<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
[graphic omitted]
MFS(R) CAPITAL
OPPORTUNITIES FUND
ANNUAL REPORT o NOVEMBER 30, 1999
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 9
Portfolio of Investments .................................................. 13
Financial Statements ...................................................... 20
Notes to Financial Statements ............................................. 27
Independent Auditors' Report .............................................. 33
MFS' Year 2000 Readiness Disclosure ....................................... 35
Trustees and Officers ..................................................... 37
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.
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 (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,
One could easily argue that the Internet represents the greatest technological
development most of us may see in our lifetimes. There is no disputing that this
new communication medium is changing forever the way we work, play, and shop.
One might also argue that investing in this new technology represents the
investment opportunity of a lifetime. The question for any investor is whether
and how to take advantage of it.
The popular press, it seems, would have us believe that by surfing the Web, we
can learn everything we need to know about investing. Indeed, there is no
doubt that Internet-delivered information and brokerage services enable
individual investors to be well-informed and to trade at bargain prices. But
we believe the numbers and facts argue that, for most of us, mutual funds
purchased through a financial professional will continue to be one of the best
products for long-term investing in this new millennium.
According to a survey by the Investment Company Institute, a national
association of American investment companies, 44% of American households own
stock or bond mutual funds, while only 25.5% own individual stocks.(1) Of
course that doesn't tell us how well they did owning those funds or stocks,
but another statistic gives us a clue. In the third quarter of 1999, during a
period of volatility in the greatest bull market in history, a quarter of the
7,500 stocks tracked by Morningstar, a popular rating service, lost more than
20% of their value. But during the same period, less than 1% of the mutual
funds tracked by Morningstar -- 6 out of 10,000 funds -- were down by a
similar amount.(2) So, with all things being equal, an investor's chance of
picking one of those losing stocks was about 25 times greater than his or her
chance of picking an equally losing fund.
The numbers also show that a majority of Americans seek professional advice
when buying mutual funds. Outside of employer-sponsored retirement plans,
approximately 68% of fund shareholders state that their primary method of
purchasing shares is through a financial professional.(1)
Why do we at MFS(R) believe that mutual funds plus professional advice will
continue to define the best course of action for many investors? Let's look at
some of the characteristics of a successful long-term investment approach:
o HAVING A PLAN AND STICKING TO IT: Our experience is that successful investors
-- those whose lives are enriched by the fruits of their investing -- share
two characteristics. They have a plan for reaching their monetary goals, and
they stick with that plan through up markets and down ones. And for many
investors, working with a financial professional may be the best way to
develop a plan. Although the Internet abounds with calculators for developing
all sorts of investment plans, none has your broker or consultant's high level
of experience and an understanding of your unique situation. And no calculator
can counsel you during a down market, when you may be tempted to abandon your
goals and your plan.
o DIVERSIFICATION: Few investors can afford to own a large number of holdings,
so poor performance of one company can potentially drag down their entire
portfolio. This is especially true when investing in volatile new areas such
as the Internet. On the other hand, a diversified mutual fund that owns dozens
or even hundreds of holdings is better positioned to survive a disappointment
in one or several investments.
o GOOD IN A DOWN MARKET: As we enter the tenth year of the greatest bull market
in history, it's easy to forget that market downturns are an almost inevitable
part of investing. Few mutual funds, of course, are going to be up when the
overall market is down. But as the numbers above from the third quarter of
1999 demonstrate, mutual funds may be less likely to suffer the extreme
downturns experienced by a large number of individual holdings when the market
heads south.
o MFS ORIGINAL RESEARCH(R): The Internet is one of the greatest research tools
ever invented, but it's still not the same as being eyeball to eyeball with
the management of a company and discussing their plans for their firm's
future.
o GOOD PERFORMANCE AT AN ACCEPTABLE LEVEL OF RISK: Investing in individual
stocks or bonds does indeed offer the potential of exhilarating performance
that few mutual funds even attempt. The downside is that the most exciting
investments are also likely to be the ones that give you sleepless nights. The
diversification and professional management of mutual funds help make them
inherently less risky than individual stock picking, and funds are available
in a wide range of risk profiles.
We believe that now, more than ever, mutual funds sold by an investment
professional may offer many investors the best way to participate in whatever
investment opportunities the new millennium may bring. The combination of
professional portfolio management and professional advice recognizes the key
reason that investors give us their money: because they don't want to make a
hobby or a second profession out of investing; they simply want their money to
work for them so they have a better likelihood of realizing their dreams.
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)
December 15, 1999
(1) Source: Investment Company Institute.
(2) Source: Morningstar CEO Don Phillips' keynote address at The Baltimore
Sun's Dollars and Sense Conference, 10/99. In the period 7/1/99 through 9/
30/99, of the 7,500 stocks tracked by Morningstar, 1,865 lost 20% or more;
of the 10,000 mutual funds tracked by Morningstar, six lost 20% or more.
Mutual fund results are at net asset value; if sales charges had been
reflected, results would have
been lower.
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 12 months ended November 30, 1999, Class A shares of the Fund provided
a total return of 38.59%, Class B shares 37.57%, Class C shares 37.59%, and
Class I shares 38.93%. These returns include the reinvestment of any
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 36.47%. The Fund's returns also compare to a 20.90%
return for the Standard & Poor's 500 Composite Index, a popular, unmanaged
index of common stock total
return performance.
Q. WHAT FACTORS LED TO THE FUND'S STRONG PERFORMANCE?
A. The Fund's wireless communications stocks provided exceptionally strong
performance. Included in this group were some of the Fund's largest
holdings, such as NEXTEL in the United States, Mannesmann in Germany,
Bouygues in France, and NTT Mobile Communications Network in Japan. Wireless
stocks moved to the forefront of the market due to higher-than-expected
subscriber growth. In addition, many of these wireless communications
service providers either started to offer or were on the cusp of offering
data transmission. The prospect of customers accessing e-mail or the
Internet over wireless handsets helped make these companies even more
attractive. Telecommunications and cable equipment providers also fared well
due to continued strong infrastructure spending. In this area, Fund holdings
such as General Instrument, Motorola, and Corning were excellent performers.
Q. WERE THERE OTHER AREAS THAT YOU LIKED?
A. Yes, technology, especially semiconductor and software stocks. On the
semiconductor side, LSI Logic and Analog Devices were two companies that
were boosted by an industry rebound that followed signs of an economic
recovery in Asia. In addition, wireless communications equipment
manufacturers had a steady appetite for the computer chips that enable their
products. Some software stocks rebounded from difficulties they faced
earlier in 1999 brought on by concerns that revenues would stagnate as
companies cut back on software spending in preparation for potential year
2000 (Y2K) computer problems. However, many software companies proved
resilient as Y2K approached, and the companies were meeting or beating
earnings expectations. As a result, investor sentiment toward them became
more positive because of a better outlook for next year. I'd also like to
mention that I've recently added to the portfolio's investment in Microsoft.
While its share price was beaten down in anticipation of the company's
antitrust lawsuit, Microsoft has a solid new product line on deck for 2000,
as well as a long history of strong performance. As a result, I believe it
won't be long before the company resumes its preeminent position.
Q. INTERNET STOCKS RECEIVED A LOT OF PRESS FOR THE SENSATIONAL GAINS THEY'VE
POSTED THIS YEAR. WHAT'S BEEN YOUR APPROACH WITH THIS INDUSTRY?
A. The stocks of many Internet companies have skyrocketed due to incredible
market momentum. However, I don't make my investment decisions by following
trends. Stocks are chosen for the Fund based on the value I believe they can
offer and on thorough fundamental research into their prospects. Although
Internet stock prices have climbed, many of these companies have never
posted any earnings. As a result, it's nearly impossible to figure out how
to appropriately value the stocks based on fundamental analysis or
traditional research techniques. In addition, I've found that "dot.com"
companies, particularly those that cater exclusively to consumers, have very
questionable business models. If those businesses can't be sustained, then
the stocks should plummet just as quickly as they have risen.
This doesn't mean I haven't sought investment opportunities that are a play
on the Internet theme. To the contrary, I've found many opportunities in
companies that are involved in the explosive growth of this new tool, but
with much sounder business fundamentals and quantifiable valuations. For
example, the Fund owns stocks of companies that provide the networking
infrastructure for the Internet, such as Cisco Systems, as well as radio
broadcasting firms such as Infinity Broadcasting that I believe have
benefited from all the "dot.com" advertising.
Q. BEYOND WIRELESS COMMUNICATIONS AND TECHNOLOGY, WHERE ELSE HAVE YOU FOUND
INVESTMENT OPPORTUNITIES?
A. Before I answer that question, I feel it's important to point out that we've
seen a two-tiered, momentum-based stock market for most of the year.
Technology and wireless communications stocks enjoyed substantial gains, but
stocks in many other sectors languished at low valuations despite positive
fundamentals. With this backdrop, I've continued to pursue my basic
investment approach: looking for companies that I feel offer solid earnings
growth and whose stocks are selling at reasonable prices relative to
alternatives within their sectors. While some of our investments have
struggled a bit in this market environment, I remain comfortable with the
long-term fundamentals I believe they offer.
Oil services was one area that was attractive to me. Rising oil prices
bolstered the performance of domestic oil services concerns such as BJ
Services, Schlumberger, and Cooper Cameron. I believe that even if we see
the price of oil soften from time to time, the prospects for this group
should remain positive over the next couple of years. I also turned some of
my focus to supermarkets, including Kroger, which I believe is a strong
player in an industry experiencing considerable consolidation activity.
Although supermarkets have generally suffered from fears related to
Wal-Mart's plan to offer groceries and from hype regarding Internet-based
grocery sales, I feel these fears are generally overblown and will subside.
Another sector that caught my eye was insurance, including our investment in
Lincoln National. For most of the period, insurance stocks were hurt by
rising interest rates and regulatory concerns. That changed in the fourth
quarter of 1999, when the U.S. Congress passed legislation eliminating many
of the barriers that had existed among banks, insurance companies,
brokerages, and other financial services companies. Insurance companies like
Lincoln National rebounded because the market recognized their
attractiveness as acquisition candidates for banks or other firms.
Q. EVEN THOUGH THE FUND DID QUITE WELL, THERE MUST HAVE BEEN
SOME DISAPPOINTMENTS.
A. I'd point out two stocks that hurt performance. The first was Rite-Aid, the
drug store chain. Not only did this company overextend itself by trying to
make too many acquisitions in too short a time period, but it's also
suspected of committing accounting fraud. This holding was eliminated from
the Fund. Another example came from Office Depot in the retail industry. Its
stock faltered because investors became concerned that the office supplies
industry had become saturated with too many alternatives. However, we feel
the prospects for the company remain solid, so the Fund still owns a limited
position.
Q. WHAT'S YOUR OUTLOOK AS WE ENTER THE NEW MILLENNIUM?
A. For an investor like me who focuses on company fundamentals, the market has
been hard to understand. It has been driven by momentum and speculation
instead of the historically proven method of analyzing a company's business
prospects and how they relate to the valuation of its stock. The main
question at this point is: How sustainable is the current market
environment? There is no easy answer, so I will continue to pursue my
approach of looking for companies offering positive earnings growth at what
I believe are reasonable valuations.
/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.
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PORTFOLIO MANAGER'S PROFILE
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MAURA A. SHAUGHNESSY IS SENIOR VICE PRESIDENT OF MFS INVESTMENT
MANAGEMENT AND PORTFOLIO MANAGER OF MFS CAPITAL OPPORTUNITIES FUND, MFS
UTILITIES FUND, MFS UTILITIES SERIES AND MFS CAPITAL OPPORTUNITIES
SERIES (BOTH PART OF MFS VARIABLE INSURANCE TRUST(SM)), AND THE
UTILITIES SERIES AND CAPITAL OPPORTUNITIES SERIES OFFERED THROUGH MFS/
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 AS RESEARCH ANALYSTS. OUR PORTFOLIO MANAGERS ARE SUPPORTED BY
AN INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS ORIGINAL
RESEARCH, 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 financial consultant, 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: $3.3 BILLION NET ASSETS AS OF NOVEMBER 30, 1999
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and
reflect the percentage change in net asset value, including reinvestment of
dividends. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. The performance of other share classes will be greater than or less
than the line shown. (See Notes to Performance Summary.) It is not possible to
invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended November 30, 1999)
MFS Capital
Opportunities S&P 500
Fund -- Class A Composite Index
--------------- ---------------
11/89 $ 9,425 $10,000
11/91 9,576 11,617
11/93 14,566 15,152
11/95 21,032 20,973
11/97 31,145 34,463
11/99 52,747 51,523
<PAGE>
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH NOVEMBER 30, 1999
CLASS A
1 Year 3 Years 5 Years 10 Years
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Cumulative Total Return Excluding
Sales Charge +38.59% +111.63% +255.31% +459.65%
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Average Annual Total Return Excluding
Sales Charge +38.59% + 28.39% + 28.86% + 18.79%
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Average Annual Total Return Including
Sales Charge +30.62% + 25.88% + 27.34% + 18.09%
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CLASS B
1 Year 3 Years 5 Years 10 Years
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Cumulative Total Return Excluding
Sales Charge +37.57% +106.99% +241.80% +432.82%
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Average Annual Total Return Excluding
Sales Charge +37.57% + 27.44% + 27.87% + 18.21%
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Average Annual Total Return Including
Sales Charge +33.57% + 26.82% + 27.72% + 18.21%
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CLASS C
1 Year 3 Years 5 Years 10 Years
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Cumulative Total Return Excluding
Sales Charge +37.59% +106.95% +245.86% +444.77%
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Average Annual Total Return Excluding
Sales Charge +37.59% + 27.44% + 28.17% + 18.47%
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Average Annual Total Return Including
Sales Charge +36.59% + 27.44% + 28.17% + 18.47%
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CLASS I
1 Year 3 Years 5 Years 10 Years
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Cumulative Total Return Excluding
Sales Charge +38.93% +113.02% +257.64% +463.32%
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Average Annual Total Return Excluding
Sales Charge +38.93% + 28.67% + 29.03% + 18.87%
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COMPARATIVE INDICES
1 Year 3 Years 5 Years 10 Years
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Average capital appreciation fund+ +36.47% + 18.63% + 20.11% + 13.68%
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Standard & Poor's 500 Composite
Index# +20.90% + 24.32% + 27.47% + 17.81%
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+ Source: Lipper Analytical Services, Inc.
# Source: Standard & Poor's Micropal, Inc.
<PAGE>
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 includes 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. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
PORTFOLIO CONCENTRATION AS OF NOVEMBER 30, 1999
FIVE LARGEST STOCK SECTORS
UTILITIES & COMMUNICATIONS 26.5%
TECHNOLOGY 26.0%
LEISURE 13.0%
FINANCIAL SERVICES 8.9%
CONGLOMERATES, SPECIAL PRODUCTS/SERVICES 5.3%
TOP 10 STOCK HOLDINGS
TYCO INTERNATIONAL LTD. 3.3% CORNING, INC. 1.8%
Security systems, packaging, and Communications technology company
electronic equipment conglomerate
BROADWING, INC. 1.4%
MICROSOFT CORP. 3.2% Telecommunications company
Computer software and systems company
MCI WORLDCOM, INC. 1.4%
MANNESMANN AG 2.4% Telecommunications company
German industrial and telecommunications
company AES CORP. 1.3%
Electric utility company
INFINITY BROADCASTING CORP. 2.1%
Radio broadcast company NOKIA CORP. 1.3%
Finnish mobile telecommunications
KROGER CO. 2.0% company
Supermarket company
The portfolio is actively managed, and current holdings may be different.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- November 30, 1999
Stocks - 95.5%
<CAPTION>
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ISSUER SHARES VALUE
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<S> <C> <C>
U.S. Stocks - 74.7%
Advertising - 1.3%
Outdoor Systems, Inc.* 587,700 $ 26,152,650
Young & Rubicam, Inc. 321,300 16,767,844
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$ 42,920,494
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Banks and Credit Companies - 0.9%
Chase Manhattan Corp. 175,700 $ 13,572,825
Providian Financial Corp. 184,600 14,606,475
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$ 28,179,300
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Business Machines - 1.0%
International Business Machines Corp. 87,700 $ 9,038,581
Texas Instruments, Inc. 263,000 25,264,438
--------------
$ 34,303,019
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Business Services - 0.5%
Adelphia Business Solutions* 529,700 $ 16,553,125
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Computer Software - Personal Computers - 3.0%
Microsoft Corp.* 1,107,500 $ 100,834,414
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Computer Software - Services - 0.5%
EMC Corp.* 192,500 $ 16,085,781
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Computer Software - Systems - 5.2%
BMC Software, Inc.* 574,600 $ 41,838,062
Computer Associates International, Inc. 347,900 22,613,500
Compuware Corp.* 692,600 23,418,538
Etec Systems, Inc.* 365,450 15,714,350
Oracle Corp.* 550,550 37,334,172
Unisys Corp.* 570,800 16,410,500
VERITAS Software Corp.* 166,150 15,213,109
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$ 172,542,231
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Conglomerates - 3.2%
Tyco International Ltd. 2,625,062 $ 105,166,546
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Consumer Goods and Services - 0.3%
Galileo International, Inc. 321,500 $ 10,288,000
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Containers - 0.2%
Smurfit-Stone Container Corp.* 348,100 $ 6,679,169
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Electrical Equipment - 0.6%
Honeywell, Inc. 170,900 $ 19,130,119
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Electronics - 4.9%
Agilent Technologies, Inc.* 62,870 $ 2,652,328
Altera Corp.* 322,500 17,374,688
Analog Devices, Inc.* 612,410 35,175,299
Intel Corp. 428,800 32,883,600
LSI Logic Corp.* 533,800 32,261,537
Novellus Systems, Inc.* 249,200 20,465,550
Teradyne, Inc.* 483,500 21,062,469
--------------
$ 161,875,471
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Entertainment - 6.9%
CBS Corp.* 630,100 $ 32,765,200
Comcast Corp., "A" 821,200 37,107,975
Harrah's Entertainment, Inc.* 1,285,085 35,500,473
Hearst-Argyle Television, Inc.* 817,000 17,769,750
Infinity Broadcasting Corp.* 1,845,300 67,238,119
MediaOne Group, Inc.* 100,800 7,988,400
Time Warner, Inc. 471,550 29,088,740
--------------
$ 227,458,657
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Financial Institutions - 2.4%
Associates First Capital Corp., "A" 846,100 $ 28,132,825
Citigroup, Inc. 491,800 26,495,725
Federal Home Loan Mortgage Corp. 345,300 17,049,188
Franklin Resources, Inc. 253,500 7,969,406
--------------
$ 79,647,144
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Financial Services - 1.0%
AXA Financial, Inc. 1,017,300 $ 34,206,712
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Forest and Paper Products - 1.5%
Bowater, Inc. 372,600 $ 18,257,400
Jefferson Smurfit Corp. 6,251,200 16,644,750
Weyerhaeuser Co. 238,300 14,595,875
--------------
$ 49,498,025
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Insurance - 3.8%
CIGNA Corp. 437,617 $ 35,993,998
Hartford Financial Services Group, Inc. 727,676 33,973,373
Hartford Life, Inc., "A" 129,800 5,808,550
Lincoln National Corp. 957,400 39,911,613
Nationwide Financial Services, Inc., "A" 257,291 9,246,395
--------------
$ 124,933,929
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Internet
Deltathree.com, Inc.* 2,720 $ 79,730
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Machinery - 0.5%
Eaton Corp. 204,900 $ 15,866,944
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Medical and Health Products - 2.6%
American Home Products Corp. 583,900 $ 30,362,800
Boston Scientific Corp.* 927,200 19,587,100
Pharmacia & Upjohn, Inc. 653,100 35,716,406
--------------
$ 85,666,306
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Medical and Health Technology and Services - 0.6%
Medtronic, Inc. 215,600 $ 8,381,450
United Healthcare Corp. 223,143 11,589,490
--------------
$ 19,970,940
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Oil Services - 1.8%
Cooper Cameron Corp.* 377,900 $ 16,202,462
Noble Drilling Corp.* 695,600 19,389,850
Schlumberger Ltd. 139,900 8,402,744
Weatherford International, Inc.* 430,000 15,023,125
--------------
$ 59,018,181
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Oils - 3.2%
Atlantic Richfield Co. 158,100 $ 15,236,888
Coastal Corp. 726,100 25,595,025
Conoco, Inc. 1,010,100 26,451,994
Conoco, Inc., "A" 667,000 17,550,437
EOG Resources, Inc. 1,081,000 19,998,500
--------------
$ 104,832,844
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Photographic Products - 0.3%
Polaroid Corp. 592,700 $ 11,409,475
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Printing and Publishing - 1.6%
Knight-Ridder, Inc. 242,900 $ 13,253,231
Meredith Corp. 333,200 12,599,125
Scripps (E.W.) Howard, Inc., "A" 181,500 8,439,750
Tribune Co. 418,600 20,118,963
--------------
$ 54,411,069
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Railroads - 0.3%
Kansas City Southern Industries, Inc. 149,000 $ 8,874,813
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Restaurants and Lodging - 0.6%
Wendy's International, Inc. 912,570 $ 20,133,576
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Retail - 0.2%
Tandy Corp. 107,500 $ 8,237,188
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Stores - 2.6%
BJ Services Co. 432,400 $ 15,079,950
Costco Wholesale Corp.* 147,400 13,514,737
CVS Corp. 575,200 22,828,250
Office Depot, Inc.* 1,316,000 14,640,500
TJX Cos., Inc. 761,700 19,947,019
--------------
$ 86,010,456
- ------------------------------------------------------------------------------------------------------
Supermarkets - 2.8%
Kroger Co.* 3,002,730 $ 63,995,683
Safeway, Inc.* 787,000 29,020,625
--------------
$ 93,016,308
- ------------------------------------------------------------------------------------------------------
Telecommunications - 16.5%
Amdocs Ltd.* 149,000 $ 5,242,938
ANTEC Corp.* 332,900 18,642,400
AT&T Corp. 139,000 7,766,625
BroadWing, Inc. 1,518,898 44,237,904
CenturyTel, Inc. 140,800 6,476,800
Cisco Systems, Inc.* 469,900 41,909,206
Corning, Inc. 606,200 56,793,362
General Instrument Corp.* 427,700 28,014,350
Global TeleSystems Group, Inc.* 300,400 9,594,025
GTE Corp. 202,800 14,804,400
Insight Communications, Inc.* 356,800 8,830,800
Level 3 Communications, Inc.* 292,400 19,828,375
MCI WorldCom, Inc.* 528,800 43,725,150
Metromedia Fiber Network, Inc., "A"* 378,970 14,685,088
Motorola, Inc. 341,400 39,004,950
Next Level Communications, Inc. 40 2,583
NEXTEL Communications, Inc.* 320,500 31,769,562
Nortel Networks Corp. 266,000 19,684,000
NTL, Inc.* 407,025 37,115,592
Partner Communications Co. Ltd.* 1,545,300 28,974,375
SBC Communications, Inc. 274,780 14,271,386
Sprint Corp. 105,600 7,326,000
Sprint Corp. (PCS Group)* 354,200 32,497,850
UnitedGlobalCom, Inc.* 14,900 1,552,394
Winstar Communications, Inc.* 317,600 16,118,200
--------------
$ 548,868,315
- ------------------------------------------------------------------------------------------------------
Transportation - 0.4%
Union Pacific Corp. 291,100 $ 13,699,894
- ------------------------------------------------------------------------------------------------------
Utilities - Electric - 2.5%
AES Corp.* 733,800 $ 42,514,537
Calpine Corp.* 178,800 10,549,200
CMS Energy Corp. 942,100 31,324,825
--------------
$ 84,388,562
- ------------------------------------------------------------------------------------------------------
Utilities - Gas - 1.0%
Union Pacific Resources Group, Inc. 100,000 $ 1,306,250
Williams Cos., Inc. 964,464 32,550,660
--------------
$ 33,856,910
- ------------------------------------------------------------------------------------------------------
Total U.S. Stocks $2,478,643,647
- ------------------------------------------------------------------------------------------------------
Foreign Stocks - 20.8%
Australia - 0.4%
Cable & Wireless Optus (Telecommunications) 5,734,200 $ 14,952,500
- ------------------------------------------------------------------------------------------------------
Bermuda - 0.7%
Ace Ltd. (Insurance) 548,600 $ 9,326,200
RSL Communications, Ltd. (Telecommunications)* 694,000 14,053,500
--------------
$ 23,379,700
- ------------------------------------------------------------------------------------------------------
Canada - 1.8%
Abitibi-Consolidated, Inc. (Forest and Paper
Products) 1,636,830 $ 16,982,112
AT&T Canada, Inc. (Telecommunications)* 752,400 28,591,200
Canadian National Railway Co. (Railroads) 462,300 13,840,106
--------------
$ 59,413,418
- ------------------------------------------------------------------------------------------------------
Finland - 2.4%
HPY Holding - HTF Holding Oyj Abp
(Telecommunications)* 390,000 $ 11,609,785
Nokia Corp., ADR (Telecommunications) 312,300 43,155,956
Sonera Oyj (Telecommunications) 638,500 26,378,663
--------------
$ 81,144,404
- ------------------------------------------------------------------------------------------------------
France - 2.1%
Bouygues S.A. (Construction)* 71,527 $ 33,001,797
France Telecom S.A. (Telecommunications) 31,200 3,617,696
Vivendi (Business Services) 403,400 32,307,632
--------------
$ 68,927,125
- ------------------------------------------------------------------------------------------------------
Germany - 2.7%
Mannesmann AG (Conglomerate) 370,000 $ 76,933,151
MobilCom AG (Cellular Telephones) 169,600 11,789,002
--------------
$ 88,722,153
- ------------------------------------------------------------------------------------------------------
Greece - 0.7%
Panafon S.A. (Telecommunications)* 1,927,450 $ 22,944,425
- ------------------------------------------------------------------------------------------------------
Hong Kong - 0.6%
China Telecom Ltd. (Telecommunications)* 3,006,000 $ 16,063,482
i-CABLE Communications Ltd. (Telecommunications and
Cable)* 1,487,000 2,288,134
--------------
$ 18,351,616
- ------------------------------------------------------------------------------------------------------
Italy - 0.8%
Telecom Italia Mobile S.p.A. (Telecommunications) 3,561,100 $ 27,982,137
- ------------------------------------------------------------------------------------------------------
Japan - 3.1%
Fast Retailing Co. (Retail) 8,600 $ 3,211,794
Hitachi Ltd. (Electronics) 1,853,000 25,677,936
Nippon Telephone & Telegraph Co. (Utilities -
Telephone) 1,492 26,834,005
NTT Mobile Communications Network, Inc.
(Telecommunications) 1,190 41,869,287
SOFTBANK CORP. (Internet) 5,100 3,694,054
--------------
$ 101,287,076
- ------------------------------------------------------------------------------------------------------
Netherlands - 2.1%
KPNQwest N.V. (Internet)* 10 $ 374
Libertel N.V. (Cellular Telephones)* 1,381,900 28,190,563
STMicroelectronics Co. (Electronics) 150,565 20,476,697
United Pan - Europe Communications N.V
(Telecommunications and Cable)* 205,500 20,184,525
--------------
$ 68,852,159
- ------------------------------------------------------------------------------------------------------
Poland - 0.1%
Netia Holdings S.A., ADR (Telecommunications)* 265,350 $ 3,880,744
- ------------------------------------------------------------------------------------------------------
Singapore - 0.6%
Asia Pulp & Paper Co. Ltd., ADR (Consumer Goods and
Services)* 2,062,800 $ 17,533,800
Chartered Semiconductor Manufacturing Co., ADR
(Electronics)* 53,025 2,823,581
--------------
$ 20,357,381
- ------------------------------------------------------------------------------------------------------
Spain
Terra Networks, S.A. (Internet)* 10,770 $ 371,168
- ------------------------------------------------------------------------------------------------------
Sweden - 1.3%
Ericsson LM, "B" (Telecommunications) 602,500 $ 29,228,655
Ericsson LM, ADR (Telecommunications) 125,300 6,037,894
NetCom AB (Telecommunications)* 171,500 8,884,599
--------------
$ 44,151,148
- ------------------------------------------------------------------------------------------------------
United Kingdom - 1.4%
Cable & Wireless Communications PLC
(Telecommunications)* 555,500 $ 6,244,111
Capital Radio PLC (Broadcasting) 271,000 5,897,927
COLT Telecom Group PLC (Telecommunications)* 160,975 6,082,809
COLT Telecom Group PLC, ADR (Telecommunications)* 123,400 18,402,025
NDS Group PLC, ADR* 236,010 7,168,804
Thus PLC (Internet)* 256,310 1,601,950
--------------
$ 45,397,626
- ------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 690,114,780
- ------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $2,623,242,713) $3,168,758,427
- ------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 1.0%
- ------------------------------------------------------------------------------------------------------
U.S. Stocks - 1.0%
Telecommunications - 1.0%
Decs Trust VI, 6.25% 452,900 $ 17,125,281
UnitedGlobalCom, Inc., 7.00%## 224,320 15,590,240
- ------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $29,077,244) $ 32,715,521
- ------------------------------------------------------------------------------------------------------
Short-Term Obligations - 1.4%
- ------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., due 1/18/00 $ 34,400 $ 34,146,816
General Electric Capital Corp., due 12/01/99 11,400 11,400,000
- ------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 45,546,816
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $2,697,866,773) $3,247,020,764
Other Assets, Less Liabilities - 2.1% 71,200,301
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $3,318,221,065
- ------------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $2,697,866,773) $3,247,020,764
Investment of cash collateral for securities loaned, at
value (identified cost, $25,787,500) 25,787,500
Cash 27,886
Foreign currency, at value (identified cost, $64) 61
Receivable for Fund shares sold 19,849,368
Receivable for investments sold 102,314,296
Interest and dividends receivable 1,678,002
Other assets 16,664
--------------
Total assets $3,396,694,541
--------------
Liabilities:
Payable for Fund shares reacquired $ 3,961,674
Payable for investments purchased 48,004,944
Collateral for securities loaned, at value 25,787,500
Payable to affiliates -
Management fee 190,067
Shareholder servicing agent fee 27,477
Distribution and service fee 157,445
Accrued expenses and other liabilities 344,369
--------------
Total liabilities $ 78,473,476
--------------
Net assets $3,318,221,065
==============
Net assets consist of:
Paid-in capital $2,258,206,438
Unrealized appreciation on investments and translation
of asset and
liabilities in foreign currencies 549,200,383
Accumulated undistributed net realized gain on
investments and
foreign currency transactions 510,898,537
Accumulated net investment loss (84,293)
--------------
Total $3,318,221,065
==============
Shares of beneficial interest outstanding 155,513,700
===========
Class A shares:
Net asset value per share
(net assets of $1,769,925,374 / 81,305,337 shares of
beneficial interest outstanding) $21.77
======
Offering price per share (100 / 94.25 of net asset
value per share) $23.10
======
Class B shares:
Net asset value and offering price per share
(net assets of $1,204,159,027 / 57,811,149 shares of
beneficial interest outstanding) $20.83
======
Class C shares:
Net asset value and offering price per share
(net assets of $273,038,112 / 13,139,078 shares of
beneficial interest outstanding) $20.78
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $71,098,552 / 3,258,136 shares of
beneficial interest outstanding) $21.82
======
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>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Operations
- ----------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1999
- ----------------------------------------------------------------------------------------------
<S> <C>
Net investment loss:
Income -
Dividends $ 15,498,967
Interest 5,006,048
Foreign taxes withheld (251,425)
------------
Total investment income $ 20,253,590
------------
Expenses -
Management fee $ 17,272,463
Trustees' compensation 89,237
Shareholder servicing agent fee 2,509,035
Distribution and service fee (Class A) 3,296,699
Distribution and service fee (Class B) 8,835,767
Distribution and service fee (Class C) 1,809,019
Administrative fee 274,622
Custodian fee 673,256
Printing 116,811
Postage 253,527
Auditing fees 32,948
Legal fees 12,966
Miscellaneous 1,275,383
------------
Total expenses $ 36,451,733
Fees paid indirectly (197,214)
------------
Net expenses $ 36,254,519
------------
Net investment loss $(16,000,929)
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $571,108,332
Foreign currency transactions (1,901,162)
------------
Net realized gain on investments and foreign currency transactions $569,207,170
------------
Change in unrealized appreciation -
Investments $237,447,104
Translation of assets and liabilities in foreign currencies 741,041
------------
Net unrealized gain on investments and foreign currency translation $238,188,145
------------
Net realized and unrealized gain on investments and foreign
currency $807,395,315
------------
Increase in net assets from operations $791,394,386
============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- -------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (16,000,929) $ (5,478,906)
Net realized gain on investments and foreign currency
transactions 569,207,170 109,709,448
Net unrealized gain on investments and foreign
currency translation 238,188,145 162,624,370
-------------- --------------
Increase in net assets from operations $ 791,394,386 $ 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) (50,282,930) (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 $ (91,606,751) $ (121,438,070)
-------------- --------------
Net increase in net assets from Fund share transactions $ 885,928,107 $ 469,594,593
-------------- --------------
Total increase in net assets $1,585,715,742 $ 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 $84,293 and $68,048,
respectively) $3,318,221,065 $1,732,505,323
============== ==============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
CLASS A
- ----------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.06) $(0.01) $ 0.07 $ 0.05 $ 0.01
Net realized and unrealized gain on
investments and foreign currency 6.13 3.02 2.97 2.04 3.64
------ ------ ------ ------ ------
Total from investment operations $ 6.07 $ 3.01 $ 3.04 $ 2.09 $ 3.65
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(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)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.90) $(1.64) $(1.15) $(1.14) $(0.70)
------ ------ ------ ------ ------
Net asset value - end of period $21.77 $16.60 $15.23 $13.34 $12.39
====== ====== ====== ====== ======
Total return(+) 38.59% 22.21% 24.96% 18.50% 41.67%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.18% 1.23% 1.29% 1.32% 1.35%
Net investment income (loss) (0.33)% (0.06)% 0.49% 0.43% 0.06%
Portfolio turnover 155% 123% 144% 112% 109%
Net assets at end of period (000
Omitted) $1,769,925 $923,779 $609,189 $427,478 $227,555
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset
arrangements.
+++ For the fiscal year ended November 30, 1998, the per share distribution in excess of net investment
income was less than $0.01.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been
included, the results would have been lower.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.19) $(0.12) $(0.04) $(0.04) $(0.08)
Net realized and unrealized gain on
investments and foreign currency 5.88 2.90 2.89 2.00 3.59
------ ------ ------ ------ ------
Total from investment operations $ 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 $(0.80) $(1.61) $(1.09) $(1.10) $(0.70)
------ ------ ------ ------ ------
Net asset value - end of period $20.83 $15.94 $14.77 $13.01 $12.15
====== ====== ====== ====== ======
Total return 37.57% 21.32% 24.03% 17.50% 40.53%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.93% 1.98% 2.04% 2.16% 2.17%
Net investment loss (1.08)% (0.81)% (0.28)% (0.33)% (0.77)%
Portfolio turnover 155% 123% 144% 112% 109%
Net assets at end of period (000
Omitted) $1,204,159 $658,056 $411,640 $244,247 $46,068
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset
arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, PERIOD ENDED
------------------------------------ NOVEMBER 30,
1999 1998 1997 1996*
- -------------------------------------------------------------------------------------------------------------
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 $(0.19) $(0.12) $(0.04) $(0.01)
Net realized and unrealized gain on investments
and foreign currency 5.87 2.90 2.88 1.04
------ ------ ------ ------
Total from investment operations $ 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 (0.81) (1.61) (1.12) --
------ ------ ------ ------
Total distributions declared to shareholders
$(0.81) $(1.61) $(1.13) $ --
------ ------ ------ ------
Net asset value - end of period $20.78 $15.91 $14.74 $13.03
====== ====== ====== ======
Total return 37.59% 21.28% 24.02% 7.95%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.93% 1.98% 2.04% 2.11%+
Net investment loss (1.08)% (0.82)% (0.28)% (0.17)%+
Portfolio turnover 155% 123% 144% 112%
Net assets at end of period (000 Omitted) $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.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, PERIOD ENDED
-------------------------- NOVEMBER 30,
1999 1998 1997*
- ------------------------------------------------------------------------------------------------------------------
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) $(0.02) $ 0.03 $ 0.08
Net realized and unrealized gain on investments and
foreign currency 6.14 3.01 2.96
------ ------ ------
Total from investment operations $ 6.12 $ 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 $21.82 $16.63 $15.26
====== ====== ======
Total return 38.93% 22.54% 24.88%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.92% 0.98% 1.01%+
Net investment income (loss) (0.09)% 0.20% 0.65%+
Portfolio turnover 155% 123% 144%
Net assets at end of period (000 Omitted) $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.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Capital Opportunities Fund (the Fund) is a diversified series of MFS
Series Trust VII (the Trust). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
(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. Securities for which there are no such quotations or
valuations are valued in good faith by the Trustees. 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 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 November 30, 1999, the value of securities loaned was $194,295,373. These
loans were collateralized by U.S. Treasury securities of $184,953,274 and cash
of $25,787,500 which was invested in the following short-term obligation:
PRINCIPAL AMORTIZED COST
AMOUNT AND VALUE
- --------------------------------------------------------------------------------
Salomon Smith Barney, Inc., due 12/01/99 $25,787,500 $25,787,500
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The Fund may enter
into forward contracts for hedging purposes as well as for non-hedging
purposes. For hedging purposes, the Fund may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. The Fund may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains
or losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. During the period, the Fund's custodian fees were reduced by
$194,984 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 $2,230 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 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 requires that only distributions in excess of tax basis earnings and
profits be 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.
During the year ended November 30, 1999, accumulated net investment loss
decreased by $15,984,684, accumulated undistributed net realized gain on
investments and foreign currency transactions decreased by $56,860,322, and
paid-in capital increased by $40,875,638 due to differences between book and
tax accounting for distributions, currency transactions, and the offset of net
investment loss against short-term capital gains. This change had no effect on
the net assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on 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 and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of
$38,104 for the year ended November 30, 1999.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee
at the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$834,097 for the year ended November 30, 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 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 $170,001
for the year ended November 30, 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 year ended
November 30, 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 $43,502 and $2,756 for
Class B and Class C shares, respectively, for the year ended November 30,
1999. Fees incurred under the distribution plan during the year ended November
30, 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 November 30,
1999, were $34,041, $999,984, and $50,896 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%. Prior to April 1, 1999, the fee was calculated as a percentage of the
Fund's average daily net assets at an 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:
<TABLE>
<CAPTION>
PURCHASES SALES
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. government securities $ 16,857,362 $ 78,059,958
-------------- --------------
Investments (non-U.S. government securities) $4,352,258,519 $3,522,738,090
-------------- --------------
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 $2,703,084,953
--------------
Gross unrealized appreciation $ 642,154,178
Gross unrealized depreciation (98,218,367)
--------------
Net unrealized appreciation $ 543,935,811
==============
</TABLE>
(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>
Class A Shares
<CAPTION>
YEAR ENDED NOVEMBER 30, 1999 YEAR ENDED NOVEMBER 30, 1998
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 60,655,990 $1,113,353,629 36,339,434 $ 560,864,465
Shares issued to shareholders
in reinvestment of
distributions 2,817,699 44,520,095 4,512,652 60,655,260
Shares reacquired (37,819,174) (694,985,504) (25,191,694) (390,720,879)
----------- -------------- ----------- -------------
Net increase 25,654,515 $ 462,888,220 15,660,392 $ 230,798,846
=========== ============== =========== =============
</TABLE>
<TABLE>
Class B Shares
<CAPTION>
YEAR ENDED NOVEMBER 30, 1999 YEAR ENDED NOVEMBER 30, 1998
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 23,417,148 $ 422,494,400 17,781,760 $ 267,116,086
Shares issued to shareholders
in reinvestment of
distributions 1,867,778 28,447,087 2,911,355 37,856,715
Shares reacquired (8,750,628) (155,932,476) (7,292,329) (108,644,391)
----------- -------------- ----------- -------------
Net increase 16,534,298 $ 295,009,011 13,400,786 $ 196,328,410
=========== ============== =========== =============
</TABLE>
<TABLE>
Class C Shares
<CAPTION>
YEAR ENDED NOVEMBER 30, 1999 YEAR ENDED NOVEMBER 30, 1998
------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 8,800,009 $ 158,634,114 5,927,833 $ 88,827,966
Shares issued to shareholders
in reinvestment of
distributions 265,801 4,037,596 307,581 3,992,921
Shares reacquired (3,464,888) (62,068,646) (3,183,416) (47,902,511)
----------- -------------- ----------- -------------
Net increase 5,600,922 $ 100,603,064 3,051,998 $ 44,918,376
=========== ============== =========== =============
</TABLE>
<TABLE>
Class I Shares
<CAPTION>
YEAR ENDED NOVEMBER 30, 1999 YEAR ENDED NOVEMBER 30, 1998
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,730,802 $ 33,350,277 338,798 $ 5,383,070
Shares issued to shareholders
in reinvestment of
distributions 67,587 1,068,553 129,735 1,741,578
Shares reacquired (386,105) (6,991,018) (622,642) (9,575,687)
----------- -------------- ----------- -------------
Net increase (decrease) 1,412,284 $ 27,427,812 (154,109) $ (2,451,039)
=========== ============== =========== =============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $820 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of Fund
shares. Interest is charged to each fund, based on its borrowings, at a rate
equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Fund for the year ended November 30, 1999, was $19,175. The Fund had no
significant borrowings during the year.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust VII and Shareholders of MFS Capital
Opportunities Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Capital Opportunities Fund (a series of MFS Series Trust VII), including the
portfolio of investments, as of November 30, 1999, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of November 30, 1999, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Capital Opportunities Fund as of November 30, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 6, 2000
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 2000, SHAREHOLDERS WILL BE MAILED A FORM 1099-DIV REPORTING
THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR
YEAR 1999.
THE FUND HAS DESIGNATED $126,437,713 AS A CAPITAL GAIN DIVIDEND FOR THE
YEAR ENDED NOVEMBER 30, 1999.
FOR THE YEAR ENDED NOVEMBER 30, 1999, THE AMOUNT OF DISTRIBUTIONS
ELIGIBLE FOR THE 70% DIVIDENDS RECEIVED DEDUCTION FOR CORPORATIONS IS
100%.
- --------------------------------------------------------------------------------
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and
on behalf of the MFS funds, is committed to the effective
use of technology in managing our portfolio investments,
delivering high-quality service to MFS fund shareholders, [Graphic Omitted]
retirement plan participants, and MFS' institutional
clients, and supporting the financial consultants who sell
our products.
MFS can now say that it is ready for the Year 2000. Our testing has demonstrated
that MFS' computer hardware and software will recognize "00" as the Year 2000
and will not confuse those digits with 1900. All of our critical business
applications and processes have been successfully tested, and we have adopted
companywide policies that will help us maintain our readiness through the
remainder of the year. Any new technology that is brought into the company
before the end of the year will be held to the same stringent standards as our
current technology. We have also developed a vendor readiness survey, contacted
over 700 of our vendors, and established an ongoing process to review responses,
as well as to review readiness statements of new vendors and products.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS Original Research(R)
process of evaluating portfolio investments, one of the many relevant factors
that MFS' portfolio managers and research analysts may consider is a company's
Y2K readiness.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While MFS
is taking significant steps to protect the integrity of its internal systems,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on MFS fund shareholders, retirement plan participants, or
institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at www.mfs.com, call our toll-free line, 1-800-637-4406, or
write to the MFS Year 2000 Program Management Office by e-mail at [email protected] or
by letter at 500 Boylston Street, Boston, MA 02116-3741.
<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), Assistant Secretary
MFS Investment Management(R) James R. Bordewick, Jr.*
J. Atwood Ives+ - Chairman and Chief Executive CUSTODIAN
Officer, Eastern Enterprises (diversified services State Street Bank and Trust Company
company)
AUDITORS
Lawrence T. Perera+ - Partner, Hemenway Deloitte & Touche LLP
& Barnes (attorneys)
INVESTOR INFORMATION
William J. Poorvu+ - Adjunct Professor, Harvard For information on MFS mutual funds, call your
University Graduate School of Business financial consultant or, for an information kit,
Administration call toll free: 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time (or leave a
Charles W. Schmidt+ - Private Investor message 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 and Chief
Executive Officer, MFS Investment Management For general information, call toll free:
1-800-225-2606 any business day from
Elaine R. Smith+ - Independent Consultant 8 a.m. to 8 p.m. Eastern time.
David B. Stone+ - Chairman, For service to speech- or hearing-impaired, call
North American Management Corp. toll free: 1-800-637-6576 any business day from 9
(investment advisers) a.m. to 5 p.m. Eastern time. (To use this service,
your phone must be equipped with a
INVESTMENT ADVISER Telecommunications Device for the Deaf.)
Massachusetts Financial Services Company
500 Boylston Street For share prices, account balances, exchanges, or
Boston, MA 02116-3741 stock and bond outlooks, call toll free:
1-800-MFS-TALK (1-800-637-8255) anytime from a
DISTRIBUTOR touch-tone telephone.
MFS Fund Distributors, Inc.
500 Boylston Street WORLD WIDE WEB
Boston, MA 02116-3741 www.mfs.com
CHAIRMAN AND PRESIDENT
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
(c)2000 MFS Investment Management.(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MCO-2 01/00 200M 23/223/323/823