<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) CAPITAL
OPPORTUNITIES FUND
(FORMERLY MFS(R) VALUE FUND)
ANNUAL REPORT O NOVEMBER 30, 1998
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 23
Independent Auditors' Report .............................................. 30
MFS(R) Prepares for the Year 2000 ......................................... 32
Trustees and Officers ..................................................... 33
MFS CELEBRATES ITS DIAMOND ANNIVERSARY!
MARCH 21, 1999, MARKS THE 75TH ANNIVERSARY OF MFS' INVENTION OF
THE MUTUAL FUND. THE MUTUAL FUND INDUSTRY HAS BROUGHT THE POWER
OF INVESTING TO EVERY AMERICAN, OFFERING THEM THE OPPORTUNITY FOR
COLLEGE DEGREES, HOME OWNERSHIP, AND COMFORTABLE RETIREMENT.
IMAGINE TODAY'S WORLD WITHOUT MUTUAL
FUNDS. WE COULDN'T. AND WHILE THE MFS 75 YEARS
YEARS AHEAD WILL BRING A NUMBER OF [graphic omitted]
CHALLENGES, OUR 75 YEARS OF EXPERIENCE EXPERIENCE THE FUTURE(SM)
WILL HELP GUIDE A NEW GENERATION OF
INVESTORS INTO THE FUTURE.
- ------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- ------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual fund
- -- our Massachusetts Investors Trust (MIT) -- was introduced to the public on
March 21, 1924. Since then, MFS Investment Management(R), the company that grew
out of that original fund, has helped guide shareholders through many economic
and investment cycles, primarily by focusing on the long-term opportunities
created by an expanding global economy. As of November 30, 1998, MFS manages
over $90 billion, and the firm's 2,000 people serve 3.9 million investors and
their financial advisers worldwide. Meanwhile, MIT's assets have grown to over
$10 billion, and 56 mutual funds are offered in the MFS Family of Funds(R).
One of the elements in the success of MIT did not exist before our founders
invented it in 1924. That is daily redemption. This innovation means that if you
want to sell your investment in any MFS mutual fund, you have the security of
knowing that you may do so immediately by exchanging into another MFS fund. Or,
if you need your money for other purposes, it can quickly be wired or mailed to
you. This daily redemption feature, through which new shares were created when
people invested in MIT and were redeemed when people sold, brought another
important change to the industry. Now, the price of a mutual fund's shares
wasn't determined by supply and demand, but by the value of the securities owned
by each portfolio.
Another factor in our growth was the development of one of the industry's first
in-house research departments in 1932. Unlike companies that rely on Wall Street
research reports, which can be used by many investors at the same time, MIT's
managers built its long-term track record by visiting companies, talking to
managers and competitors, and "kicking the tires" so they could judge the
quality and potential of each company's products and services for themselves.
Today, MFS has more than 100 full-time portfolio managers, stock analysts, and
credit analysts who track the equity and bond markets. That number includes over
35 equity analysts who specialize in industries such as aviation, media,
technology, automobiles, and utilities.
While MIT introduced liquidity, that was not our only invention. We also
established the nation's first global bond fund, first high-yield municipal bond
fund, and first high-yield municipal closed-end bond fund.
We are proud of the record of MIT and of the funds in the MFS Family of Funds,
but we are also proud of our long-standing relationship with financial advisers.
Not only do we believe investors can benefit from the advice of these experts
but, as was shown during the market volatility of 1998, people who work with
financial advisers are less likely to abandon their carefully designed,
long-term investment strategies.
Our ability to service your investment and information needs is also extremely
important to us. The MFS Service Center handles millions of transactions and
phone calls every year. Supporting the work of financial advisers, promptly
sending out statements and confirmations, and answering hundreds of investors'
questions every day are crucial elements in maintaining long-term relationships
with our fund shareholders. That link to our investors has also been enhanced by
our site on the World Wide Web: WWW.MFS.COM. Since 1996, this site has given
investors and the general public access to up-to-date information about MFS
products and services, as well as market outlooks and retirement information.
The site has rapidly become one of our primary vehicles for communicating with
our investors and educating the public about mutual funds in general and MFS in
particular.
If there is a common thread running through these milestones, it is our
always-increasing commitment to providing you with the best possible investment
management and shareholder service, just as we have done for the past 75 years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your investment
needs in the next century. 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)
December 15, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of John F. Brennan, Jr.]
John F. Brennan, Jr.
For the 12 months ended November 30, 1998, Class A shares of the Fund provided a
total return of 22.21%, Class B shares 21.32%, Class C shares 21.28%, and Class
I shares 22.54%. These returns include the reinvestment of distributions but
exclude the effects of any sales charges and compare to a 23.52% return over the
same period for the Standard & Poor's 500 Composite Index (the S&P 500), a
popular, unmanaged index of common stock total return performance.
Q. WHAT DO YOU SEE AS SOME OF THE REASONS FOR THE VOLATILITY IN THE INVESTMENT
MARKETS THIS YEAR?
A. The volatility can be attributed primarily to the continued fallout from the
Asian crisis that began in 1997. Early optimism for a quick recovery in Asia
proved unfounded as Japan's economic situation worsened and concerns
regarding China's stability developed. This was followed by a financial
collapse in Russia that led to a flight to quality in the United States and
a collapse in the equity and bond markets. As markets plunged and yield
spreads between U.S. Treasuries and other fixed-income securities widened,
the Federal Reserve Board (the Fed) began to ease credit, with three
successive 25 basis-point (0.25%) cuts to the federal funds rate. This quick
action renewed confidence in the equity markets, and the S&P 500 rebounded
to its earlier highs.
Q. HOW HAVE YOU BEEN ABLE TO MAINTAIN THE FUND'S RELATIVELY STRONG PERFORMANCE
DURING THIS PERIOD?
A. The top three sectors of the S&P 500 over the past 12 months were
technology, which gained 47.8%; retailing, up 44.6%; and health care, which
advanced 43.6%. The Fund was underweighted in technology, significantly
overweighted in retailing, and slightly underweighted in health care. The
bottom three sectors in the S&P 500 were basic materials, which fell 3.5%;
transportation, down 1.6%; and energy, down 0.1%. The Fund was significantly
underweighted in each of these sectors. In addition, the Fund's top
holdings, including Tyco, Federal Home Loan Mortgage Corp. (Freddie Mac),
Cellular Communications International, Fred Meyer, Sanofi, Mannesmann, CBS,
and Compuware, performed strongly.
Q. HAVE YOU MADE ANY NOTABLE CHANGES TO THE PORTFOLIO?
A. The pharmaceutical weighting has been reduced because prices have reached
what we believe are full valuations, and the weighting in health maintenance
organizations has been increased in anticipation of an industry rebound. A
limited number of purchases in the technology sector, including BMC
Software, Compuware, and Oracle, were added late in the year at attractive
prices. In financial services, the Fund's largest sector, we reduced our
regional bank exposure but added several other companies, including Freddie
Mac, Associates First Capital, and State Street, increasing the overall
sector weighting. In general, we think many companies in this sector offer
solid double-digit growth and attractive valuations. In addition, their
performance is typically good during periods of declining interest rates and
slow economic growth, particularly when their asset quality remains intact.
Finally, the weighting in retailing was reduced with the sale of our holding
in Safeway due to its high valuation.
Q. HAVE YOU FOUND IT EASIER OR MORE DIFFICULT TO FIND COMPANIES THAT YOU THINK
ARE ATTRACTIVELY VALUED RELATIVE TO THEIR GROWTH PROSPECTS?
A. While current valuations have again reached excessive levels, the volatility
throughout the year did present several opportunities to purchase what we
view as good companies at attractive valuations.
Q. ABOUT 15% OF THE FUND'S ASSETS ARE IN EUROPE. WHAT MAKES THAT REGION
ATTRACTIVE TO YOU, AND WHAT KINDS OF COMPANIES DO YOU LIKE THERE?
A. Our international investment approach parallels our domestic objective of
finding long-term growth at attractive valuations. Our major European
holdings include Sanofi and Mannesmann.
Q. WHAT DO YOU SEE AS THE BIGGEST RISKS TO INVESTMENT MARKETS OVER THE NEXT
YEAR?
A. Foreign affairs will continue to impact U.S. equity markets. Currently, the
Asian outlook appears to have stabilized, but Latin American economies are
highly unpredictable, with continued uncertainty surrounding Brazil. The
dramatic decline in most commodity prices will make it difficult to justify
pricing improvements, and this could also make it difficult for many
companies to achieve significant earnings growth. Finally, Year 2000 systems
compliance, as well as the conversion to the new European currency, the
euro, could dampen growth in 1999 as companies undertake significant testing
to ensure smooth operations.
Q. WHAT KIND OF MARKET OR ECONOMIC ENVIRONMENT DO YOU ANTICIPATE GOING FORWARD,
AND HOW MIGHT THIS AFFECT SOME OF YOUR INVESTMENT DECISIONS FOR THE FUND?
A. We anticipate continued slow growth and low inflation in 1999. Further Fed
easing could occur if the economy slows significantly, since the threat of
inflation has been largely subdued. Although the recent slowdown in real
estate markets, as well as the sharp decline in most commodity prices, has
dampened the risk of asset inflation, the equity markets continue to trade
at extremely high valuation levels. We believe any unforeseen deterioration
in the outlook for corporate profits or increase in the overall level of
inflation could result in a significant decline in stock prices.
/S/ John F. Brennan, Jr.
John F. Brennan, Jr.
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>
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER'S PROFILE
- -------------------------------------------------------------------------------
JOHN F. BRENNAN, JR., IS A SENIOR VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R)
AND PORTFOLIO MANAGER OF MFS(R) CAPITAL OPPORTUNITIES FUND. HE ALSO MANAGES THE
CAPITAL OPPORTUNITIES SERIES OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS,
MFS(R) VALUE SERIES, PART OF MFS(R) VARIABLE INSURANCE TRUST(SM), AND THE
EQUITY PORTION OF MFS(R) SPECIAL VALUE TRUST, A CLOSED-END FUND.
MR. BRENNAN JOINED MFS IN 1985 AS AN INDUSTRY SPECIALIST IN THE EQUITY RESEARCH
DEPARTMENT. HE WAS NAMED ASSISTANT VICE PRESIDENT -- INVESTMENTS IN 1987, VICE
PRESIDENT -- INVESTMENTS IN 1988, PORTFOLIO MANAGER OF MFS(R) CAPITAL
OPPORTUNITIES FUND IN SEPTEMBER 1991, AND SENIOR VICE PRESIDENT IN 1995.
MR. BRENNAN IS A GRADUATE OF THE UNIVERSITY OF RHODE ISLAND AND THE STANFORD
UNIVERSITY GRADUATE SCHOOL OF BUSINESS ADMINISTRATION.
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>
- -------------------------------------------------------------------------------
FUND FACTS
- -------------------------------------------------------------------------------
Objective: Seeks capital appreciation. Dividend income,
if any, is incidental.
Commencement of
investment operations: June 13, 1983
Class inception: Class A June 13, 1983
Class B September 7, 1993
Class C April 1, 1996
Class I January 2, 1997
Size: $1.7 billion net assets as of November 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 include the deduction of the maximum applicable 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 November 30, 1998)
MFS Capital S&P 500 Consumer
Opportunities Composite Price Index
Fund - Class A Index - U.S.
- ------------------------------------------------------------
11/93 $ 9,425 $10,000 $10,000
11/94 9,606 10,105 10,268
11/95 13,609 13,841 10,531
11/96 16,128 17,698 10,878
11/97 20,153 22,744 11,077
11/98 24,628 28,125 11,262
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended November 30, 1998)
MFS Capital S&P 500 Consumer
Opportunities Composite Price Index
Fund - Class A Index - U.S.
- ------------------------------------------------------------
11/88 $ 9,426 $10,000 $10,000
11/90 10,004 12,630 11,122
11/92 14,741 18,007 11,804
11/94 18,341 20,033 12,444
11/96 30,792 35,087 13,184
11/98 47,022 55,760 13,649
AVERAGE ANNUAL TOTAL RETURNS THROUGH NOVEMBER 30, 1998
CLASS A
1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------
Average Annual Total Return +22.21% +21.86% +21.18% +17.43%
- --------------------------------------------------------------------------------
SEC Results +15.18% +19.48% +19.75% +16.74%
- --------------------------------------------------------------------------------
CLASS B
1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------
Average Annual Total Return +21.32% +20.92% +20.24% +16.95%
- --------------------------------------------------------------------------------
SEC Results +17.32% +20.23% +20.05% +16.95%
- --------------------------------------------------------------------------------
CLASS C
1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------
Average Annual Total Return +21.28% +21.06% +20.70% +17.20%
- --------------------------------------------------------------------------------
SEC Results +20.28% +21.06% +20.70% +17.20%
- --------------------------------------------------------------------------------
CLASS I
1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------
Average Annual Total Return +22.54% +22.03% +21.28% +17.48%
- --------------------------------------------------------------------------------
COMPARATIVE INDICES
1 Year 3 Years 5 Years 10 Years/Life
- --------------------------------------------------------------------------------
Average capital appreciation
fund* + 8.48% +13.43% +13.91% +13.51%
- --------------------------------------------------------------------------------
Standard & Poor's 500 Composite
Index+ +23.52% +26.66% +22.98% +18.75%
- --------------------------------------------------------------------------------
Consumer Price Index+# + 1.67% + 2.26% + 2.41% + 3.16%
- --------------------------------------------------------------------------------
* 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).
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, like 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.
B and C results include the performance and the operating expenses (e.g., Rule
12b-1 fees) of A for periods prior to the inception of B and C. Because
operating expenses of B and C are higher than those of A, B and C performance
generally would have been lower than A performance. The A performance included
in the B and C SEC performance has been adjusted to reflect the CDSC generally
applicable to B and C rather than the initial sales charge generally applicable
to A.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of I. Because operating expenses
of A are greater than those of I, I performance generally would have been higher
than A performance. The A performance included in the I performance has been
adjusted to reflect the fact that I have no initial sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and waivers
may be rescinded at any time. See the prospectus for details. 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.
PORTFOLIO CONCENTRATION AS OF NOVEMBER 30, 1998
FIVE LARGEST STOCK SECTORS
FINANCIAL SERVICES 21.0%
LEISURE 12.8%
UTILITIES & COMMUNICATIONS 12.4%
CONGLOMERATES, SPECIAL PRODUCTS/SERVICES 12.1%
TECHNOLOGY 11.3%
TOP 10 STOCK HOLDINGS
<TABLE>
<S> <C>
TYCO INTERNATIONAL LTD. 7.7% RITE AID CORP. 2.9%
Security systems, packaging, and electronic Drug store chain
equipment conglomerate
AMP, INC. 2.9%
FEDERAL HOME LOAN MORTGAGE CORP. 5.0% Electrical component manufacturer
U.S. government-chartered mortgage banker
COMPUTER ASSOCIATES INTERNATIONAL, INC. 2.7%
CELLULAR COMMUNICATIONS INTERNATIONAL, INC. 4.9% Computer software company
International cellular telephone company
PROMUS HOTEL CORP. 2.7%
FRED MEYER, INC. 4.6% Hotel operator
Northwestern U.S. supermarket chain
CBS CORP. 2.7%
SANOFI S.A. 3.7% Television and radio broadcaster
French pharmaceutical company
</TABLE>
Portfolio information is as of November 30, 1998. The portfolio is actively
managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS -- November 30, 1998
<TABLE>
<CAPTION>
Stocks - 93.4%
- ------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 76.6%
Advertising - 1.0%
Outdoor Systems, Inc.* 640,500 $ 17,293,500
- ------------------------------------------------------------------------------------------------------
Aerospace - 0.5%
Lockheed-Martin Corp. 77,500 $ 8,040,625
- ------------------------------------------------------------------------------------------------------
Automotive - 0.4%
Tower Automotive, Inc.* 277,900 $ 6,322,225
- ------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 5.0%
Fleet Financial Group, Inc. 239,342 $ 9,977,570
National City Corp. 214,200 14,404,950
PNC Bank Corp. 189,700 9,781,406
State Street Corp. 318,500 21,857,062
US Bancorp 440,800 16,226,950
Wells Fargo & Co. 380,510 13,698,360
--------------
$ 85,946,298
- ------------------------------------------------------------------------------------------------------
Business Machines - 0.3%
Affiliated Computer Services, Inc., "A"* 162,000 $ 6,206,625
- ------------------------------------------------------------------------------------------------------
Business Services - 0.3%
DST Systems, Inc.* 55,100 $ 2,982,287
Modis Professional Services, Inc.* 162,500 1,939,844
--------------
$ 4,922,131
- ------------------------------------------------------------------------------------------------------
Computer Software - Systems - 8.6%
BMC Software, Inc.* 683,300 $ 34,891,006
Cadence Design Systems, Inc.* 12,400 348,750
Cambridge Technology Partners, Inc.* 187,600 3,916,150
Computer Associates International, Inc. 1,002,326 44,352,925
Compuware Corp.* 555,200 34,561,200
Oracle Corp.* 657,400 22,515,950
Synopsys, Inc.* 185,300 8,778,588
--------------
$ 149,364,569
- ------------------------------------------------------------------------------------------------------
Construction Services - 0.8%
Martin Marietta Materials, Inc. 274,500 $ 13,313,250
- ------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 7.7%
Tyco International Ltd. 2,037,828 $ 134,114,555
- ------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1%
GTECH Holdings Corp.* 56,400 $ 1,413,525
- ------------------------------------------------------------------------------------------------------
Electronics - 3.8%
AMP, Inc. 969,100 $ 46,880,212
Analog Devices, Inc.* 486,510 9,943,048
Lattice Semiconductor Corp.* 249,300 9,192,938
--------------
$ 66,016,198
- ------------------------------------------------------------------------------------------------------
Entertainment - 7.6%
CBS Corp. 1,463,900 $ 43,642,519
Disney (Walt) Co. 133,700 4,303,469
Harrah's Entertainment, Inc.* 1,511,585 23,524,042
Isle Capri Casinos, Inc.* 502,410 1,632,833
Jacor Communications, Inc.* 428,700 24,944,981
Loews Cineplex Entertainment Corp.* 295,800 3,124,387
MediaOne Group, Inc.* 498,500 20,189,250
Mirage Resorts, Inc.* 497,300 7,397,337
Time Warner, Inc. 22,500 2,379,375
--------------
$ 131,138,193
- ------------------------------------------------------------------------------------------------------
Financial Institutions - 7.9%
Associates First Capital Corp., "A" 352,000 $ 27,412,000
Federal Home Loan Mortgage Corp. 1,328,385 80,367,293
Finova Group, Inc. 398,180 21,028,881
SLM Holding Corp. 203,600 8,958,400
--------------
$ 137,766,574
- ------------------------------------------------------------------------------------------------------
Food and Beverage Products - 3.9%
Anheuser Busch Cos., Inc. 221,700 $ 13,440,562
Archer-Daniels-Midland Co. 678,700 12,471,113
Beverly Enterprises, Inc.* 937,800 5,392,350
Hershey Foods Corp. 250,300 16,832,675
Hormel Foods Corp. 263,400 7,786,763
Suiza Foods Corp.* 241,000 11,417,375
--------------
$ 67,340,838
- ------------------------------------------------------------------------------------------------------
Insurance - 4.3%
Aetna, Inc. 104,900 $ 8,110,081
Annuity & Life Re Holdings Ltd. 392,290 9,954,359
Chartwell Re Corp. 261,900 7,234,988
CIGNA Corp. 89,417 6,957,760
Hartford Financial Services Group, Inc. 152,276 8,403,732
MONY Group, Inc.* 134,500 4,161,094
Nationwide Financial Services, Inc., "A" 289,500 13,932,187
ReliaStar Financial Corp. 353,117 16,596,499
--------------
$ 75,350,700
- ------------------------------------------------------------------------------------------------------
Medical and Health Products - 1.3%
Boston Scientific Corp.* 272,400 $ 13,483,800
Bristol-Myers Squibb Co. 72,200 8,849,013
--------------
$ 22,332,813
- ------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 3.5%
Columbia/HCA Healthcare Corp. 812,600 $ 20,010,275
HCR Manor Care, Inc.* 93,400 2,965,450
Mid Atlantic Medical Services, Inc.* 684,400 6,074,050
United Healthcare Corp. 699,343 31,557,853
--------------
$ 60,607,628
- ------------------------------------------------------------------------------------------------------
Oils - 0.3%
Conoco, Inc., "A"* 204,700 $ 4,848,831
- ------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.5%
Gannett Co., Inc. 126,900 $ 8,192,981
- ------------------------------------------------------------------------------------------------------
Railroads - 0.3%
Wisconsin Central Transportation Corp.* 335,720 $ 6,084,925
- ------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 2.5%
Promus Hotel Corp.* 1,310,093 $ 43,724,354
- ------------------------------------------------------------------------------------------------------
Stores - 3.2%
Dayton-Hudson Corp. 185,500 $ 8,347,500
Rite Aid Corp. 1,012,174 46,939,569
--------------
$ 55,287,069
- ------------------------------------------------------------------------------------------------------
Supermarkets - 4.3%
Meyer (Fred), Inc.* 1,455,065 $ 74,026,432
- ------------------------------------------------------------------------------------------------------
Telecommunications - 8.3%
AirTouch Communications, Inc.* 310,500 $ 17,756,719
Alltel Corp. 345,900 18,332,700
American Tower Corp., "A"* 104,899 2,425,789
Cellular Communications International, Inc.*++ 1,263,417 78,805,635
Century Telephone Enterprises, Inc. 252,000 14,364,000
Intermedia Communications, Inc.* 194,800 3,360,300
Sprint Corp. 119,464 8,691,006
Sprint Corp. (PCS Group)* 11 176
--------------
$ 143,736,325
- ------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.2%
Columbia Energy Group, Inc. 73,300 $ 4,159,775
- ------------------------------------------------------------------------------------------------------
Total U.S. Stocks $1,327,550,939
- ------------------------------------------------------------------------------------------------------
Foreign Stocks - 16.8%
Bermuda - 2.3%
Ace Ltd. (Insurance) 398,600 $ 12,755,200
ESG Re Ltd. (Insurance) 582,700 10,415,762
EXEL Ltd., "A" (Insurance) 51,551 3,872,769
LaSalle Re Holdings Ltd. (Insurance) 500,700 12,392,325
--------------
$ 39,436,056
- ------------------------------------------------------------------------------------------------------
Brazil - 1.2%
Tele Sudeste Celular Participacoes S.A
(Telecommunications)* 105,360 $ 2,844,720
Tele Sudeste Celullar Participacoes S.A., Preferred
(Telecommunications)* 1,188,000 6,427,501
Telesp Celular Participacoes S.A
(Telecommunications)* 125,980 3,306,975
Telesp Celular Participacoes S.A., Preferred
(Telecommunications)* 514,600 5,311,337
Telesp Participacoes S.A. (Telecommunications)* 136,012 3,815,219
--------------
$ 21,705,752
- ------------------------------------------------------------------------------------------------------
France - 3.6%
Sanofi S.A. (Medical and Health Products) 337,250 $ 60,170,285
Societe Industrielle de Transports Automobiles S.A
(Hazardous Waste) 12,188 3,020,756
--------------
$ 63,191,041
- ------------------------------------------------------------------------------------------------------
Germany - 3.2%
Galileo International, Inc. (Consumer Goods and
Services) 210,900 $ 8,436,000
Henkel KGAA (Chemicals) 45,520 3,851,032
Mannesmann AG (Conglomerate) 396,500 42,894,558
--------------
$ 55,181,590
- ------------------------------------------------------------------------------------------------------
Grand Cayman Islands - 0.3%
Scottish Annuity & Life (Insurance)* 405,600 $ 5,120,700
- ------------------------------------------------------------------------------------------------------
Greece - 0.6%
Hellenic Telecommunication Organization S.A., GDR
(Telecommunications) 365,900 $ 9,130,782
Panafon S.A. (Telecommunications)* 8,300 148,777
Stet Hellas Telecommunications S.A
(Telecommunications)* 21,300 740,175
--------------
$ 10,019,734
- ------------------------------------------------------------------------------------------------------
Italy - 0.9%
Telecom Italia S.p.A. (Telecommunications)* 2,403,000 $ 15,013,383
- ------------------------------------------------------------------------------------------------------
Netherlands - 2.0%
Benckiser N.V., "B" (Consumer Goods and Services) 91,630 $ 5,413,672
Elsag Bailey Process Automation N.V. (Machinery)* 528,050 19,801,875
Mobistar SA (Telecommunications)* 185,400 8,832,361
--------------
$ 34,047,908
- ------------------------------------------------------------------------------------------------------
Portugal - 0.2%
Banco Pinto & Sotto Mayor S.A. (Banks and Credit Cos.) 230,209 $ 4,198,739
- ------------------------------------------------------------------------------------------------------
Sweden - 0.4%
Saab AB, "B" (Aerospace)* 661,000 $ 6,827,253
- ------------------------------------------------------------------------------------------------------
United Kingdom - 2.1%
British Petroleum PLC, ADR (Oils) 173,724 $ 16,004,323
Capital Radio PLC (Broadcasting) 271,000 2,443,244
Reuters Group PLC (Computer-Services) 218,600 2,109,538
Reuters Group PLC, ADR (Computer-Services) 129,400 7,440,500
SmithKline- Beecham PLC, ADR
(Medical and Health Products) 130,300 7,940,156
Taylor Nelson Sofres PLC (Market Research) 799,400 1,014,531
--------------
$ 36,952,292
- ------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 291,694,448
- ------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,307,538,500) $1,619,245,387
- ------------------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 8.8%
- ------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000 OMITTED)
- ------------------------------------------------------------------------------------------------------
Federal Farm Credit Bank, due 12/01/98 $ 7,610 $ 7,610,000
Federal Home Loan Bank, due 1/13/99 9,000 8,946,680
Federal Home Loan Mortgage Corp., due 12/02/98 - 1/22/99 62,100 61,947,845
Federal National Mortgage Assn., due 12/04/98 - 1/20/99 57,075 56,926,973
General Electric Capital Corp., due 12/01/98 15,650 15,650,000
Student Loan Marketing Assn., due 12/01/98 1,060 1,060,000
- ------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 152,141,498
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,459,679,998) $1,771,386,885
OTHER ASSETS, LESS LIABILITIES - (2.2)% (38,881,562)
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,732,505,323
- ------------------------------------------------------------------------------------------------------
* Non-income producing security.
++ Affiliated issuers are those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ---------------------------------------------------------------------------
NOVEMBER 30, 1998
- ---------------------------------------------------------------------------
Assets:
Investments, at value:
Unaffiliated issuers (identified cost $1,433,667,611) $1,692,581,250
Affiliated issuer (identified cost $26,012,387) 78,805,635
--------------
Total investments, at value (identified cost,
$1,459,679,998) $1,771,386,885
Cash 6,424
Receivable for Fund shares sold 5,998,404
Receivable for investments sold 9,930,541
Interest and dividends receivable 977,496
Other assets 7,626
--------------
Total assets $1,788,307,376
--------------
Liabilities:
Foreign currency overdraft $ 2,246,488
Payable for Fund shares reacquired 4,060,662
Payable for investments purchased 47,543,763
Net payable for forward foreign currency exchange
contracts closed or subject to master netting
agreements 729,236
Payable to affiliates -
Management fee 106,683
Shareholder servicing agent fee 16,331
Distribution and service fee 826,789
Accrued expenses and other liabilities 272,101
--------------
Total liabilities $ 55,802,053
--------------
Net assets $1,732,505,323
==============
Net assets consist of:
Paid-in capital $1,331,402,693
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 311,012,238
Accumulated undistributed net realized gain on
investments and foreign currency transactions 90,158,440
Accumulated net investment loss (68,048)
--------------
Total $1,732,505,323
==============
Shares of beneficial interest outstanding 106,311,681
===========
Class A shares:
Net asset value per share
(net assets of $923,778,500 / 55,650,822 shares of
beneficial interest outstanding) $16.60
======
Offering price per share (100 / 94.25 of net asset
value per share) $17.61
======
Class B shares:
Net asset value and offering price per share
(net assets of $658,055,608 / 41,276,851 shares of
beneficial interest outstanding) $15.94
======
Class C shares:
Net asset value and offering price per share
(net assets of $119,966,400 / 7,538,156 shares of
beneficial interest outstanding) $15.91
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $30,704,815 / 1,845,852 shares of
beneficial interest outstanding) $16.63
======
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
- ---------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998
- ---------------------------------------------------------------------------
Net investment loss:
Income -
Dividends $ 11,410,187
Interest 5,385,928
Foreign taxes withheld (440,496)
--------------
Total investment income $ 16,355,619
--------------
Expenses -
Management fee $ 10,562,423
Trustees' compensation 70,109
Shareholder servicing agent fee 1,610,120
Distribution and service fee (Class A) 1,899,577
Distribution and service fee (Class B) 5,297,005
Distribution and service fee (Class C) 910,046
Administrative fee 172,668
Custodian fee 397,682
Printing 81,484
Postage 193,001
Auditing fees 31,684
Legal fees 7,477
Miscellaneous 783,983
--------------
Total expenses $ 22,017,259
Fees paid indirectly (182,734)
--------------
Net expenses $ 21,834,525
--------------
Net investment loss $ (5,478,906)
--------------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $ 109,455,523
Foreign currency transactions 253,925
--------------
Net realized gain on investments and foreign
currency transactions $ 109,709,448
--------------
Change in unrealized appreciation (depreciation) -
Investments $ 163,188,605
Translation of assets and liabilities in
foreign currencies (564,235)
--------------
Net unrealized gain on investments and
foreign currency translation $ 162,624,370
--------------
Net realized and unrealized gain on
investments and foreign currency $ 272,333,818
--------------
Increase in net assets from operations $ 266,854,912
==============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- -------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income (loss) $ (5,478,906) $ 1,578,558
Net realized gain on investments and foreign currency
transactions 109,709,448 114,638,154
Net unrealized gain on investments and foreign
currency translation 162,624,370 88,884,455
-------------- --------------
Increase in net assets from operations $ 266,854,912 $ 205,101,167
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (909,560) $ (946,436)
From net investment income (Class C) -- (28,491)
From net investment income (Class I) (85,735) --
From net realized gain on investments and foreign
currency transactions (Class A) (64,869,939) (36,139,796)
From net realized gain on investments and foreign
currency transactions (Class B) (45,448,082) (21,106,896)
From net realized gain on investments and foreign
currency transactions (Class C) (7,317,603) (2,868,779)
From net realized gain on investments and foreign
currency transactions (Class I) (2,680,537) --
In excess of net investment income (Class A) (115,707) --
In excess of net investment income (Class I) (10,907) --
-------------- --------------
Total distributions declared to shareholders $ (121,438,070) $ (61,090,398)
-------------- --------------
Net increase in net assets from Fund share transactions $ 469,594,593 $ 269,839,092
-------------- --------------
Total increase in net assets $ 615,011,435 $ 413,849,861
Net assets:
At beginning of period 1,117,493,888 703,644,027
-------------- --------------
At end of period (including accumulated undistributed
net investment income (loss) of $(68,048) and $995,295,
respectively) $1,732,505,323 $1,117,493,888
============== ==============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $15.23 $13.34 $12.39 $ 9.44 $10.82
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.01) $ 0.07 $ 0.05 $ 0.01 $(0.01)
Net realized and unrealized gain on
investments and foreign currency 3.02 2.97 2.04 3.64 0.26
------ ------ ------ ------ ------
Total from investment operations $ 3.01 $ 3.04 $ 2.09 $ 3.65 $ 0.25
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.03) $(0.03) $ -- $ -- $(0.03)
In excess of net investment income+++ -- -- -- -- --
From net realized gain on investments and
foreign currency transactions (1.61) (1.12) (1.14) (0.70) (1.60)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.64) $(1.15) $(1.14) $(0.70) $(1.63)
------ ------ ------ ------ ------
Net asset value - end of period $16.60 $15.23 $13.34 $12.39 $ 9.44
====== ====== ====== ====== ======
Total return(+) 22.21% 24.96% 18.50% 41.67% 1.92%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.23% 1.29% 1.32% 1.35% 1.37%
Net investment income (loss) (0.06)% 0.49% 0.43% 0.06% (0.05)%
Portfolio turnover 123% 144% 112% 109% 91%
Net assets at end of period (000 omitted) $923,779 $609,189 $427,478 $227,555 $141,790
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995,
the Fund's expenses are calculated without reduction for this expense offset arrangement.
+++ For the fiscal year ended November 30, 1998, the per share distribution in excess of net investment income was less than
$0.01.
(+) 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.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1997**
- --------------------------------------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $15.26 $12.22
------ ------
Income from investment operations# -
Net investment income $ 0.03 $ 0.08
Net realized and unrealized gain on investments and foreign
currency 3.01 2.96
------ ------
Total from investment operations $ 3.04 $ 3.04
------ ------
Less distributions declared to shareholders -
From net investment income $(0.05) $ --
In excess of net investment income (0.01) --
From net realized gain on investments and foreign currency
transactions (1.61) --
------ ------
Total distributions declared to shareholders $(1.67) $ --
------ ------
Net asset value - end of period $16.63 $15.26
====== ======
Total return 22.54% 24.88%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.98% 1.01%+
Net investment income 0.20% 0.65%+
Portfolio turnover 123% 144%
Net assets at end of period (000 omitted) $30,705 $30,517
+ Annualized.
++ Not annualized.
** For the period from the inception of Class I, January 2, 1997, through November 30, 1997. #Per share data are based on
average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without
reduction for this expense offset arrangement.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $14.77 $13.01 $12.15 $ 9.34 $10.79
------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.12) $(0.04) $(0.04) $(0.08) $(0.09)
Net realized and unrealized gain on
investments and foreign currency 2.90 2.89 2.00 3.59 0.27
------ ------ ------ ------ ------
Total from investment operations $ 2.78 $ 2.85 $ 1.96 $ 3.51 $ 0.18
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net realized gain on investments and
foreign currency transactions $(1.61) $(1.09) $(1.10) $(0.70) $(1.60)
In excess of net investment income -- -- -- -- (0.03)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.61) $(1.09) $(1.10) $(0.70) $(1.63)
------ ------ ------ ------ ------
Net asset value - end of period $15.94 $14.77 $13.01 $12.15 $ 9.34
====== ====== ====== ====== ======
Total return 21.32% 24.03% 17.50% 40.53% 1.15%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.98% 2.04 2.16% 2.17% 2.25%
Net investment loss (0.81)% (0.28)% (0.33)% (0.77)% (0.96)%
Portfolio turnover 123% 144% 112% 109% 91%
Net assets at end of period (000 omitted) $658,056 $411,640 $244,247 $46,068 $17,189
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995,
the Fund's expenses are calculated without reduction for this expense offset arrangement.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30,
--------------------------------- --------------------
1998 1997 1996*
- -----------------------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $14.74 $13.03 $12.00
------ ------ ------
Income from investment operations# -
Net investment loss $(0.12) $(0.04) $(0.01)
Net realized and unrealized gain on investments and
foreign currency 2.90 2.88 1.04
------ ------ ------
Total from investment operations $ 2.78 $ 2.84 $ 1.03
------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.01) $ --
From net realized gain on investments and foreign
currency transactions (1.61) (1.12) --
------ ------ ------
Total distributions declared to shareholders $(1.61) $(1.13) $ --
------ ------ ------
Net asset value - end of period $15.91 $14.74 $13.03
====== ====== ======
Total return 21.28% 24.02% 7.95%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.98% 2.04% 2.11%+
Net investment loss (0.82)% (0.28)% (0.17)%+
Portfolio turnover 123% 144% 112%
Net assets at end of period (000 omitted) $119,966 $66,148 $31,919
+ Annualized.
++ Not annualized.
* For the period from the inception of Class C, April 1, 1996, through November 30, 1996. #Per share data are based on
average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without
reduction for this expense offset arrangement.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Capital Opportunities Fund (the Fund) is a diversified series of MFS Series
Trust VII (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. Effective April 1, 1998, the name of the
Fund was changed from MFS Value Fund to MFS Capital Opportunities Fund.
(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. 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. Debt securities (other than short-term obligations which mature in 60
days or less), including forward contracts, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short- term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. 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.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund may enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign-currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All 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 and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's 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 November 30, 1998, accumulated net investment loss decreased by
$5,537,472, accumulated undistributed net realized gain on investments and
foreign currency transactions decreased by $15,334,098 and paid-in capital
increased by $9,796,626 due to differences between book and tax accounting for
currency transactions 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.
As of November 1, 1998, the management fee is computed daily and paid monthly at
the following annual rates:
BASED ON AVERAGE NET ASSETS
- ------------------------------------------------------------------------------
First $1.5 billion 0.75%
In excess of $1.5 billion 0.65%
Prior to November 1, 1998, the management fee was computed daily and paid
monthly at an annual rate of 0.75% of the Fund's average daily net assets.
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 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 $20,796 for the year ended
November 30, 1998.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$637,788 for the year ended November 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 $134,275 for the year ended November 30,
1998. Payment of the 0.10% per annum Class A distribution fee will commence on
such date as the Trustees of the Fund may determine. Fees incurred under the
distribution plan during the year ended November 30, 1998, were 0.25% of average
daily net assets attributable to Class A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be 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 $34,257 and $1,828 for Class B and Class C shares, respectively, for
the year ended November 30, 1998. Fees incurred under the distribution plan
during the year ended November 30, 1998, were 1.00% of average daily net assets
attributable to both Class B and Class C shares.
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
redemption's 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 November 30,
1998, were $5,954, $645,766, and $28,032 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 Fund's daily net assets at an effective annual rate of 0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations, were as
follows:
PURCHASES SALES
- --------------------------------------------------------------------------------
U.S. government securities $ 50,881,200 $ --
-------------- --------------
Investments (non-U.S. government securities) $1,935,576,213 $1,606,924,303
-------------- --------------
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 $1,461,109,505
--------------
Gross unrealized appreciation $ 378,602,565
Gross unrealized depreciation (68,325,185)
--------------
Net unrealized appreciation $ 310,277,380
==============
(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. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED NOVEMBER 30, 1998 YEAR ENDED NOVEMBER 30, 1997
------------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 36,339,434 $560,864,465 21,945,096 $296,891,395
Shares issued to
shareholders in
reinvestment of
distributions 4,512,652 60,655,260 2,783,995 33,768,741
Shares transferred to Class I -- -- (1,547,626) (18,911,993)
Shares reacquired (25,191,694) (390,720,879) (15,224,032) (209,041,747)
----------- ------------ ----------- ------------
Net increase 15,660,392 $230,798,846 7,957,433 $102,706,396
=========== ============ =========== ============
<CAPTION>
Class B Shares
YEAR ENDED NOVEMBER 30, 1998 YEAR ENDED NOVEMBER 30, 1997
------------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 17,781,760 $267,116,086 11,370,630 $148,136,021
Shares issued to
shareholders in
reinvestment of
distributions 2,911,355 37,856,715 1,482,412 17,551,958
Shares reacquired (7,292,329) (108,644,391) (3,749,784) (49,366,876)
----------- ------------ ----------- ------------
Net increase 13,400,786 $196,328,410 9,103,258 $116,321,103
=========== ============ =========== ============
<CAPTION>
Class C Shares
YEAR ENDED NOVEMBER 30, 1998 YEAR ENDED NOVEMBER 30, 1997
------------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,927,833 $ 88,827,966 2,563,925 $ 33,259,494
Shares issued to
shareholders in
reinvestment of
distributions 307,581 3,992,921 120,178 1,420,490
Shares reacquired (3,183,416) (47,902,511) (648,339) (8,661,075)
----------- ------------ ----------- ------------
Net increase 3,051,998 $ 44,918,376 2,035,764 $ 26,018,909
=========== ============ =========== ============
<CAPTION>
Class I Shares
YEAR ENDED NOVEMBER 30, 1998 YEAR ENDED NOVEMBER 30, 1997
------------------------------------- ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 338,798 $ 5,383,070 721,994 $ 9,428,729
Shares transferred from
Class A -- -- 1,547,626 18,911,993
Shares issued to
shareholders in
reinvestment of
distributions 129,735 1,741,578 -- --
Shares reacquired (622,642) (9,575,687) (269,659) (3,548,038)
----------- ------------ ----------- ------------
Net increase (decrease) (154,109) $ (2,451,039) 1,999,961 $ 24,792,684
=========== ============ =========== ============
* For the period from the inception of Class I, January 2, 1997, through November 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 November 30, 1998, was $10,616.
(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 forward foreign currency exchange contracts. 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.
Forward foreign currency purchases and sales under master netting agreement
amounted to a net payable of $729,236 with Merrill Lynch at November 30, 1998.
At November 30, 1998, the Fund has sufficient cash and/or securities to cover
any commitments under these contracts.
(8) Transactions in Securities of Affiliated Issuers
Affiliated issuers, as defined under the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the year ended November
30, 1998, is set forth below:
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
--------------------------- --------------------------
BEGINNING SHARE/ SHARES/PAR SHARES/PAR
AFFILIATE PAR AMOUNT AMOUNT COST AMOUNT COST
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cellular Communications
International Inc. 1,216,917* 46,500 $1,487,711 0 $0
--------- ----- ---------- - --
<CAPTION>
ENDING SHARE/ REALIZED GAIN DIVIDEND ENDING
AFFILIATE PAR AMOUNT (LOSS) INCOME VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cellular Communications
International, Inc. 1,263,417 $0 $0 $78,805,635
--------- -- -- -----------
* Adjusted to reflect a 3-for-2 stock split with a payment date of 4/14/98.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust VII and Shareholders of MFS Capital
Opportunities Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Capital Opportunities Fund (formerly MFS(R)
Value Fund) (a separate series of MFS Series Trust VII) as of November 30, 1998,
the related statement of operations for the year then ended, the statement of
changes in net assets for the years ended November 30, 1998 and 1997, and the
financial highlights for each of the years in the five-year period ended
November 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
November 30, 1998 by correspondence with the 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 Capital
Opportunities Fund at November 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
January 8, 1999
<PAGE>
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- -------------------------------------------------------------------------------
IN JANUARY 1999, SHAREHOLDERS WERE MAILED A FORM 1099 REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR
1998.
THE FUND HAS DESIGNATED $34,601,479 AS A CAPITAL GAIN DIVIDEND.
FOR THE YEAR ENDED NOVEMBER 30, 1998, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS RECEIVED DEDUCTION FOR
CORPORATIONS CAME TO 5.5%.
<PAGE>
MFS(R) CAPITAL OPPORTUNITIES FUND
<TABLE>
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Peter G. Harwood - Private Investor
CUSTODIAN
J. Atwood Ives - Chairman and Chief State Street Bank and Trust Company
Executive Officer, Eastern Enterprises
(diversified services company) AUDITORS
Deloitte & Touche LLP
Lawrence T. Perera - Partner, Hemenway
& Barnes (attorneys) Investor Information For MFS stock and
bond market outlooks, call toll free:
William J. Poorvu - Adjunct Professor, 1-800-637-4458 anytime from a
Harvard University Graduate School of touch-tone telephone.
Business Administration
For information on MFS mutual funds,
Charles W. Schmidt - Private Investor call your financial adviser or, for an
information kit, call toll free:
Arnold D. Scott* - Senior Executive 1-800-637-2929 any business day from
Vice President, Director, and Secretary, 9 a.m. to 5 p.m. Eastern time (or leave
MFS Investment Management a message anytime).
Jeffrey L. Shames* - Chairman, Chief INVESTOR SERVICE
Executive Officer, and Director, MFS Service Center, Inc.
MFS Investment Management P.O. Box 2281
Boston, MA 02107-9906
Elaine R. Smith - Independent Consultant
For general information, call toll
David B. Stone - Chairman and Director, free: 1-800-225-2606 any business day
North American Management Corp. from 8 a.m. to 8 p.m. Eastern time.
(investment advisers)
For service to speech- or
INVESTMENT ADVISER hearing-impaired, call toll free:
Massachusetts Financial Services Company 1-800-637-6576 any business day from
500 Boylston Street 9 a.m. to 5 p.m. Eastern time. (To use
Boston, MA 02116-3741 this service, your phone must be
equipped with a Telecommunications
DISTRIBUTOR Device for the Deaf.)
MFS Fund Distributors, Inc.
500 Boylston Street For share prices, account balances,
Boston, MA 02116-3741 and exchanges, call toll free:
1-800-MFS-TALK (1-800-637-8255)
PORTFOLIO MANAGER anytime from a touch-tone telephone.
John F. Brennan, Jr.*
WORLD WIDE WEB
TREASURER www.mfs.com
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
----------------
MFS(R) CAPITAL Bulk Rate
OPPORTUNITIES FUND U.S. Postage
Paid
MFS
----------------
[Logo] M F S(R
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(c)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MCO-2 1/99 143M 23/223/323/823
