<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) CAPITAL
OPPORTUNITIES FUND
SEMIANNUAL REPORT o MAY 31, 2000
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 9
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 19
Notes to Financial Statements ............................................. 26
Trustees and Officers ..................................................... 33
MFS ORIGINAL RESEARCH(R)
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
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW
EACH SECURITY AND EACH COMPANY PERSONALLY.
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
--------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
I'm sure you've noticed that whenever financial markets suffer a large
decline, as they did very dramatically this past spring, there's a flurry of
information on "how to deal with market volatility" -- both in the popular
press and from those of us in the investment business. Our own thinking on
this is that, first, for long-term investors volatility is not necessarily
something to be feared; occasional volatility may in fact be healthy for the
markets.
Second, our experience has been that when markets begin to fall, it's often
too late to act. The best response may be to do nothing -- if you're properly
prepared with a long-term plan, created with the help of your investment
professional. To help you create or update that plan and take market
volatility in stride, here are some points you may want to consider the next
time you talk with your investment professional.
1. VOLATILITY CAN BE A GOOD THING
We would argue that the markets today are much healthier than they were before
the period of volatility this past spring, in the sense that stock prices have
returned to more reasonable levels and we have a stronger base for future
growth. Perhaps the worst of the market's wrath descended on companies with
very high stock prices, relative to their earnings, or with business concepts
that looked great in the euphoria of a booming market but in the end appeared
to have no fundamental backing. It has always been our view that one of the
best protections against market volatility is to invest in stocks and bonds of
fundamentally good companies selling at reasonable prices. When discussing
potential investments with your investment professional, you may want to ask
how they fared in previous periods of volatility, as well as in the good
times.
2. INVEST FOR THE LONG TERM
You've heard that before, but we think it's still probably the most important
concept in investing. Time is one of an investor's greatest allies. Over
nearly all long-term periods -- five, 10, 20 years, and more -- stock and bond
returns, as represented by most common indices, have been positive and
have considerably outpaced inflation. Investing is the best way we know of to
make your money work for you while you're doing something else.
Where investors can get into trouble is by confusing investing with trading.
In our view, traders who buy securities with the intention of selling them at
a profit in a matter of hours, days, or weeks are gambling. We believe this
seldom turns out to be a good strategy for increasing your wealth.
3. INVEST REGULARLY
Waiting for the "right time" to invest is almost always a poor strategy,
because only in retrospect do we know when that right time really was. Periods
of volatility are probably the worst times to make an investment decision.
Faced with turmoil in the markets, many investors have opted
to simply stay on the sidelines.
On the other hand, we think one of the best techniques for investing is
through automatic monthly or quarterly deductions from a checking or savings
account. This approach has at least three major benefits. First, you can
formulate a long-term plan -- how much to invest, how often, and
into which portfolios -- in a calm, rational manner, working with your
investment professional. Second, with this approach you invest regularly
without agonizing over the decision each time you buy shares. And, third, if
you invest equal amounts of money at regular intervals, you'll be taking
advantage of a strategy called dollar-cost averaging: by investing a fixed
amount while the share cost fluctuates, you end up with an average share cost
to you that is lower than the average share price over your investment
period.(1) If all this sounds familiar, it's probably because you're already
taking advantage of dollar-cost averaging by investing regularly for
retirement through a 401(k) or similar account at work.
4. DIVERSIFY
One of the dangers of not having an investment plan is that you may be tempted
to simply chase performance, by moving money into whatever asset class appears
to be outperforming at the moment -- small, mid, or large cap; growth or
value; United States or international; stocks or bonds. The problem with this
approach is that by the time a particular area is generally recognized as
"hot," you may have already missed some of the best performance.
International investing offers a case in point. In the 1980s, international
investments, as represented by the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, outperformed U.S. investments, as
represented by the Standard & Poor's 500 Composite Index (S&P 500), in seven
out of 10 years.(2) For the decade, the MSCI EAFE's average annual performance
was 23%, compared to 18% for the S&P 500. Going into the 1990s, then, an
investor looking only at recent performance might have favored international
investments over U.S. investments.
But the 1990s turned out to be virtually a mirror image of the '80s. Domestic
investments outperformed international investments in seven out of 10 years,
with the S&P 500 returning an average of 18% annually for the decade and the
MSCI EAFE returning a 7% annual average. Looking ahead, however, we are
optimistic about international markets because we feel that many of the same
forces that propelled the current U.S. economic boom -- deregulation,
restructuring, and increased adoption of technology -- have taken root overseas.
The lesson to be learned is that nobody really knows what asset class will be
the next to outperform or how long that performance will be sustained. We
would suggest that one way to potentially profit from swings in the market --
to potentially be invested in various asset classes before the market shifts
in their favor -- is with a diversified portfolio covering several asset
classes.
If you haven't already done so, we encourage you to discuss these thoughts
with your investment professional and factor them into your long-range
financial planning. Hopefully, the next time the markets appear to be going
wild, you'll feel confident enough in your plan to view periods of volatility
as a time of potential opportunity -- or perhaps just a time to sit back and
do nothing.
As always, we appreciate your confidence in MFS 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 15, 2000
--------------
(1) For a more complete explanation of dollar-cost averaging and the math
involved, see "ABCs of Investing" in the Investor Education section of our
Web site (www.mfs.com).
(2) Source: Lipper Inc. Decade performance: '80s -- 12/31/79-12/31/89, '90s --
12/31/89-12/31/99. The MSCI EAFE Index is an unmanaged,
market-capitalization -weighted total return index that measures the
performance of the same developed-country global stock markets included in
the MSCI World Index but excludes the United States, Canada, and the South
African mining component. The S&P 500 is a popular, unmanaged index of
common stock total return performance. It is not possible to invest directly
in an index. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
A prospectus containing more complete information on any MFS product,
including all charges and expenses, can be obtained from your investment
professional. Please read it carefully before you invest or send money.
Investments in mutual funds will fluctuate and may be worth more or less upon
redemption.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Maura A. Shaughnessy]
Maura A. Shaughnessy
For the six months ended May 31, 2000, the fund's Class A shares provided a
total return of 16.79%, Class B shares 16.36%, Class C shares 16.33%, and
Class I shares 16.93%. These returns include the reinvestment of any
distributions but exclude the effects of any sales charges. During the same
period, the average multicap core fund tracked by Lipper Inc., an independent
firm that reports mutual fund performance, returned 6.43%. The fund's results
also compare to a 2.88% return for the fund's benchmark, the Standard & Poor's
500 Composite Index (the S&P 500), a popular, unmanaged index of common stock
total return performance.
Q. HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT OVER THE PAST SIX MONTHS?
A. The market has been extremely volatile, driven mainly by interest-rate
concerns. Technology and telecommunications stocks led the market between
November and March, as interest rates climbed and investors abandoned stocks
in more economically sensitive sectors. Valuations in the technology and
telecommunications sectors reached what seemed like ridiculously high
levels, especially given that many companies showed no sign of being
profitable anytime soon. We felt investors finally got nervous and started
selling technology and telecom names, leading to volatility in the S&P 500
through much of the spring. We think this shift caused some liquidity
problems in the market -- especially among small- and mid-cap names. As
technology stocks slid, safe-haven sectors like drugs, utilities, and food
benefited. In May, we finally started seeing data that suggested the economy
was slowing. This led to speculation that the Federal Reserve Board (the
Fed) might be nearly done raising interest rates, and investors began moving
back into technology stocks.
Q. HOW DID THE FUND MANAGE TO DO SO WELL IN THIS VOLATILE ENVIRONMENT?
A. We stuck to our disciplined investment strategy, buying stocks with strong
earnings growth that were selling at reasonable prices and selling them when
we felt they were fully valued. We tried not to get caught up in the herd
instinct known as momentum buying. Instead, we took advantage of stock price
weakness to buy names that we liked. A good example is Corning, a position
we started adding to back in January. We believe this is a company that is
mostly known for its plasticware, when in fact it's the leading manufacturer
worldwide of the fiber used in the fiber-optic networks being built for
high-speed data and Internet transmission. Its stock price bounced around a
lot during the technology debacle. But earnings accelerated during the
spring and more investors began to understand the importance of Corning's
fiber business. By the end of May, the stock had more than doubled from its
November 30 price. Several other large investments also did quite well,
including Mannesmann, a German wireless and wireline company that was bought
out at a nice premium by Vodafone AirTouch PLC, a leading international
mobile telecom provider.
Q. DID YOU MAKE ANY MAJOR CHANGES TO YOUR TELECOMMUNICATIONS AND TECHNOLOGY
HOLDINGS WHEN THEIR PRICES DECLINED THIS PAST SPRING?
A. We maintained a sizable stake in both sectors but used the volatility to
change our holdings. We sold positions whose quality we were concerned about
and trimmed stocks that had held up well, including Telecom Italia Mobile,
one of Italy's leading cellular companies, and big, well-known names such as
Oracle and Cisco. We used the proceeds to buy stocks like Vodafone that we
liked but hadn't had big positions in because they had been too expensive.
We also bought some lesser-known names at what we thought were attractive
prices. Among them were ADC Telecom, a networking stock; Telesystem
International Wireless, a small cellular company with investments in Eastern
Europe, Brazil, and Asia; and Cabletron Systems, a mid-size company involved
in both networking and high-end consulting. We kept stocks like Nortel
Networks -- a Canadian leader in the optical business -- that we thought had
strong earnings growth prospects not fully reflected in their stock prices.
Q. HOW DID THE FUND'S ENERGY INVESTMENTS FARE?
A. Quite well. We had more than doubled our energy stake late last year on the
expectation that oil prices were bottoming. Our biggest increase was in the
oil services area, in companies that supply services and equipment for
drilling rigs and oil wells. One of our largest investments was Baker
Hughes, which was the cheapest stock in its group last fall due mainly to
management problems. The stock has since rebounded nicely, thanks to both
restructuring and the rally in oil prices this past winter. We also added to
exploration and production stocks like Noble Drilling, as well as to natural
gas pipeline stocks like Enron, Coastal, and Dynegy -- all of which did
quite well during the period.
Q. WHICH STOCKS WERE DISAPPOINTMENTS?
A. UnitedGlobalCom (Ucoma) and its 50%-owned European subsidiary, United Pan-
Europe Communications (UPC), were disappointments. UPC is involved in buying
cable companies in Europe, while Ucoma is doing the same thing in Latin
America, Asia, and Australia. Both companies needed financing to execute
their strategies. Investors became nervous this spring that the capital
markets would shut down for companies like these and sold the stocks. We
added to our stakes in both companies when we believed their stock prices
were near their lows and have since seen them start to rise. Motorola, a top
holding, was also a disappointment as concerns mounted about its cellular
handset business.
Q. WHERE HAVE YOU FOUND BUYING OPPORTUNITIES?
A. We have continued to find some good values overseas, including Samsung
Electronics, a South Korean supplier of cellular handsets and memory chips,
and NTL, a company that -- like Ucoma and UPC -- is involved in acquiring
cable firms. We also bought some telecommunications stocks -- including
Nextlink and Allegiance Telecom -- when their stock prices nosedived this
spring. In the winter, when drug stocks tumbled on worries about changes in
Medicare reimbursement policies, we added shares of Pharmacia, Warner-
Lambert, and Bristol-Myers Squibb. Another area in which we did some
selective buying was financial services, where we added to existing holdings
like Hartford Financial and AXA Financial. We also increased our stake in
AES, a leading worldwide independent power producer that's benefiting from
the deregulation of electric power generation. Many of these stocks have
appreciated significantly since we purchased them.
Q. DO YOU EXPECT CONTINUED VOLATILITY AHEAD?
A. It's impossible to forecast the direction of interest rates or the market.
We feel we could well be near the end of the Fed's increases -- which would
bode well for the market -- or we could continue to see volatility. Under
either scenario, we'll maintain our disciplined investment strategy, looking
for earnings growth at a reasonable price wherever we can find it. Our
approach is to be patient and not panic even when the market seems like a
roller coaster.
/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>
--------------------------------------------------------------------------------
PORTFOLIO MANAGER'S PROFILE
--------------------------------------------------------------------------------
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 THE 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 ORIGINAL
RESEARCH(R), A GLOBAL, 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 investment professional, 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.
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: $5.2 BILLION NET ASSETS AS OF MAY 31, 2000
--------------------------------------------------------------------------------
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.)
TOTAL RATES OF RETURN THROUGH MAY 31, 2000
CLASS A
<TABLE>
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding
Sales Charge +16.79% +36.99% +126.99% +260.03% +548.37%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding
Sales Charge -- +36.99% + 31.42% + 29.20% + 20.55%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Including
Sales Charge -- +29.11% + 28.85% + 27.68% + 19.84%
-------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
6 Months 1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding
Sales Charge +16.36% +35.94% +122.01% +246.28% +515.03%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding
Sales Charge -- +35.94% + 30.45% + 28.20% + 19.92%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Including
Sales Charge -- +31.94% + 29.86% + 28.05% + 19.92%
-------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
6 Months 1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding
Sales Charge +16.33% +35.96% +121.79% +249.08% +528.65%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding
Sales Charge -- +35.96% + 30.41% + 28.41% + 20.18%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Including
Sales Charge -- +34.96% + 30.41% + 28.41% + 20.18%
-------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS I
6 Months 1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding
Sales Charge +16.93% +37.32% +128.57% +262.81% +553.38%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding
Sales Charge -- +37.32% + 31.73% + 29.40% + 20.65%
-------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO PERFORMANCE SUMMARY
Class A Share Performance Including Sales Charge takes into account the
deduction of the maximum 5.75% sales charge. Class B Share Performance
Including Sales Charge takes into account the deduction of the applicable
contingent deferred sales charge (CDSC), which declines over six years from 4%
to 0%. Class C Share Performance Including Sales Charge takes into account the
deduction of the 1% CDSC applicable to Class C shares redeemed within 12
months. Class I shares have no sales charge and are only available to certain
institutional investors.
Class B, C, and I share performance include the performance of the fund's
Class A shares for periods prior to their inception (blended performance).
Class B and C blended performance has been adjusted to take into account the
CDSC applicable to Class B and C shares rather than the initial sales charge
(load) applicable to Class A shares. Class I share blended performance has
been adjusted to account for the fact that Class I shares have no sales
charge. These blended performance figures have not been adjusted to take into
account differences in class-specific operating expenses. Because operating
expenses of Class B and C shares are higher than those of Class A, the blended
Class B and C share performance is higher than it would have been had Class B
and C shares been offered for the entire period. Conversely, because operating
expenses of Class I shares are lower than those of Class A, the blended Class
I share performance is lower than it would have been had Class I shares been
offered for the entire period.
All 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 capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
PORTFOLIO CONCENTRATION AS OF MAY 31, 2000
FIVE LARGEST STOCK SECTORS
TECHNOLOGY 30.7%
UTILITIES & COMMUNICATIONS 27.3%
ENERGY 11.5%
FINANCIAL SERVICES 8.4%
LEISURE 5.6%
TOP 10 STOCK HOLDINGS
<TABLE>
<S> <C>
TYCO INTERNATIONAL LTD. 3.0% VODAFONE AIRTOUCH PLC 1.7%
U.S. security systems, packaging, and British wireless communications services
electronic-equipment conglomerate provider
CORNING, INC. 2.9% SAMSUNG ELECTRONICS 1.7%
U.S. materials and equipment supplier to South Korean electronics manufacturer
communications industries
GLOBAL CROSSING LTD. 1.6%
BaKER HUGHES, INC. 2.3% Telecommunications company in Bermuda
U.S. products and services provider for
global petroleum market PHARMACIA CORP. 1.5%
U.S. biotechnology company
AES CORP. 2.1%
U.S. electric power plant operator TANDY CORP. 1.4%
U.S. retailer
NORTEL NETWORKS CORP. 2.0%
Canadian designer and developer of data and
telephony networks
</TABLE>
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- May 31, 2000
<TABLE>
<CAPTION>
Stocks - 96.8%
--------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 79.0%
Aerospace - 1.2%
Boeing Co. 520,400 $ 20,328,125
Honeywell International, Inc. 560,437 30,648,898
United Technologies Corp. 225,200 13,610,525
--------------
$ 64,587,548
--------------------------------------------------------------------------------------------------
Banks and Credit Companies - 1.1%
Chase Manhattan Corp. 535,800 $ 40,017,562
Providian Financial Corp. 184,600 16,417,863
--------------
$ 56,435,425
--------------------------------------------------------------------------------------------------
Biotechnology - 1.5%
Pharmacia Corp. 1,452,904 $ 75,460,201
--------------------------------------------------------------------------------------------------
Business Machines - 1.3%
Hewlett-Packard Co. 202,900 $ 24,373,363
Seagate Technology, Inc.* 700,100 40,605,800
--------------
$ 64,979,163
--------------------------------------------------------------------------------------------------
Business Services - 1.3%
Adelphia Business Solutions* 529,700 $ 11,785,825
Bea Systems, Inc.* 214,400 7,745,200
Computer Sciences Corp.* 315,000 30,220,312
Finisar Corp.* 837,900 18,695,644
--------------
$ 68,446,981
--------------------------------------------------------------------------------------------------
Cellular Telephones - 2.4%
Motorola, Inc. 885,927 $ 83,055,656
Sprint Corp. (PCS Group)* 705,800 39,171,900
--------------
122,227,556
--------------------------------------------------------------------------------------------------
Computer Hardware - Systems - 0.6%
Compaq Computer Corp. 369,800 $ 9,707,250
Dell Computer Corp.* 433,400 18,690,375
--------------
$ 28,397,625
--------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 0.5%
Mercury Interactive Corp.* 60,600 $ 5,135,850
Microsoft Corp.* 319,000 19,957,438
--------------
$ 25,093,288
--------------------------------------------------------------------------------------------------
Computer Software - Services - 0.4%
EMC Corp.* 192,500 $ 22,390,156
--------------------------------------------------------------------------------------------------
Computer Software - Systems - 3.8%
Aspect Development, Inc. 208,600 $ 12,203,100
BMC Software, Inc.* 673,700 29,642,800
Brocade Communications Systems, Inc.* 50,600 5,967,638
Commerce One, Inc.* 90,100 3,223,891
Computer Associates International, Inc. 750,600 38,655,900
Digex, Inc.* 335,700 14,183,325
Extreme Networks, Inc.* 102,500 5,009,688
Oracle Corp.* 197,700 14,209,687
Redback Networks, Inc.* 62,200 5,217,025
Siebel Systems, Inc.* 118,100 13,817,700
Unisys Corp.* 1,029,600 27,927,900
VERITAS Software Corp.* 210,525 24,526,162
--------------
$ 194,584,816
--------------------------------------------------------------------------------------------------
Conglomerates - 2.9%
Tyco International Ltd. 3,179,262 $ 149,624,018
--------------------------------------------------------------------------------------------------
Electronics - 7.7%
Analog Devices, Inc.* 556,320 $ 42,836,640
Applied Materials, Inc.* 274,227 22,897,954
Atmel Corp.* 546,900 20,884,744
Conexant Systems, Inc.* 495,900 18,658,238
Fairchild Semiconductor International Co.* 1,026,500 46,192,500
Flextronics International Ltd.* 174,200 9,483,013
Hadco Corp.* 117,500 10,369,375
Intel Corp. 283,500 35,348,906
Lam Research Corp.* 359,300 11,542,513
LSI Logic Corp.* 763,200 40,211,100
Micron Technology, Inc.* 687,200 48,061,050
Novellus Systems, Inc.* 409,400 19,727,962
Sanmina Corp.* 112,400 7,151,450
Solectron Corp.* 1,150,500 38,038,406
Teradyne, Inc.* 296,400 25,490,400
--------------
$ 396,894,251
--------------------------------------------------------------------------------------------------
Energy - 1.3%
Dynegy, Inc. 505,100 $ 38,955,838
NRG Energy, Inc.* 1,653,010 27,481,291
--------------
$ 66,437,129
--------------------------------------------------------------------------------------------------
Entertainment - 1.9%
Harrah's Entertainment, Inc.* 960,885 $ 18,977,479
Hearst-Argyle Television, Inc.* 624,900 11,834,044
Infinity Broadcasting Corp., "A"* 2,173,025 68,721,915
--------------
$ 99,533,438
--------------------------------------------------------------------------------------------------
Financial Institutions - 3.2%
Associates First Capital Corp., "A" 1,513,590 $ 41,529,126
Citigroup, Inc. 438,200 27,250,562
Federal Home Loan Mortgage Corp. 1,125,000 50,062,500
Federal National Mortgage Assn. 338,200 20,334,275
Merrill Lynch & Co., Inc. 278,400 27,457,200
--------------
$ 166,633,663
--------------------------------------------------------------------------------------------------
Financial Services - 1.3%
AXA Financial, Inc. 1,784,200 $ 69,472,287
--------------------------------------------------------------------------------------------------
Forest and Paper Products
Weyerhaeuser Co. 20,700 $ 1,027,238
--------------------------------------------------------------------------------------------------
Insurance - 2.5%
American International Group, Inc. 211,900 $ 23,851,994
Hartford Financial Services Group, Inc. 1,040,476 61,518,143
Lincoln National Corp. 1,166,300 45,194,125
--------------
$ 130,564,262
--------------------------------------------------------------------------------------------------
Internet - 0.8%
VeriSign, Inc.* 273,000 $ 36,957,375
VIA NET.WORKS, Inc. 350,070 4,944,739
--------------
$ 41,902,114
--------------------------------------------------------------------------------------------------
Machinery - 1.3%
Deere & Co., Inc. 671,800 $ 27,921,688
Ingersoll Rand Co. 872,500 39,753,281
--------------
$ 67,674,969
--------------------------------------------------------------------------------------------------
Medical and Health Products - 3.0%
American Home Products Corp. 418,500 $ 22,546,688
Bausch & Lomb, Inc. 442,300 30,739,850
Bristol-Myers Squibb Co. 1,030,600 56,747,412
Warner-Lambert Co. 364,600 44,526,775
--------------
$ 154,560,725
--------------------------------------------------------------------------------------------------
Metals and Minerals - 0.4%
Phelps Dodge Corp. 471,400 $ 21,154,075
--------------------------------------------------------------------------------------------------
Oil Services - 6.5%
Baker Hughes, Inc. 3,188,200 $ 115,572,250
BJ Services Co.* 286,400 20,513,400
Burlington Resources, Inc. 224,900 10,289,175
Cooper Cameron Corp.* 440,900 30,752,775
Global Marine, Inc.* 486,600 13,776,863
Halliburton Co. 965,600 49,245,600
Noble Drilling Corp.* 949,500 41,184,562
Valero Energy Corp. 415,100 12,141,675
Weatherford International, Inc.* 1,044,100 44,961,556
--------------
$ 338,437,856
--------------------------------------------------------------------------------------------------
Oils - 5.7%
Coastal Corp. 959,400 $ 58,883,175
Conoco, Inc. 1,934,300 55,127,550
Conoco, Inc., "A" 965,400 25,824,450
EOG Resources, Inc. 1,248,000 40,560,000
Grant Pride Co., Inc.* 1,004,300 23,349,975
Transocean Sedco Forex, Inc. 813,784 40,028,000
Ultramar Diamond Shamrock 876,400 22,731,625
Unocal Corp. 793,800 30,511,688
--------------
$ 297,016,463
--------------------------------------------------------------------------------------------------
Printing and Publishing - 0.5%
Tribune Co. 721,900 $ 27,793,150
--------------------------------------------------------------------------------------------------
Retail - 1.9%
Costco Wholesale Corp.* 28,100 $ 897,444
CVS Corp. 665,300 28,940,550
Tandy Corp. 1,645,000 69,809,687
--------------
$ 99,647,681
--------------------------------------------------------------------------------------------------
Supermarkets - 1.3%
Kroger Co.* 2,059,130 $ 40,925,209
Safeway, Inc.* 564,200 26,023,725
--------------
$ 66,948,934
--------------------------------------------------------------------------------------------------
Telecommunications - 17.8%
ADC Telecommunications, Inc.* 796,300 $ 53,501,406
Allegiance Telecom, Inc.* 703,950 37,221,356
Alltel Corp. 495,100 32,398,106
Amdocs Ltd.* 404,400 25,047,525
AT&T Corp. 1,279,320 36,540,578
BroadWing, Inc.* 399,198 9,505,902
Cabletron Systems, Inc.* 1,526,900 35,023,269
Cablevision Systems Corp. "A"* 353,200 22,119,150
CIENA Corp.* 103,000 12,327,813
Cisco Systems, Inc.* 873,800 49,751,987
Corning, Inc. 747,800 144,652,563
Focal Communications Corp.* 128,000 3,448,000
GTE Corp. 350,200 22,150,150
Intermedia Communications, Inc.* 303,700 7,592,500
Lucent Technologies, Inc. 392,800 22,536,900
Metromedia Fiber Network, Inc., "A"* 1,044,140 32,303,081
MGC Communications, Inc.* 549,200 22,517,200
Network Solutions, Inc.* 131,300 19,407,781
Nextlink Communications, Inc., "A"* 388,600 27,226,288
NTL, Inc.* 1,080,175 63,797,836
Pegasus Communications Corp.* 118,800 4,870,800
Qwest Communications International, Inc.* 685,100 28,988,294
Sprint Corp.* 423,000 25,591,500
Time Warner Telecom, Inc.* 390,400 21,862,400
UnitedGlobalCom, Inc.* 1,127,500 54,120,000
Vignette Corp.* 72,300 1,992,769
Williams Communications Group, Inc.* 1,418,600 52,044,887
Winstar Communications, Inc.* 835,949 23,720,053
Tekelec Co.* 888,200 29,310,600
--------------
$ 921,570,694
--------------------------------------------------------------------------------------------------
Telecommunications and Cable - 0.4%
Comcast Corp., "A"* 569,700 $ 21,577,388
--------------------------------------------------------------------------------------------------
Utilities - Electric - 2.9%
AES Corp.* 1,207,500 $ 105,354,375
Calpine Corp.* 165,700 17,553,844
CMS Energy Corp. 1,121,000 25,502,750
--------------
$ 148,410,969
--------------------------------------------------------------------------------------------------
Utilities - Gas - 1.3%
Enron Corp. 382,200 $ 27,852,825
Williams Cos., Inc. 966,664 40,176,972
--------------
$ 68,029,797
--------------------------------------------------------------------------------------------------
Utilities - Telephone - 0.3%
U.S. West, Inc. 199,400 $ 14,356,800
--------------------------------------------------------------------------------------------------
Total U.S. Stocks $4,091,870,660
--------------------------------------------------------------------------------------------------
Foreign Stocks - 17.8%
Argentina - 0.1%
IMPSAT Fiber Networks, Inc. (Telecommunications)* 370,850 $ 4,079,350
--------------------------------------------------------------------------------------------------
Australia - 0.5%
Cable & Wireless Optus Ltd. (Telecommunications) 9,928,000 $ 27,130,196
--------------------------------------------------------------------------------------------------
Bermuda - 1.6%
FLAG Telecom Holdings Ltd. (Telecommunications)* 331,230 $ 4,699,325
Global Crossing Ltd. (Telecommunications)* 3,188,000 79,899,250
--------------
$ 84,598,575
--------------------------------------------------------------------------------------------------
Brazil - 0.2%
Telecomunicacoes de Sao Paulo S.A.
(Telecommunications)* 331,700 $ 8,416,887
--------------------------------------------------------------------------------------------------
Canada - 3.2%
AT&T Canada, Inc. (Telecommunications)* 862,400 $ 33,633,600
Nortel Networks Corp. (Telecommunications) 1,861,260 101,089,684
Telesystem International Wireless, Inc.
(Telecommunications)* 1,584,600 32,682,375
--------------
$ 167,405,659
--------------------------------------------------------------------------------------------------
Finland - 1.3%
Nokia Corp., ADR (Telecommunications) 912,400 $ 47,444,800
Sonera Oyj (Telecommunications) 433,700 21,965,003
--------------
$ 69,409,803
--------------------------------------------------------------------------------------------------
France - 1.1%
Integra S.A. (Computer Software - Services)* 692,439 $ 10,527,158
Vivendi S.A. (Business Services) 434,000 46,551,062
--------------
$ 57,078,220
--------------------------------------------------------------------------------------------------
Hong Kong - 0.3%
China Telecom Ltd. (Telecommunications) 2,322,000 $ 17,358,158
--------------------------------------------------------------------------------------------------
Israel - 0.4%
Partner Communications Co. Ltd., ADR (Cellular
Telephones)* 2,777,950 $ 19,792,894
--------------------------------------------------------------------------------------------------
Japan - 0.6%
NTT Mobile Communications Network, Inc.
(Telecommunications) 1,100 $ 28,398,960
--------------------------------------------------------------------------------------------------
Mexico - 0.2%
Grupo Iusacell S. A. de C. V., ADR
(Telecommunications)* 570,250 $ 7,555,812
--------------------------------------------------------------------------------------------------
Netherlands - 2.7%
Completel Europe N.V. (Telecommunications)* 1,283,754 $ 14,966,968
KPN N.V. (Telecommunications)* 432,086 39,011,044
Libertel N.V. (Cellular Telecommunications)* 1,451,582 22,474,585
United Pan-Europe Communications N.V.
(Telecommunications and Cable)* 1,671,500 43,293,658
Versatel Telecommunications N.V.
(Telecommunications)* 605,424 21,853,078
--------------
$ 141,599,333
--------------------------------------------------------------------------------------------------
South Korea - 1.6%
Samsung Electronics (Electronics) 307,020 $ 83,757,449
--------------------------------------------------------------------------------------------------
Sweden - 1.1%
Tele1 Europe Holdings AB (Telecommunications)* 1,574,930 $ 19,031,062
Tele1 Europe Holdings AB, ADR (Telecommunications)* 77,800 894,700
Telefonaktiebolaget LM Ericsson AB
(Telecommunications) 1,896,000 38,536,585
--------------
$ 58,462,347
--------------------------------------------------------------------------------------------------
United Kingdom - 2.9%
Cable & Wireless Communications PLC, ADR
(Telecommunications)* 1,592,316 $ 26,567,549
Energis PLC (Telecommunications)* 834,930 31,734,464
NDS Group PLC, ADR (Internet)* 111,000 7,381,500
Vodafone AirTouch PLC (Telecommunications)* 18,408,694 84,017,574
--------------
$ 149,701,087
--------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 924,744,730
--------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $4,467,790,236) $5,016,615,390
--------------------------------------------------------------------------------------------------
Short-Term Obligations - 3.4%
--------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
--------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., due 6/01/00 $ 67,992 $ 67,992,000
Morgan Stanley Dean Witter, due 6/01/00 100,000 100,000,000
Pitney Bowes, Inc., due 6/01/00 9,025 9,025,000
--------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 177,017,000
--------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $4,644,807,236) $5,193,632,390
Other Assets, Less Liabilities - (0.2)% (12,495,801)
--------------------------------------------------------------------------------------------------
Net Assets - 100.0% $5,181,136,589
--------------------------------------------------------------------------------------------------
* Non-income producing security.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
------------------------------------------------------------------------------
MAY 31, 2000
------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $4,644,807,236) $5,193,632,390
Investments of cash collateral for securities loaned,
at value (identified cost, $86,598,211) 86,598,211
Cash 390,712
Receivable for investments sold 72,586,496
Receivable for Fund shares sold 27,430,512
Dividends receivable 2,629,524
Other assets 16,664
--------------
Total assets $5,383,284,509
--------------
Liabilities:
Payable for foreign currency, at value (identified
cost, $22,753) $ 23,126
Payable for investments purchased 103,854,887
Payable for Fund shares reacquired 11,123,317
Collateral for securities loaned, at value 86,598,211
Payable to affiliates -
Management fee 93,212
Shareholder servicing agent fee 13,936
Distribution and service fee 83,069
Administrative fee 2,056
Accrued expenses and other liabilities 356,106
--------------
Total liabilities $ 202,147,920
--------------
Net assets $5,181,136,589
==============
Net assets consist of:
Paid-in capital $4,124,982,729
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 548,737,521
Accumulated undistributed net realized gain on
investments and foreign currency transactions 524,614,809
Accumulated net investment loss (17,198,470)
--------------
Total $5,181,136,589
==============
Shares of beneficial interest outstanding 244,789,577
===========
Class A shares:
Net asset value per share
(net assets of $2,654,312,730 / 122,458,216 shares of
beneficial interest outstanding) $21.68
======
Offering price per share (100 / 94.25 of net asset
value per share) $23.00
======
Class B shares:
Net asset value and offering price per share
(net assets of $1,854,362,554 / 89,904,869 shares of
beneficial interest outstanding) $20.63
======
Class C shares:
Net asset value and offering price per share
(net assets of $560,426,914 / 27,268,152 shares of
beneficial interest outstanding) $20.55
======
Class I shares:
Net asset value, offering price, and redemption
price per share (net assets of
$112,034,391 / 5,158,340 shares of
beneficial interest outstanding) $21.72
======
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, 2000
------------------------------------------------------------------------------
Net investment income (loss):
Income -
Dividends $ 12,568,745
Interest 3,666,404
Foreign taxes withheld (428,697)
------------
Total investment income $ 15,806,452
------------
Expenses -
Management fee $ 15,130,596
Trustees' compensation 32,403
Shareholder servicing agent fee 2,241,874
Distribution and service fee (Class A) 2,922,362
Distribution and service fee (Class B) 8,063,928
Distribution and service fee (Class C) 2,173,884
Administrative fee 217,452
Custodian fee 752,182
Printing 55,748
Postage 190,260
Auditing fees 16,417
Miscellaneous 1,515,517
------------
Total expenses $ 33,312,623
Fees paid indirectly (391,994)
------------
Net expenses $ 32,920,629
------------
Net investment loss $(17,114,177)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $531,079,992
Foreign currency transactions (1,275,075)
------------
Net realized gain on investments and foreign
currency transactions $529,804,917
------------
Change in unrealized depreciation -
Investments $ (328,837)
Translation of assets and liabilities in foreign
currencies (134,025)
------------
Net unrealized loss on investments and foreign
currency translation $ (462,862)
------------
Net realized and unrealized gain on investments
and foreign currency $529,342,055
------------
Increase in net assets from operations $512,227,878
============
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
---------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MAY 31, 2000 NOVEMBER 30, 1999
(UNAUDITED)
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (17,114,177) $ (16,000,929)
Net realized gain on investments and foreign currency
transactions 529,804,917 569,207,170
Net unrealized gain (loss) on investments and foreign
currency translation (462,862) 238,188,145
-------------- --------------
Increase in net assets from operations $ 512,227,878 $ 791,394,386
-------------- --------------
Distributions declared to shareholders -
From net realized gain on investments and foreign
currency transactions (Class A) $ (273,762,708) $ (50,282,930)
From net realized gain on investments and foreign
currency transactions (Class B) (188,068,527) (33,399,800)
From net realized gain on investments and foreign
currency transactions (Class C) (43,095,712) (6,206,083)
From net realized gain on investments and foreign
currency transactions (Class I) (11,161,698) (1,717,938)
-------------- --------------
Total distributions declared to shareholders $ (516,088,645) $ (91,606,751)
-------------- --------------
Net increase in net assets from Fund share transactions $1,866,776,291 $ 885,928,107
-------------- --------------
Total increase in net assets $1,862,915,524 $1,585,715,742
Net assets:
At beginning of period 3,318,221,065 1,732,505,323
-------------- --------------
At end of period (including accumulated net investment
loss of $17,198,470 and $84,293, respectively) $5,181,136,589 $3,318,221,065
============== ==============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
-------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED ----------------------------------------------------------
MAY 31, 2000 1999 1998 1997 1996 1995
(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 $ 21.77 $ 16.60 $ 15.23 $ 13.34 $ 12.39 $ 9.44
---------- ---------- -------- -------- -------- --------
Income from investment operations# -
Net investment income (loss) $ (0.05) $ (0.06) $ (0.01) $ 0.07 $ 0.05 $ 0.01
Net realized and unrealized gain on
investments and foreign currency 3.28 6.13 3.02 2.97 2.04 3.64
---------- ---------- -------- -------- -------- --------
Total from investment
operations $ 3.23 $ 6.07 $ 3.01 $ 3.04 $ 2.09 $ 3.65
---------- ---------- -------- -------- -------- --------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $ (0.03) $ (0.03) $ -- $ --
From net realized gain on investments and
foreign currency transactions (3.32) (0.90) (1.61) (1.12) (1.14) (0.70)
In excess of net investment income -- -- -- +++ -- -- --
---------- ---------- -------- -------- -------- --------
Total distributions declared to
shareholders $ (3.32) $ (0.90) $ (1.64) $ (1.15) $ (1.14) $ (0.70)
---------- ---------- -------- -------- -------- --------
Net asset value - end of period $ 21.68 $ 21.77 $ 16.60 $ 15.23 $ 13.34 $ 12.39
========== ========== ======== ======== ======== ========
Total return(+) 16.79%++ 38.59% 22.21% 24.96% 18.50% 41.67%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.15%+ 1.18% 1.23% 1.29% 1.32% 1.35%
Net investment income (loss) (0.43)%+ (0.33)% (0.06)% 0.49% 0.43% 0.06%
Portfolio turnover 71% 155% 123% 144% 112% 109%
Net assets at end of period (000 Omitted) $2,654,313 $1,769,925 $923,779 $609,189 $427,478 $227,555
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
(+) 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 NOVEMBER 30,
SIX MONTHS ENDED -------------------------------------------------------------------
MAY 31, 2000 1999 1998 1997 1996 1995
(UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------
CLASS B
----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 20.83 $ 15.94 $ 14.77 $ 13.01 $ 12.15 $ 9.34
---------- ---------- -------- -------- -------- -------
Income from investment operations# -
Net investment loss $ (0.12) $ (0.19) $ (0.12) $ (0.04) $ (0.04) $ (0.08)
Net realized and unrealized gain on
investments and foreign currency 3.13 5.88 2.90 2.89 2.00 3.59
---------- ---------- -------- -------- -------- -------
Total from investment
operations $ 3.01 $ 5.69 $ 2.78 $ 2.85 $ 1.96 $ 3.51
---------- ---------- -------- -------- -------- -------
Less distributions declared to
shareholders from net realized
gain on investments and foreign
currency transactions $ (3.21) $ (0.80) $ (1.61) $ (1.09) $ (1.10) $ (0.70)
---------- ---------- -------- -------- -------- -------
Net asset value - end of period $ 20.63 $ 20.83 $ 15.94 $ 14.77 $ 13.01 $ 12.15
========== ========== ======== ======== ======== =======
Total return 16.36%++ 37.57% 21.32% 24.03% 17.50% 40.53%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.90%+ 1.93% 1.98% 2.04% 2.16% 2.17%
Net investment loss (1.17)%+ (1.08)% (0.81)% (0.28)% (0.33)% (0.77)%
Portfolio turnover 71% 155% 123% 144% 112% 109%
Net assets at end of period
(000 Omitted) $1,854,363 $1,204,159 $658,056 $411,640 $244,247 $46,068
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
-----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, PERIOD ENDED
SIX MONTHS ENDED -------------------------------------------- NOVEMBER 30,
MAY 31, 2000 1999 1998 1997 1996*
(UNAUDITED)
---------------------------------------------------------------------------------------------------------------------------------
CLASS C
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $20.78 $15.91 $14.74 $13.03 $12.00
------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.12) $(0.19) $(0.12) $(0.04) $(0.01)
Net realized and unrealized gain on
investments and foreign currency 3.11 5.87 2.90 2.88 1.04
------ ------ ------ ------ ------
Total from investment operations $ 2.99 $ 5.68 $ 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 (3.22) (0.81) (1.61) (1.12) --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(3.22) $(0.81) $(1.61) $(1.13) $ --
------ ------ ------ ------ ------
Net asset value - end of period $20.55 $20.78 $15.91 $14.74 $13.03
====== ====== ====== ====== ======
Total return 16.33%++ 37.59% 21.28% 24.02% 7.95%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.90%+ 1.93% 1.98% 2.04% 2.11%+
Net investment loss (1.16)%+ (1.08)% (0.82)% (0.28)% (0.17)%+
Portfolio turnover 71% 155% 123% 144% 112%
Net assets at end of period (000
Omitted) $560,427 $273,038 $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.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
-----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, PERIOD ENDED
MAY 31, 2000 ------------------------------ NOVEMBER 30,
1999 1998 1997*
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------
CLASS I
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $21.82 $16.63 $15.26 $12.22
------ ------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.02) $(0.02) $ 0.03 $ 0.08
Net realized and unrealized gain on investments
and foreign currency 3.28 6.14 3.01 2.96
------ ------ ------ ------
Total from investment operations $ 3.26 $ 6.12 $ 3.04 $ 3.04
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $(0.05) $ --
From net realized gain on investments and
foreign currency transactions (3.36) (0.93) (1.61) --
In excess of net investment income -- -- (0.01) --
------ ------ ------ ------
Total distributions declared to
shareholders $(3.36) $(0.93) $(1.67) $ --
------ ------ ------ ------
Net asset value - end of period $21.72 $21.82 $16.63 $15.26
====== ====== ====== ======
Total return 16.93%++ 38.93% 22.54% 24.88%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.90%+ 0.92% 0.98% 1.01%+
Net investment income (loss) (0.18)%+ (0.09)% 0.20% 0.65%+
Portfolio turnover 71% 155% 123% 144%
Net assets at end of period (000 Omitted) $112,034 $71,099 $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.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<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. The Fund
can invest in foreign securities. 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. 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 in good faith, at
fair value, by 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.
Security Loans - State Street Bank and Trust Company ("State Street") and
Chase Manhattan Bank ("Chase"), as lending agents, may loan the securities of
the Fund to certain qualified institutions (the "Borrowers") approved by the
Fund. The loans are collateralized at all times by cash and/or U.S. Treasury
securities in an amount at least equal to the market value of the securities
loaned. State Street and Chase provide the Fund with indemnification against
Borrower default. The Fund bears the risk of loss with respect to the
investment of cash collateral.
Cash collateral is invested in short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the Fund and the lending agents. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the Fund and the lending agents. 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.
At May 31, 2000, the value of securities loaned was $222,751,191. These loans
were collateralized by U.S. Treasury securities of $148,900,423 and cash of
$86,598,211 which was invested in the following short-term obligations:
PRINCIPAL AMORTIZED COST
AMOUNT AND VALUE
------------------------------------------------------------------------------
Bayerische und Vereinsbank, 6.26%, due 7/20/00 $ 4,000,000 $ 3,997,848
Deutsche Bank AG, 6.48%, due 1/12/01 1,000,000 999,707
Old Line Funding Corp., 6.59%, due 6/1/00 5,000,000 5,000,000
Salomon Smith Barney, Inc., 6.55%, due 6/1/00 26,600,656 26,600,656
Salomon Smith Barney, Inc., 6.57%, due 6/1/00 50,000,000 50,000,000
-----------
Total investment of cash collateral for
securities loaned $86,598,211
===========
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 reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. During the period, the Fund's custodian fees were reduced by $91,872
under this arrangement. The Fund has entered into a directed brokerage
agreement, under which the broker will credit the Fund a portion of the
commissions generated, to offset certain expenses of the Fund. For the period,
the Fund's custodian fees were reduced by $300,122 under this agreement. These
amounts are 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 net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
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 only those 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 daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. 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 the following
annual rates:
First $1.5 billion of average net assets 0.75%
Next $1.5 billion of average net assets 0.65%
Next $2 billion of average net assets 0.625%
Average net assets in excess of $5 billion 0.60%
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. Included in
Trustees' compensation is a net periodic pension expense of $3,874 for the six
months ended May 31, 2000.
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 incurs an administrative fee at
the following annual percentages of the Fund's average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$1,148,345 for the six months ended May 31, 2000, 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 $125,346
for the six months ended May 31, 2000. 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, 2000, 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 $33,508 and $6,205 for
Class B and Class C shares, respectively, for the six months ended May 31,
2000. Fees incurred under the distribution plan during the six months ended
May 31, 2000, 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 six months ended May 31,
2000, were $12,572, $754,582, and $46,003 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 annual rate of 0.10%.
(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 $ 56,583,649 $ --
-------------- --------------
Investments (non-U.S. government securities) $4,371,373,189 $3,143,557,888
-------------- --------------
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 $4,644,807,236
--------------
Gross unrealized appreciation $ 948,048,907
Gross unrealized depreciation (399,223,753)
--------------
Net unrealized appreciation $ 548,825,154
==============
(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, 2000 YEAR ENDED NOVEMBER 30, 1999
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 48,569,528 $ 1,080,163,278 60,655,990 $ 1,113,353,629
Shares issued to shareholders in
reinvestment of distributions 12,099,178 232,304,750 2,817,699 44,520,095
Shares reacquired (19,515,827) (434,554,684) (37,819,174) (694,985,504)
--------------- --------------- --------------- ---------------
Net increase 41,152,879 $ 877,913,344 25,654,515 $ 462,888,220
=============== =============== =============== ===============
<CAPTION>
Class B Shares
SIX MONTHS ENDED MAY 31, 2000 YEAR ENDED NOVEMBER 30, 1999
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 29,279,922 $ 620,119,070 23,417,148 $ 422,494,400
Shares issued to shareholders in
reinvestment of distributions 8,932,875 163,740,875 1,867,778 28,447,087
Shares reacquired (6,119,077) (128,938,738) (8,750,628) (155,932,476)
--------------- --------------- --------------- ---------------
Net increase 32,093,720 $ 654,921,207 16,534,298 $ 295,009,011
=============== =============== =============== ===============
<CAPTION>
Class C Shares
SIX MONTHS ENDED MAY 31, 2000 YEAR ENDED NOVEMBER 30, 1999
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 14,185,944 $ 299,243,989 8,800,009 $ 158,634,114
Shares issued to shareholders in
reinvestment of distributions 1,717,952 31,386,982 265,801 4,037,596
Shares reacquired (1,774,822) (37,112,603) (3,464,888) (62,068,646)
--------------- --------------- --------------- ---------------
Net increase 14,129,074 $ 293,518,368 5,600,922 $ 100,603,064
=============== =============== =============== ===============
<CAPTION>
Class I Shares
SIX MONTHS ENDED MAY 31, 2000 YEAR ENDED NOVEMBER 30, 1999
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,946,553 $ 66,689,734 1,730,802 $ 33,350,277
Shares issued to shareholders in
reinvestment of distributions 420,586 8,083,670 67,587 1,068,553
Shares reacquired (1,466,935) (34,350,032) (386,105) (6,991,018)
--------------- --------------- --------------- ---------------
Net increase 1,900,204 $ 40,423,372 1,412,284 $ 27,427,812
=============== =============== =============== ===============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $1.1 billion unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made for temporary financing needs. 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, 2000, was $17,759. The Fund had no significant borrowings during the period.
<PAGE>
<TABLE>
MFS(R) CAPITAL OPPORTUNITIES FUND
<S> <C>
TRUSTEES SECRETARY
J. Atwood Ives + - Chairman and Chief Stephen E. Cavan*
Executive Officer, Eastern Enterprises
(diversified services company) ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Lawrence T. Perera + - Partner, Hemenway
& Barnes (attorneys) CUSTODIAN
State Street Bank and Trust Company
William J. Poorvu + - Adjunct Professor,
Harvard University Graduate School of INVESTOR INFORMATION
Business Administration For information on MFS mutual funds, call
your investment professional or, for an
Charles W. Schmidt + - Private Investor information kit, call toll free: 1-800-637-2929
any business day from 9 a.m. to 5 p.m.
Arnold D. Scott* - Senior Executive Eastern time (or leave a message anytime).
Vice President, Director, and Secretary,
MFS Investment Management INVESTOR SERVICE
MFS Service Center, Inc.
Jeffrey L. Shames* - Chairman and Chief P.O. Box 2281
Executive Officer, MFS Investment Boston, MA 02107-9906
Management
For general information, call toll free:
Elaine R. Smith + - Independent Consultant 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
David B. Stone + - Chairman, North American
Management Corp. (investment adviser) For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business day
INVESTMENT ADVISER from 9 a.m. to 5 p.m. Eastern time. (To use
Massachusetts Financial Services Company this service, your phone must be equipped with
500 Boylston Street a Telecommunications Device for the Deaf.)
Boston, MA 02116-3741
For share prices, account balances, exchanges,
DISTRIBUTOR or stock and bond outlooks, call toll free:
MFS Fund Distributors, Inc. 1-800-MFS-TALK (1-800-637-8255) anytime
500 Boylston Street from a touch-tone telephone.
Boston, MA 02116-3741
WORLD WIDE WEB
CHAIRMAN AND PRESIDENT www.mfs.com
Jeffrey L. Shames*
PORTFOLIO MANAGER
Maura A. Shaughnessy*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
+ Independent Trustee
* MFS Investment Management
</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
(R)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116. MCO-3 7/00 297.1M 23/223/323/823
