<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) CAPITAL
OPPORTUNITIES FUND
SEMIANNUAL REPORT o MAY 31, 1999
----------------------------------------------------
DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 31)
----------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 23
MFS' Year 2000 Readiness Disclosure ....................................... 30
Trustees and Officers ..................................................... 33
MFS(R) ORIGINAL RESEARCH(SM)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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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,
It has been almost two years since financial turmoil began to rock markets in
Asia, Russia, and Latin America. Even developed markets such as Europe and the
United States were not immune. In the U.S. equity market, for example,
investors focused on a narrow group of 50 of the largest-company growth stocks
because they seemed to offer less volatility in uncertain times. Fixed-income
investors also became more concerned about risk, moving money into U.S.
Treasury securities and out of corporate and municipal bonds and mortgage-
backed securities.
The narrowness of the market was just one of three broad issues that dominated
the U.S. equity market until recently. The other two were a slowdown in
corporate earnings growth and high valuations, with stocks of many companies
selling at extremely high prices relative to their earnings.
Although these have been challenging issues, we now see signs that we feel
demonstrate each one is changing for the better. Today, we believe the markets
are presenting more opportunities for investors to diversify, for our
portfolio managers to find good values, and for us to show the benefits of
staying with our long-term objectives and strategies. Investors seem to be
regaining confidence in a wider range of companies. Stocks of some small and
mid-sized companies, as well as some large industrial companies, have begun to
perform better in the past few months than they had for the previous year or
so. These companies appear to have benefited from early signs of stability in
emerging markets and a continuation of economic growth in the United States.
U.S. companies also have produced better earnings. Corporate earnings were, on
average, relatively flat in 1998. However, we expect earnings to grow 12% to
14% this year because more companies have benefited from the strong economy
and from aggressive consolidation and cost-cutting measures they have taken
over the past several years.
Based on their earnings projections, our analysts estimate that the U.S. stock
market is still about 30% overvalued. While there has been some shift to a
wider group of stocks, many investors are still focusing on the large-company
stocks. As a result, most of the overvaluation is in the 50 largest stocks in
the Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged
index of common stock total return performance. That means about 450 stocks
are selling at more attractive prices, particularly given what we see as the
improved earnings outlooks for these and many small and mid-sized companies
not in the S&P 500. These companies also benefit from consolidation, cost
cutting, and global growth. Because they are smaller, they may be able to
respond to changes more quickly, and thus they have the potential to grow
faster than the big companies.
The fixed-income markets, meanwhile, seem to be approaching the level of
relative stability they enjoyed before the Asian turmoil. Some credit for this
stability goes to the Federal Reserve Board (the Fed), which has reassured
investors that it will act to prevent rapid economic growth from causing
higher inflation and reduced purchasing power. Also, once investors saw that
the overseas turmoil had little, if any, effect on the financial strength of
most domestic bond issuers, the major non-Treasury markets -- corporate,
municipal, and mortgage -- began to rebound. Our portfolio managers are now
finding more opportunities to buy bonds with relatively stable prices and
attractive yields.
The past two years have challenged investors. However, we believe we are well
positioned for the current environment because our analysts and portfolio
managers continue to rely on MFS(R) Original Research(SM) to help evaluate the
long-term investment potential of each holding being considered for our
portfolios. Also, we believe our discipline of maintaining diversified
portfolios and of staying with our funds' clearly defined investment
strategies can help us offer investment products with the potential to sustain
returns over a variety of market cycles.
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)
June 17, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Maura A. Shaughnessy]
Maura A. Shaughnessy
For the six months ended May 31, 1999, Class A shares of the Fund provided a
total return of 18.15%, Class B shares 17.75%, Class C shares 17.72%, and
Class I shares 18.30%. These returns include the reinvestment of distributions
but exclude the effects of any sales charges.
During the same period, the average capital appreciation fund tracked by
Lipper Analytical Services, Inc., an independent firm that reports mutual fund
performance, returned 17.09%. The Fund's returns also compare to an 11.88%
return for the Standard & Poor's 500 Composite Index, a popular, unmanaged
index of common stock total return performance.
Q. YOU TOOK OVER THE FUND THIS PAST FEBRUARY. HOW HAVE YOU USED YOUR MONEY
MANAGEMENT EXPERIENCE IN THIS NEW ASSIGNMENT?
A. The portfolio is slightly more diversified now. Some would say it is
eclectic, which reflects my approach and background. Before assuming this
responsibility, I worked for nearly four years as part of the MFS(R) Total
Return Fund team. I was an analyst in these sectors: health care, energy,
paper products, financial services, industrial goods and services, consumer
staples, and utilities and communications. And prior to joining MFS in
1991, I was an analyst at Harvard Management, which manages money for
Harvard University. My experience at Harvard Management included covering
the paper and forest products, household products, cosmetics, newspapers,
and the pollution control industry. Earlier in my career, I did research
for the Federal Reserve, looking at macroeconomic issues such as inflation
and labor market trends. And I've managed MFS(R) Utilities Fund since its
inception in 1992.
Q. HAVE YOU MADE ANY MAJOR PORTFOLIO CHANGES?
A. Not really. I've accomplished what I set out to do: mostly pare down some
holdings and add new stocks to increase the portfolio's diversification. I
got rid of very few stocks. I trimmed the position in Tyco International,
an industrial conglomerate, in order to have greater diversification in my
largest holdings. This decrease does not signify any change in my
fundamental outlook for Tyco, but rather reflects my more diversified
approach. It is important to note that the Fund also held a significant
position in AMP, which was acquired by Tyco a few months ago. I reduced the
combined position to less than 6%, which better reflects my concentration
comfort level. I also trimmed my position in Freddie Mac (Federal Home Loan
Mortgage Corporation), a federal mortgage lending company, to 1.8%.
Having previously stayed away from paper companies because of poor
fundamentals, I have added a few of them, such as Asia Pulp & Paper Ltd. I
believe an upturn in Asia could lead to an increase in demand. Also, I think
the supply base has consolidated, especially in linerboard. I continue to
feel positive about Mannesmann, a German company which is diving into the
cellular phone market. Also, I'm upbeat on natural gas so I bought Enron Oil
and Gas, a major natural gas producer in the U.S. and Asia.
Q. WHY HAS THE HEALTH CARE WEIGHTING BEEN REDUCED OVER THE PAST SIX MONTHS?
A. It's important to keep in mind that sector weightings are not intentional.
Rather, we research individual stocks, but often our targeted stocks
naturally cluster in certain industries. Drug companies within the health
care sector are looking less attractive right now partly due to potentially
new Medicare regulations on drug coverage. In addition, I think cutbacks in
Medicare prescription benefits do not favor pharmaceuticals at this point
and earnings growth has been decelerating.
Q. WERE THERE ANY STOCKS THAT DIDN'T DO WELL FOR THE FUND?
A. Becton Dickinson, a medical devices company, has underperformed in 1999.
The company missed its earnings projections for the third quarter in a row
and seems to be having trouble executing its business plan. Rite Aid is a
holding that declined by 50% due to overexpansion of its retail chain and
difficulty financing the acquisition of PCS, a leading mail-order
prescription service.
Q. WHERE ARE YOU FINDING OPPORTUNITIES?
A. Utilities and communications is currently our top sector. Stocks owned
include AirTouch Communications, which was acquired by Vodafone early this
year. I believe the stock should benefit from planned cost cutting and
consolidation in the United States and abroad. Also, it is successfully
penetrating the global wireless market. This push has helped the stock's
performance. MCI WorldCom is another example. I think it's an extremely
well-run company and nicely positioned in the telecommunications world. In
technology, I've stayed away from the pure Internet stocks because I think
they seem speculative and overvalued. Instead, the Fund has gained exposure
to the sector through companies that provide infrastructure for the
Internet. One example is Cisco Systems, which manufactures networking
hardware. Cisco is an expensive stock, but a well-positioned company. Other
technology holdings are in the semiconductor arena. Sales are finally
rebounding for these products. I especially like LSI Logic, which
manufactures integrated circuits and storage systems. I think the company
is attractive because it has consolidated by closing some plants and it has
increased its sales of computer chips.
Q. WHAT DIRECTION WILL YOU TAKE THE PORTFOLIO IN THE SECOND HALF OF THE YEAR?
A. My philosophy on managing money is to be flexible and open about the kinds
of companies in which I invest. Essentially, any company with more than $1
billion in market capitalization is up for grabs. I'll be on the lookout
for stronger growth in the mid- and small-cap areas, in which I believe it
may be easier to find reasonable stock prices.
/s/ Maura A. Shaughnessy
Maura A. Shaughnessy
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are current 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.
It is not possible to invest directly in an index.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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MAURA A. SHAUGHNESSY IS SENIOR VICE PRESIDENT OF MFS INVESTMENT
MANAGEMENT(R) AND PORTFOLIO MANAGER OF MFS(R) CAPITAL OPPORTUNITIES
FUND, MFS(R) UTILITIES FUND, MFS(R) UTILITIES SERIES AND MFS(R) CAPITAL
OPPORTUNITIES SERIES (BOTH PART OF MFS(R) VARIABLE INSURANCE TRUST(SM)),
AND THE UTILITIES SERIES AND CAPITAL OPPORTUNITIES SERIES OFFERED
THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS.
MS. SHAUGHNESSY JOINED MFS IN 1991 AS A RESEARCH ANALYST AND BECAME VICE
PRESIDENT AND PORTFOLIO MANAGER IN 1992 AND SENIOR VICE PRESIDENT IN
1998. A GRADUATE OF COLBY COLLEGE AND THE AMOS TUCK SCHOOL OF BUSINESS
ADMINISTRATION OF DARTMOUTH COLLEGE, SHE IS A CHARTERED FINANCIAL
ANALYST.
ALL EQUITY PORTFOLIO MANAGERS BEGAN THEIR CAREERS AT MFS INVESTMENT
MANAGEMENT(R) AS RESEARCH ANALYSTS. OUR PORTFOLIO MANAGERS ARE SUPPORTED
BY AN INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS(R)
ORIGINAL RESEARCH(SM), A COMPANY-ORIENTED, BOTTOM-UP PROCESS OF
SELECTING SECURITIES.
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 CAPITAL APPRECIATION.
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: $2.4 BILLION NET ASSETS AS OF MAY 31, 1999
PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Investment results reflect the percentage change
in net asset value, including reinvestment of dividends. (See Notes to
Performance Summary for more information.)
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH MAY 31, 1999
<TABLE>
<CAPTION>
CLASS A
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +18.15% +20.67% +83.87% +194.23% +397.37%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +20.67% +22.51% + 24.09% + 17.40%
- ------------------------------------------------------------------------------------------------------------
SEC Results -- +13.73% +20.12% + 22.63% + 16.71%
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<CAPTION>
CLASS B
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +17.75% +19.83% +79.67% +182.91% +375.78%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +19.83% +21.57% + 23.12% + 16.88%
- ------------------------------------------------------------------------------------------------------------
SEC Results -- +15.83% +20.89% + 22.94% + 16.88%
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +17.72% +19.73% +79.72% +187.42% +386.05%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +19.73% +21.58% + 23.51% + 17.13%
- ------------------------------------------------------------------------------------------------------------
SEC Results -- +18.73% +21.58% + 23.51% + 17.13%
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS I
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +18.30% +20.97% +84.86% +195.77% +400.35%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +20.97% +22.73% + 24.22% + 17.47%
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</TABLE>
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 MAY 31, 1999
FIVE LARGEST STOCK SECTORS
UTILITIES & COMMUNICATIONS 20.3%
TECHNOLOGY 18.6%
FINANCIAL SERVICES 18.3%
LEISURE 13.9%
CONGLOMERATES, SPECIAL PRODUCTS/SERVICES 8.0%
TOP 10 STOCK HOLDINGS
TYCO INTERNATIONAL LTD. 5.7% AIRTOUCH COMMUNICATIONS 1.9%
Security systems, packaging, and Wireless company
electronic equipment conglomerate
FEDERAL HOME LOAN MORTGAGE
KROGER CO. 2.7% CORP. 1.8%
Supermarket company Mortgage lending company
MCI WORLDCOM, INC. 2.6% UNITED HEALTHCARE CORP. 1.8%
Telecommunications company Health maintenance organization
BMC SOFTWARE, INC. 2.2% HARTFORD FINANCIAL SERVICES GROUP,
Computer software company INC. 1.7%
Multiline insurance company
MANNESMANN AG 2.0%
German industrial and telecommunications FRONTIER CORP. 1.7%
company Telecommunications company
The portfolio is actively managed, and current holdings may be different.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- May 31, 1999
Stocks - 97.3%
<CAPTION>
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ISSUER SHARES VALUE
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<S> <C> <C>
U.S. Stocks - 86.6%
Advertising - 0.4%
Young & Rubicam, Inc. 276,900 $ 10,591,425
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Aerospace - 0.8%
AlliedSignal, Inc. 314,700 $ 18,272,269
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Automotive - 0.6%
Ford Motor Co. 261,600 $ 14,927,550
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Banks and Credit Companies - 2.6%
Bank of New York Co., Inc. 460,700 $ 16,470,025
Mellon Bank Corp. 482,000 17,201,375
US Bancorp 426,700 13,867,750
Wells Fargo Co. 401,410 16,056,400
--------------
$ 63,595,550
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Broadcasting - 0.6%
AT&T Corp. - Liberty Media Group* 34,600 $ 2,298,738
Infinity Broadcasting Corp.* 510,100 13,039,431
--------------
$ 15,338,169
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Business Machines - 3.6%
Kulicke & Soffa Industries, Inc.* 327,000 $ 6,907,875
Motorola, Inc. 329,400 27,278,438
Texas Instruments, Inc. 131,400 14,371,875
Xerox Corp. 669,100 37,595,056
--------------
$ 86,153,244
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Business Services - 0.3%
Computer Sciences Corp.* 95,300 $ 6,164,719
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Computer Hardware - Systems - 0.6%
Hewlett-Packard Co. 164,400 $ 15,504,975
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Computer Software - Personal Computers - 0.9%
America Online, Inc.* 13,900 $ 1,659,313
Microsoft Corp.* 233,200 18,816,325
--------------
$ 20,475,638
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Computer Software - Services - 0.7%
EMC Corp.* 177,600 $ 17,693,400
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Computer Software - Systems - 5.1%
BMC Software, Inc.* 1,048,700 $ 51,845,106
Computer Associates International, Inc. 431,026 20,392,918
Oracle Corp.* 1,231,250 30,550,391
Redback Networks, Inc.* 1,700 186,150
Unisys Corp. 495,000 18,779,062
--------------
$ 121,753,627
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Consumer Goods and Services - 6.5%
Galileo International, Inc. 210,900 $ 9,490,500
Newell Rubbermaid, Inc. 343,000 13,891,500
Tyco International Ltd. 1,528,331 133,537,921
--------------
$ 156,919,921
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Containers - 0.2%
Smurfit-Stone Container Corp.* 196,100 $ 4,228,406
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Electronics - 4.2%
Altera Corp.* 307,200 $ 10,694,400
Analog Devices, Inc.* 659,110 25,334,541
Lattice Semiconductor Corp.* 377,800 18,559,425
LSI Logic Corp.* 972,400 36,039,575
Teradyne, Inc.* 177,800 9,390,062
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$ 100,018,003
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Entertainment - 9.4%
CBS Corp.* 738,000 $ 30,811,500
Clear Channel Communications, Inc.* 331,802 21,919,670
Comcast Corp., "A" 589,500 22,695,750
Disney (Walt) Co. 848,400 24,709,650
Harrah's Entertainment, Inc.* 1,415,785 30,616,351
Hearst-Argyle Television, Inc.* 775,200 19,186,200
MediaOne Group, Inc.* 539,400 39,848,175
Time Warner, Inc. 526,950 35,865,534
--------------
$ 225,652,830
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Financial Institutions - 6.9%
Associates First Capital Corp., "A" 491,900 $ 20,167,900
Citigroup, Inc. 495,200 32,807,000
Donaldson, Lufkin & Jenrette, Inc. 47,900 3,209,300
Edwards (A.G.), Inc. 193,700 6,513,163
Federal Home Loan Mortgage Corp. 727,985 42,450,625
Finova Group, Inc. 761,280 36,398,700
Merrill Lynch & Co., Inc. 200,600 16,850,400
Paine Webber Group, Inc. 139,600 6,561,200
--------------
$ 164,958,288
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Food and Beverage Products - 0.9%
Anheuser-Busch Cos., Inc. 162,800 $ 11,894,575
Suiza Foods Corp.* 263,700 9,658,012
--------------
$ 21,552,587
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Forest and Paper Products - 2.0%
Bowater, Inc. 224,300 $ 11,551,450
Champion International Corp. 235,800 12,084,750
Jefferson Smurfit Corp. 5,723,500 14,904,279
Westvaco Corp. 322,800 9,219,975
--------------
$ 47,760,454
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Insurance - 7.7%
American International Group, Inc. 132,600 $ 15,157,837
Annuity & Life Re Holdings Ltd. 392,290 10,101,468
CIGNA Corp. 378,317 35,278,060
Equitable Cos., Inc. 490,500 34,426,969
Hartford Financial Services Group, Inc. 631,476 39,940,857
Nationwide Financial Services, Inc., "A" 417,300 18,022,144
ReliaStar Financial Corp. 800,317 33,263,175
--------------
$ 186,190,510
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Medical and Health Products - 2.3%
American Home Products Corp. 477,900 $ 27,538,987
Becton, Dickinson & Co. 569,500 22,068,125
Pharmacia & Upjohn, Inc. 113,800 6,308,788
--------------
$ 55,915,900
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Medical and Health Technology and Services - 2.0%
Mid Atlantic Medical Services, Inc.* 598,000 $ 6,204,250
United HealthCare Corp. 723,943 42,169,680
--------------
$ 48,373,930
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Oil Services - 0.8%
Baker Hughes, Inc. 287,900 $ 8,960,888
Burlington Resources, Inc. 263,500 11,314,031
--------------
$ 20,274,919
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Oils - 1.4%
Apache Corp. 107,800 $ 3,880,800
Conoco, Inc., "A" 522,000 14,159,250
Enron Oil & Gas Co. 756,100 14,413,156
--------------
$ 32,453,206
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Printing and Publishing - 1.8%
Gannett Co., Inc. 80,700 $ 5,830,575
Meredith Corp. 196,000 6,847,750
Scripps (E.W.) Howard, Inc., "A" 416,700 19,636,988
Tribune Co. 151,100 11,927,456
--------------
$ 44,242,769
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Restaurants and Lodging - 1.2%
Promus Hotel Corp.* 442,000 $ 11,050,000
Wendy's International, Inc. 648,770 17,678,982
--------------
$ 28,728,982
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Retail - 0.8%
Tandy Corp. 238,400 $ 19,668,000
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Stores - 2.5%
CVS Corp. 482,800 $ 22,208,800
Rite Aid Corp. 1,168,674 29,216,850
TJX Cos., Inc. 322,900 9,687,000
--------------
$ 61,112,650
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Supermarkets - 2.7%
Kroger Co.* 1,106,665 $ 64,809,069
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Telecommunications - 11.8%
AirTouch Communications, Inc.* 436,700 $ 43,888,350
Alltel Corp. 77,700 5,570,119
CenturyTel, Inc.* 361,850 13,863,378
Cisco Systems, Inc.* 289,400 31,544,600
General Instrument Corp.* 411,800 15,931,513
Global TeleSystems Group, Inc.* 19,800 1,504,800
GTE Corp. 363,600 22,929,525
MCI WorldCom, Inc.* 713,900 61,663,112
NEXTEL Communications, Inc.* 186,100 6,862,438
Nortel Networks Corp. 88,300 6,622,500
NTL, Inc.* 383,100 36,179,006
PSINet, Inc.* 231,700 10,310,650
Rhythms NetConnections, Inc.* 11,400 552,900
Scientific-Atlanta, Inc. 262,100 9,255,406
Sprint Corp. (PCS Group)* 395,200 17,784,000
--------------
$ 284,462,297
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Utilities - Electric - 0.8%
Duke Energy Corp. 297,100 $ 17,918,844
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Utilities - Gas - 2.8%
Coastal Corp. 757,300 $ 29,203,381
Sonat, Inc. 360,400 12,771,675
Williams Cos., Inc. 497,700 25,787,081
--------------
$ 67,762,137
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Utilities - Telephone - 1.7%
Frontier Corp. 757,700 $ 39,873,962
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Total U.S. Stocks $2,083,348,230
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Foreign Stocks - 10.7%
Argentina - 1.0%
YPF Sociedad Anonima, ADR (Oils) 542,100 $ 22,835,963
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Bermuda - 0.6%
Ace Ltd. (Insurance) 486,600 $ 14,841,300
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Canada - 0.9%
Abitibi-Consolidated, Inc. (Forest and Paper
Products) 911,700 $ 9,401,906
Canadian National Railway Co. (Railroads) 183,600 11,750,400
--------------
$ 21,152,306
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Finland - 1.0%
Nokia Corp., ADR (Telecommunications) 248,600 $ 17,650,600
Telephone Cooperative HPY (Telecommunications)* 2,600 6,791,859
--------------
$ 24,442,459
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France - 0.8%
Bouygues (Construction) 69,582 $ 18,394,178
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Germany - 2.8%
Mannesmann AG (Conglomerate) 494,400 $ 67,512,470
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Greece - 0.4%
Hellenic Telecommunication Organization S.A., GDR
(Telecommunications) 404,200 $ 8,755,375
- --------------------------------------------------------------------------------------------------------
Ireland - 0.1%
Jefferson Smurfit Group PLC, ADR (Containers) 101,845 $ 2,673,431
- --------------------------------------------------------------------------------------------------------
Japan - 0.5%
NTT Mobile Communication Network, Inc. (Telecommunications) 240 $ 13,130,276
- --------------------------------------------------------------------------------------------------------
Netherlands - 0.2%
Benckiser N.V., "B" (Consumer Goods and Services) 80,049 $ 4,322,350
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Portugal - 0.2%
Telecel - Comunicacoes Pessoais S.A. (Telecommunications) 46,300 $ 5,825,356
- --------------------------------------------------------------------------------------------------------
Singapore - 0.9%
Asia Pulp & Paper Co. Ltd., ADR (Consumer Goods and
Services) 2,205,200 $ 19,708,975
Development Bank of Singapore Ltd. (Banks and
Credit Cos.) 122,000 1,260,726
--------------
$ 20,969,701
- --------------------------------------------------------------------------------------------------------
Spain - 0.4%
Acciona S. A. (Construction) 211,400 $ 9,949,402
- --------------------------------------------------------------------------------------------------------
Sweden - 0.2%
Ericsson LM, ADR (Telecommunication Equipment) 183,400 $ 4,940,338
- --------------------------------------------------------------------------------------------------------
United Kingdom - 0.7%
Cable & Wireless Communications PLC (Telecommunications) 231,300 $ 2,197,316
Capital Radio PLC (Broadcasting) 271,000 3,807,424
Colt Telecom Group PLC (Telecommunications)* 139,700 12,014,200
--------------
$ 18,018,940
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 257,763,845
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $2,004,378,212) $2,341,112,075
- --------------------------------------------------------------------------------------------------------
Convertible Bond - 0.8%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
U.S. Bonds - 0.8%
Financial Services - 0.8%
Bell Atlantic Financial Services, Inc., 4.25s, 2005##
(Identified Cost, $21,080,414) $ 18,590 $ 19,170,938
- --------------------------------------------------------------------------------------------------------
Short-Term Obligations - 1.4%
- --------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 6/09/99 - 6/
22/99, at Amortized Cost $ 34,525 $ 34,468,598
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $2,059,927,224) $2,394,751,611
Other Assets, Less Liabilities - 0.5% 12,979,999
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $2,407,731,610
- --------------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- -------------------------------------------------------------------------------
MAY 31, 1999
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $2,059,927,224) $2,394,751,611
Cash 90,662
Foreign currency, at value (identified cost, $122,214) 148,625
Receivable for Fund shares sold 19,607,702
Receivable for investments sold 5,660,835
Interest and dividends receivable 2,442,082
Other assets 16,664
--------------
Total assets $2,422,718,181
--------------
Liabilities:
Payable for Fund shares reacquired $ 3,505,214
Payable for investments purchased 9,694,854
Payable to affiliates -
Management fee 184,960
Shareholder servicing agent fee 25,927
Distribution and service fee 1,247,969
Administrative fee 3,415
Accrued expenses and other liabilities 324,232
--------------
Total liabilities $ 14,986,571
--------------
Net assets $2,407,731,610
==============
Net assets consist of:
Paid-in capital $1,761,582,784
Unrealized appreciation on investments and translation
of assets
and liabilities in foreign currencies 334,841,225
Accumulated undistributed net realized gain on
investments
and foreign currency transactions 318,412,670
Accumulated net investment loss (7,105,069)
--------------
Total $2,407,731,610
==============
Shares of beneficial interest outstanding 132,044,813
===========
Class A shares:
Net asset value per share
(net assets of $1,333,159,234 / 71,822,562 shares of
beneficial interest outstanding) $18.56
======
Offering price per share (100 / 94.25 of net asset
value per share) $19.69
======
Class B shares:
Net asset value and offering price per share
(net assets of $868,844,010 / 48,735,409 shares of
beneficial interest outstanding) $17.83
======
Class C shares:
Net asset value and offering price per share
(net assets of $172,829,562 / 9,716,866 shares of
beneficial interest outstanding) $17.79
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $32,898,804 / 1,769,976 shares of
beneficial interest outstanding) $18.59
======
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 (Unaudited)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED MAY 31, 1999
- -------------------------------------------------------------------------------
Net investment loss:
Income -
Dividends $ 6,676,470
Interest 2,284,109
Foreign taxes withheld (74,579)
------------
Total investment income $ 8,886,000
------------
Expenses -
Management fee $ 7,543,941
Trustees' compensation 38,351
Shareholder servicing agent fee 1,127,908
Distribution and service fee (Class A) 1,435,604
Distribution and service fee (Class B) 3,816,518
Distribution and service fee (Class C) 737,320
Administrative fee 121,119
Custodian fee 309,331
Printing 67,611
Postage 129,108
Auditing fees 16,750
Legal fees 2,810
Miscellaneous 686,144
------------
Total expenses $ 16,032,515
Fees paid indirectly (109,494)
------------
Net expenses $ 15,923,021
------------
Net investment loss $ (7,037,021)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $321,099,577
Foreign currency transactions (1,238,620)
------------
Net realized gain on investments and foreign currency
transactions $319,860,957
------------
Change in unrealized appreciation -
Investments $ 23,117,500
Translation of assets and liabilities in foreign currencies 711,487
------------
Net unrealized gain on investments and foreign currency
transactions $ 23,828,987
------------
Net realized and unrealized gain on investments and
foreign currency $343,689,944
------------
Increase in net assets from operations $336,652,923
============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (7,037,021) $ (5,478,906)
Net realized gain on investments and foreign currency
transactions 319,860,957 109,709,448
Net unrealized gain on investments and foreign
currency translation 23,828,987 162,624,370
-------------- --------------
Increase in net assets from operations $ 336,652,923 $ 266,854,912
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ -- $ (909,560)
From net investment income (Class I) -- (85,735)
From net realized gain on investments and foreign
currency transactions (Class A) (50,282,906) (64,869,939)
From net realized gain on investments and foreign
currency transactions (Class B) (33,399,800) (45,448,082)
From net realized gain on investments and foreign
currency transactions (Class C) (6,206,083) (7,317,603)
From net realized gain on investments and foreign
currency transactions (Class I) (1,717,938) (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 $ (91,606,727) $ (121,438,070)
-------------- --------------
Net increase in net assets from Fund share transactions $ 430,180,091 $ 469,594,593
-------------- --------------
Total increase in net assets $ 675,226,287 $ 615,011,435
Net assets:
At beginning of period 1,732,505,323 1,117,493,888
-------------- --------------
At end of period (including accumulated net investment
loss of $7,105,069 and $68,048, respectively) $2,407,731,610 $1,732,505,323
============== ==============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED ---------------------------------------------------------------------
MAY 31, 1999 1998 1997 1996 1995 1994
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $16.60 $15.23 $13.34 $12.39 $ 9.44 $10.82
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.03) $(0.01) $ 0.07 $ 0.05 $ 0.01 $(0.01)
Net realized and unrealized
gain on investments and
foreign currency 2.89 3.02 2.97 2.04 3.64 0.26
------ ------ ------ ------ ------ ------
Total from investment operations $ 2.86 $ 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 (0.90) (1.61) (1.12) (1.14) (0.70) (1.60)
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.90) $(1.64) $(1.15) $(1.14) $(0.70) $(1.63)
------ ------ ------ ------ ------ ------
Net asset value - end of period $18.56 $16.60 $15.23 $13.34 $12.39 $ 9.44
====== ====== ====== ====== ====== ======
Total return(+) 18.15%++ 22.21% 24.96% 18.50% 41.67% 1.92%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.22%+ 1.23% 1.29% 1.32% 1.35% 1.37%
Net investment income (loss) (0.35)%+ (0.06)% 0.49% 0.43% 0.06% (0.05)%
Portfolio turnover 83% 123% 144% 112% 109% 91%
Net assets at end of period
(000 omitted) $1,333,159 $923,779 $609,189 $427,478 $227,555 $141,790
+ Annualized.
++ Not annualized.
+++ For the fiscal year ended November 30, 1998, the per share distribution in excess of net investment income was less than
$0.01.
# 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.
(+) 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.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED ---------------------------------------------------------------------
MAY 31, 1999 1998 1997 1996 1995 1994
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $15.94 $14.77 $13.01 $12.15 $ 9.34 $10.79
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.09) $(0.12) $(0.04) $(0.04) $(0.08) $(0.09)
Net realized and unrealized gain on
investments and foreign currency 2.78 2.90 2.89 2.00 3.59 0.27
------ ------ ------ ------ ------ ------
Total from investment operations $ 2.69 $ 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 $(0.80) $(1.61) $(1.09) $(1.10) $(0.70) $(1.60)
In excess of net investment income -- -- -- -- -- (0.03)
------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.80) $(1.61) $(1.09) $(1.10) $(0.70) $(1.63)
------ ------ ------ ------ ------ ------
Net asset value - end of period $17.83 $15.94 $14.77 $13.01 $12.15 $ 9.34
====== ====== ====== ====== ====== ======
Total return 17.75%++ 21.32% 24.03% 17.50% 40.53% 1.15%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.97%+ 1.98% 2.04% 2.16% 2.17% 2.25%
Net investment loss (1.11)%+ (0.81)% (0.28)% (0.33)% (0.77)% (0.96)%
Portfolio turnover 83% 123% 144% 112% 109% 91%
Net assets at end of period
(000 omitted) $868,844 $658,056 $411,640 $244,247 $46,068 $17,189
+ Annualized.
++ Not annualized.
# 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.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
NOVEMBER 30, PERIOD ENDED
SIX MONTHS ENDED ----------------------------- NOVEMBER 30,
MAY 31, 1999 1998 1997 1996*
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $15.91 $14.74 $13.03 $12.00
------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.09) $(0.12) $(0.04) $(0.01)
Net realized and unrealized gain on investments
and foreign currency 2.78 2.90 2.88 1.04
------ ------ ------ ------
Total from investment operations $ 2.69 $ 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 (0.81) (1.61) (1.12) --
------ ------ ------ ------
Total distributions declared to shareholders $(0.81) $(1.61) $(1.13) $ --
------ ------ ------ ------
Net asset value - end of period $17.79 $15.91 $14.74 $13.03
====== ====== ====== ======
Total return 17.72%++ 21.28% 24.02% 7.95%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.97%+ 1.98% 2.04% 2.11%+
Net investment loss (1.11)%+ (0.82)% (0.28)% (0.17)%+
Portfolio turnover 83% 123% 144% 112%
Net assets at end of period (000 omitted) $172,830 $119,966 $66,148 $31,919
* For the period from the inception of Class C, April 1, 1996, through November 30, 1996.
+ Annualized.
++ Not annualized.
# 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.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
MAY 31, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997*
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
CLASS I
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $16.63 $15.26 $12.22
------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.01) $ 0.03 $ 0.08
Net realized and unrealized gain on investments and
foreign currency 2.90 3.01 2.96
------ ------ ------
Total from investment operations $ 2.89 $ 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 (0.93) (1.61) --
------ ------ ------
$
Total distributions declared to shareholders $(0.93) $(1.67) --
------ ------ ------
Net asset value - end of period $18.59 $16.63 $15.26
====== ====== ======
Total return 18.30%++ 22.54% 24.88%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.97%+ 0.98% 1.01%+
Net investment income (loss) (0.11)%+ 0.20% 0.65%+
Portfolio turnover 83% 123% 144%
Net assets at end of period (000 omitted) $32,899 $30,705 $30,517
* For the period from the inception of Class I, January 2, 1997, through November 30, 1997.
+ Annualized.
++ Not annualized.
# 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.
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(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.
(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.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues and forward contracts are
valued on the basis of valuations furnished by dealers or by a pricing service
with consideration to factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics, and other market data, without exclusive reliance
upon exchange or over-the-counter prices. Short-term obligations, which mature
in 60 days or less, are valued at amortized cost, which approximates 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.
Security Loans - The Fund may lend its securities to member banks of the
Federal Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. State Street Bank and Trust Company ("State Street"), as
agent, loans the securities to certain brokers (the "Borrowers") approved by
the Fund. The loans are collateralized at all times by U.S. Treasury
securities in an amount at least equal to the market value of the securities
loaned. State Street provides the Fund with indemnification against Borrower
default.
At May 31, 1999, the value of securities loaned was $54,976,956. These loans
were collateralized by U.S. Treasury securities of $60,223,720. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the Fund and State Street. Income from
securities lending is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned
is accounted for in the same manner as other dividend and interest income.
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 distributions from paid-in
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.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses. Class B shares will convert to Class A
shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the Fund's average daily net assets. The investment adviser has reduced its
management fee to 0.65% on the Fund's net assets in excess of $1.5 billion.
This reduction in the management fee may be rescinded by MFS only with the
approval of the Fund's Board of Trustees.
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
$13,829 for the six months ended May 31, 1999.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$365,660 for the six months ended May 31, 1999, 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 (0.15% per annum on assets attributable to Class A shares sold
prior to October 1, 1989), 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
$54,316 for the six months ended May 31, 1999. 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 six
months ended May 31, 1999, 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 $19,950 and $1,482 for
Class B and Class C shares, respectively, for the six months ended May 31,
1999. Fees incurred under the distribution plan during the six months ended
May 31, 1999, were 1.00% and 1.00% of average daily net assets attributable to
Class B and Class C shares, respectively, 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 May 31, 1999,
were $19,663, $509,994, and $30,221 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 0.10%. Prior to April 1, 1999, the fee was calculated as a percentage
of the Fund's average daily net assets at an effective annual rate of 0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
- -------------------------------------------------------------------------------
U.S. government securities $ -- $ 36,041,858
-------------- --------------
Investments (non-U.S. government
securities) $2,071,628,823 $1,644,120,983
-------------- --------------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $2,059,927,224
--------------
Gross unrealized appreciation $ 387,566,205
Gross unrealized depreciation (52,741,818)
--------------
Net unrealized appreciation $ 334,824,387
==============
(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
SIX MONTHS ENDED MAY 31, 1999 YEAR ENDED NOVEMBER 30, 1998
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 36,135,270 $ 629,154,453 36,339,434 $ 560,864,465
Shares issued to shareholders
in reinvestment of distributions 2,817,692 44,519,999 4,512,652 60,655,260
Shares reacquired (22,781,222) (400,363,512) (25,191,694) (390,720,879)
----------- ------------- ----------- -------------
Net increase 16,171,740 $ 273,310,940 15,660,392 $ 230,798,846
=========== ============= =========== =============
<CAPTION>
Class B Shares
SIX MONTHS ENDED MAY 31, 1999 YEAR ENDED NOVEMBER 30, 1998
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 10,187,211 $ 171,860,792 17,781,760 $ 267,116,086
Shares issued to shareholders
in reinvestment of distributions 1,867,042 28,435,238 2,911,355 37,856,715
Shares reacquired (4,595,695) (77,735,430) (7,292,329) (108,644,391)
----------- ------------- ----------- -------------
Net increase 7,458,558 $ 122,560,600 13,400,786 $ 196,328,410
=========== ============= =========== =============
<CAPTION>
Class C Shares
SIX MONTHS ENDED MAY 31, 1999 YEAR ENDED NOVEMBER 30, 1998
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,182,787 $ 71,038,783 5,927,833 $ 88,827,966
Shares issued to shareholders
in reinvestment of distributions 265,692 4,035,862 307,581 3,992,921
Shares reacquired (2,269,769) (39,350,135) (3,183,416) (47,902,511)
----------- ------------- ----------- -------------
Net increase 2,178,710 $ 35,724,510 3,051,998 $ 44,918,376
=========== ============= =========== =============
<CAPTION>
Class I Shares
SIX MONTHS ENDED MAY 31, 1999 YEAR ENDED NOVEMBER 30, 1998
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 110,544 $ 1,922,590 338,798 $ 5,383,070
Shares issued to shareholders
in reinvestment of distributions 67,587 1,068,553 129,735 1,741,578
Shares reacquired (254,007) (4,407,102) (622,642) (9,575,687)
----------- ------------- ----------- -------------
Net decrease (75,876) $ (1,415,959) (154,109) $ (2,451,039)
=========== ============= =========== =============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $720 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 six
months ended May 31, 1999, was $7,664. The Fund had no borrowings during the
period.
(7) 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 six months ended
May 31, 1999, is set forth below:
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
BEGINNING -------------------------- ---------------------------
AFFILIATE SHARES SHARES COST SHARES COST
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cellular Communications
International, Inc. 1,263,417 40,100 $3,207,992 1,303,517 $29,220,379
---------- -----------
<CAPTION>
ENDING REALIZED DIVIDEND ENDING
AFFILIATE SHARES GAIN INCOME VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cellular Communications International, Inc. 0 $75,060,981 $ 0 $ 0
----------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
MFS(R) CAPITAL OPPORTUNITIES FUND
<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 Executive State Street Bank and Trust Company
Officer, Eastern Enterprises (diversified services
company) INVESTOR INFORMATION
For MFS stock and bond market outlooks,
Lawrence T. Perera - Partner, Hemenway call toll free: 1-800-637-4458 anytime from
& Barnes (attorneys) a touch-tone telephone.
William J. Poorvu - Adjunct Professor, Harvard For information on MFS mutual funds, call your
University Graduate School of Business financial adviser or, for an information kit, call
Administration toll free: 1-800-637-2929 any business day from 9
a.m. to 5 p.m. Eastern time (or leave a message
Charles W.Schmidt - Private Investor anytime).
Arnold D. Scott* - Senior Executive INVESTOR SERVICE
Vice President, Director, and Secretary, MFS Service Center, Inc.
MFS Investment Management P.O. Box 2281
Boston, MA 02107-9906
Jeffrey L. Shames* - Chairman, Chief
Executive Officer, and Director, For general information, call toll free:
MFS Investment Management 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
Elaine R. Smith - Independent Consultant
For service to speech- or hearing-impaired, call
David B. Stone - Chairman and Director, toll free: 1-800-637-6576 any business day from 9
North American Management Corp. a.m. to 5 p.m. Eastern time. (To use this service,
(investment advisers) your phone must be equipped with a
Telecommunications Device for the Deaf.)
INVESTMENT ADVISER
Massachusetts Financial Services Company For share prices, account balances, and exchanges,
500 Boylston Street call toll free: 1-800-MFS-TALK (1-800-637-8255)
Boston, MA 02116-3741 anytime from a touch-tone telephone.
DISTRIBUTOR WORLD WIDE WEB
MFS Fund Distributors, Inc. www.mfs.com
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
Maura A. Shaughnessy*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
MFS(R) CAPITAL ------------
OPPORTUNITIES FUND BULK RATE
U.S. POSTAGE
[Logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
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-3 7/99 152M 23/223/323/823
