
to be consideration for services rendered by the dealer with respect to Class
B and Class C shares. MFD retains the service fee for accounts not
attributable to a securities dealer, which amounted to $0 for both Class B and
Class C shares for the year ended September 30, 1998. Fees incurred under the
distribution plan during the year ended September 30, 1998, were 1.00% of
average daily net assets attributable to both Class B and Class C shares on an
annualized basis.
Certain Class A and Class C 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 September 30,
1998, were $7,443, $4, and $0 for Class A, Class B, and Class C shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Fund's average daily net assets at an effective annual
rate of 0.1125%. Prior to January 1, 1998, the fee was calculated as a
percentage of the average daily net assets at an effective annual rate of
0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities, and
short-term obligations, aggregated $47,746,949 and $35,640,699, 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 $68,062,780
-----------
Gross unrealized appreciation $23,227,856
Gross unrealized depreciation (2,499,566)
-----------
Net unrealized appreciation $20,728,290
===========
(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 SEPTEMBER 30, 1998 PERIOD ENDED SEPTEMBER 30, 1997*
----------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 698,352 $11,794,147 32,873 $ 527,833
Shares issued to shareholders in
reinvestment of distributions 1,936 29,578 -- --
Shares reacquired (85,357) (1,465,120) (183) (2,893)
-------- ----------- ------- -----------
Net increase 614,931 $10,358,605 32,690 $ 524,940
======== =========== ====== ==========
<CAPTION>
Class B Shares
YEAR ENDED SEPTEMBER 30, 1998 PERIOD ENDED SEPTEMBER 30, 1997**
----------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 165,663 $ 2,804,466 1,015 $ 16,553
Shares issued to shareholders in
reinvestment of distributions 1,082 16,549 -- --
Shares reacquired (24,732) (420,648) -- --
-------- ----------- ------- -----------
Net increase 142,013 $ 2,400,367 1,015 $ 16,553
======== =========== ====== ==========
* For the period from the inception of Class A, August 7, 1997, through September 30, 1997.
** For the period from the inception of Class B, August 11, 1997, through September 30, 1997.
<CAPTION>
Class C Shares
YEAR ENDED SEPTEMBER 30, 1998 PERIOD ENDED SEPTEMBER 30, 1997**
----------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 62,469 $ 1,057,574 234 $ 3,869
Shares issued to shareholders in
reinvestment of distributions 2,610 39,906 -- --
Shares reacquired (1,814) (30,327) -- --
-------- ----------- ------- -----------
Net increase 63,265 $ 1,067,153 234 $ 3,869
======== =========== ====== ==========
<CAPTION>
Class I Shares
YEAR ENDED SEPTEMBER 30, 1998 PERIOD ENDED SEPTEMBER 30, 1997
----------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 76,932 $ 1,256,551 271,272 $ 4,159,884
Shares issued to shareholders in
reinvestment of distributions 428,071 6,553,768 420,378 5,747,146
Shares reacquired (170,955) (2,919,996) (79,961) (1,132,439)
-------- ----------- ------- -----------
Net increase 334,048 $ 4,890,323 611,689 $ 8,774,591
======== =========== ====== ==========
** For the period from the inception of Class C, August 11, 1997, through September 30, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $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 September 30, 1998, was $672.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust XI (formerly MFS Union Standard Trust) and
Shareholders of MFS Union Standard Equity Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Union Standard Equity Fund (one
of the series constituting MFS Series Trust XI) as of September 30, 1998, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the years ended September 30, 1998 and 1997,
and the financial highlights for each of the years in the five-year period
ended September 30, 1998. 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 September 30, 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 Union Standard
Equity Fund at September 30, 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
November 6, 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 $5,464,790 AS A CAPITAL GAIN DIVIDEND.
FOR THE YEAR ENDED SEPTEMBER 30, 1998, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS RECEIVED DEDUCTION FOR
CORPORATIONS CAME TO 98.4%.
<PAGE>
<TABLE>
MFS(R) UNION STANDARD(R) EQUITY FUND
<S> <C>
TRUSTEES INVESTOR INFORMATION
Jeffrey L. Shames* For MFS stock and bond market outlooks,
Chairman, Chief Executive Officer, and call toll free: 1-800-637-4458 anytime from
Director, MFS Investment Management a touch-tone telephone.
Nelson J. Darling, Jr. For information on MFS mutual funds, call your
Professional Trustee financial adviser or, for an information kit, call
toll free: 1-800-637-2929 any business day from 9
William R. Gutow a.m. to 5 p.m. Eastern time (or leave a message
Private Investor; anytime).
Vice President, Capitol Entertainment
Management Company; Real Estate Consultant INVESTOR SERVICE
MFS Service Center, Inc.
INVESTMENT ADVISER P.O. Box 2281
Massachusetts Financial Services Company Boston, MA 02107-9906
500 Boylston Street
Boston, MA 02116-3741 For general information, call toll free:
1-800-225-2606 any business day from
DISTRIBUTOR 8 a.m. to 8 p.m. Eastern time.
MFS Fund Distributors, Inc.
500 Boylston Street For service to speech- or hearing-impaired, call
Boston, MA 02116-3741 toll free: 1-800-637-6576 any business day from 9
a.m. to 5 p.m. Eastern time. (To use this service,
PORTFOLIO MANAGER your phone must be equipped with a
Mitchell D. Dynan* Telecommunications Device for the Deaf.)
CHAIRMAN AND PRESIDENT For share prices, account balances, and exchanges,
Jeffrey L. Shames* call toll free: 1-800-MFS-TALK (1-800-637-8255)
anytime from a touch-tone telephone.
TREASURER
W. Thomas London* WORLD WIDE WEB
www.mfs.com
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
CUSTODIAN
State Street Bank and Trust Company
AUDITORS
Deloitte & Touche LLP
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
----------------
MFS(R) UNION STANDARD(R) EQUITY FUND Bulk Rate
U.S. Postage
[Logo]M F S(R) Paid
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