<PAGE>
[MFS LOGO] Semiannual Report
THE FIRST NAME IN MUTUAL FUNDS May 31, 1995
MFS(R) EMERGING GROWTH FUND
[GRAPHIC OMITTED: art work:
Silhouette of two men talking
in front of a large window.]
<PAGE>
<TABLE>
<S> <C>
MFS(R) EMERGING GROWTH FUND
TRUSTEES CUSTODIAN
A. Keith Brodkin* - Chairman and President State Street Bank and Trust Company
Richard B. Bailey* - Private Investor; INVESTOR INFORMATION
Former Chairman and Director (until 1991), For MFS stock and bond market outlooks,
Massachusetts Financial Services Company call toll free: 1-800-637-4458 anytime
from a touch-tone telephone.
Marshall N. Cohan - Private Investor
For information on MFS mutual funds,
Lawrence H. Cohn, M.D. - Chief of Cardiac Surgery, call your financial adviser or, for an
Brigham and Women's Hospital; Professor of information kit, call toll free:
Surgery, Harvard Medical School 1-800-637-2929 any business day from
9 a.m. to 5 p.m. Eastern time (or leave
The Hon. Sir J. David Gibbons, KBE - Chief a message anytime).
Executive Officer, Edmund Gibbons Ltd.;
Chairman, Bank of N.T. Butterfield & Son Ltd. INVESTOR SERVICE
MFS Service Center, Inc.
Abby M. O'Neill - Private Investor; P.O. Box 2281
Director, Rockefeller Financial Services, Inc. Boston, MA 02107-9906
(Investment Advisers)
For current account service, call toll free:
Walter E. Robb, III - President and Treasurer, 1-800-225-2606 any business day from
Benchmark Advisors, Inc. (Corporate Financial 8 a.m. to 8 p.m. Eastern time.
Consultants)
For service to speech- or hearing-impaired,
Arnold D. Scott* - Senior Executive Vice President call toll free: 1-800-637-6576 any business
and Secretary, Massachusetts Financial Services day from 9 a.m. to 5 p.m. Eastern time. (To use
Company this service, your phone must be equipped with
a Telecommunications Device for the Deaf.)
Jeffrey L. Shames* - President, Massachusetts
Financial Services Company For share prices, account balances and
exchanges, call toll free: 1-800-MFS-TALK
J. Dale Sherratt - President, Insight Resources, Inc. (1-800-637-8255) anytime from a touch-tone
(Acquisition Planning Specialists) telephone.
Ward Smith - Former Chairman (until 1994),
NACCO Industries; Director, Sundstrand -------------------------------------------------
Corporation TOP-RATED SERVICE
MFS was rated first when
INVESTMENT ADVISER NUMBER securities firms evaluated the
Massachusetts Financial Services Company 1 quality of service they receive
500 Boylston Street DALBAR from 40 mutual fund companies.
Boston, Massachusetts 02116-3741 MFS got high marks for
answering calls quickly,
PORTFOLIO MANAGER processing transactions
John W. Ballen* accurately and sending statements
out on time.
TREASURER
W. Thomas London* (Source: 1994 DALBAR Survey)
------------------------------------------------
ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
In January 1994, the Fund was closed to new investors in order to maximize the
value of existing Fund shares in the investment environment which prevailed at
that time. Over the balance of the year, however, many stock prices declined
substantially, despite generally strong corporate earnings. As a result of that
decline, we were able to identify a number of industries and companies which we
believed offered attractive investment opportunities. In order to take advantage
of those opportunities, the Fund reopened on January 16, 1995. During the six
months ended May 31, 1995, Class A shares of the Fund provided a total return of
+13.62%, while Class B shares had a total return of +13.14%. Both of these
returns assume the reinvestment of distributions but exclude the effects of any
sales charges. Over the same period, the stock market as measured by the Russell
2000 Total Return Index (an index comprised of 2,000 of the smallest U.S.
domiciled company common stocks which are traded on the New York Stock Exchange,
the American Stock Exchange and NASDAQ) returned +11.68%. A discussion of the
Fund's performance during this reporting period may be found in the Portfolio
Performance and Strategy section of this letter.
Economic Environment
As the U.S. economy enters its fifth year of expansion, it is evidencing a
decidedly decelerating trend from its robust pace of 1994, when gross domestic
product expanded by 4.1%. The Federal Reserve Board's efforts to dampen this
pace by raising short-term interest rates are clearly having their intended
effect, as growth in this year's first quarter diminished to an annual rate of
2.7%. Growth in the second quarter appears to have slowed even further as
employment, consumer spending and industrial production have all shown
considerable weakness. The result may be flat or even slightly negative growth
in the second quarter. However, we do not anticipate that the economy will lapse
into recession. Rather, we believe the economy will pursue a moderate growth
path for the remainder of this year, driven by export growth and an improving
consumer sector supported by moderate prevailing interest rates.
Stock Market
The stock market has maintained its upward momentum, as stock prices have
responded to growing confidence that the Federal Reserve has concluded its
tightening initiatives and that gains in corporate earnings may remain
substantial. Although we expect overall economic growth to remain moderate, our
outlook for corporate earnings growth remains favorable. We have been
emphasizing growth areas such as technology, health care, consumer and household
products, and financial services while de-emphasizing many cyclical areas such
as autos and basic materials because of their less attractive earnings outlook.
Portfolio Performance and Strategy
The Fund's favorable performance during the past six months resulted primarily
from overweightings in two industry sectors which included some of our largest
holdings: technology, and leisure and entertainment. As we have mentioned in
previous reports, the technology sector continues to be very important to the
world's economies. Industrialized countries are using technology to improve
their competitive positions, enhance their products and services, and reduce
their costs. In addition, newly industrialized countries are using technology to
accelerate their entrance into the world economies. In this sector, we believe
the best opportunities are in software and networking companies. Thus, the Fund
continues to own Oracle, Informix, Autodesk and Cadence Design. We also added to
our positions in Sybase and Compuware when their stock prices fell due to
disappointing earnings.
Many leisure and entertainment companies have continued to enjoy favorable
performance. Our holdings in the lodging, gaming and restaurant industries have
done particularly well. Lodging fundamentals continue to remain strong because
very few hotels were built in the second half of the 1980s, supply has remained
limited, and room rates and occupancies have trended higher. Gaming stocks have
rebounded because most of the capacity which has been added recently has been
quickly absorbed by burgeoning demand. The restaurant industry has rebounded
from what we believe were very depressed valuations. Hospitality Franchise
Systems in the lodging industry, Promus in the gaming and lodging industry, and
Applebees in the restaurant industry have all performed well.
A factor which detracted from the Fund's performance during the past six
months was its overweighting in the health care industry. Our holdings in the
nursing home industry and in health maintenance organizations (HMOs) were hurt
by the Republican initiatives in Washington to cut Medicare. We believe the
worst-case scenario has been built into stock valuations already, and we have
added aggressively to HMOs such as United Healthcare and to nursing homes such
as Integrated Health.
The environment for stocks this year has been very positive. Strong
corporate earnings, coupled with flat to declining interest rates, have driven
valuations higher. Even so, because of the strong earnings growth of many
smaller companies, valuations are still depressed based on historical
parameters. While we cannot predict when these companies will once again receive
favorable valuations, we believe that companies with rapid earnings growth will
eventually be recognized by the marketplace.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
A 1-1/2" X 1-5/8" photo A 1-1/2" X 1-5/8" photo
of A. Keith Brodkin, of John W. Ballen,
Chairman and President. Portfolio Manager.
/s/A. Keith Brodkin, /s/John W. Ballen,
-------------------------- ---------------------------
A. Keith Brodkin John W. Ballen
Chairman and President. Portfolio Manager.
June 23, 1995
<PAGE>
PORTFOLIO MANAGER PROFILE
John Ballen began his career at MFS as an industry specialist in 1984. A
graduate of Harvard College, the University of New South Wales and the Stanford
University Graduate School of Business Administration, he was promoted to
Investment Officer in 1986, Vice President - Investments in 1987, Director of
Research in 1988 and Senior Vice President in 1990. In 1993, he became Director
of Equity Portfolio Management and on May 1, 1995 he became Chief Equity
Officer. He has been the Portfolio Manager of MFS Emerging Growth Fund since
1987.
OBJECTIVE AND POLICY
The Fund seeks to provide long-term growth of capital. Dividend and interest
income from portfolio securities, if any, is incidental to the Fund's investment
objective of long-term growth of capital.
The Fund's policy is to invest primarily (i.e., at least 80% of its assets under
normal circumstances) in common stocks of small and medium-sized companies that
are early in their life cycle but which have the potential to become major
enterprises (emerging growth companies). Such companies generally would be
expected to show earnings growth over time that are well above the growth rate
of the overall economy and the rate of inflation, and would have the products,
management and market opportunities which are usually necessary to become more
widely recognized as growth companies.
PERFORMANCE SUMMARY
Because mutual funds like MFS Emerging Growth Fund are designed for investors
with long-term goals, we have provided cumulative results as well as the average
annual total returns for Class A and Class B shares for the applicable time
periods.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
Class A Investment Results
(net asset value change including reinvested distributions)
9/13/91+-
6 Months 1 Year 5/31/95
--------------------------------------------------------------------------------
Cumulative Total Return* +13.62% +17.25% +33.34%
--------------------------------------------------------------------------------
Average Annual Total Return* -- +17.25% +18.30%
--------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the Securities and Exchange Commission
(the SEC), with all distributions reinvested and reflecting the maximum sales
charge of 5.75% on the initial investment for the 1-year period ended March 31,
1995 and for the period from September 13, 1993+ to March 31, 1995, were
+8.62% and +16.05%, respectively.
Class B Investment Results
(net asset value change including reinvested distributions)
12/29/86+-
6 Months 1 Year 5 Years 5/31/95
--------------------------------------------------------------------------------
Cumulative Total Return++ +13.14% +16.27% +146.98% +314.48%
--------------------------------------------------------------------------------
Average Annual Total Return++ +16.27% + 19.82% + 18.39%
--------------------------------------------------------------------------------
The average annual total returns, calculated for the period ended as of the most
recent calendar quarter as required by the SEC, with all distributions
reinvested and reflecting the contingent deferred sales charge (CDSC) of 4% and
2% for the 1- and 5-year periods ended March 31, 1995, respectively, and 0% for
the period from December 29, 1986+ to March 31, 1995, were +10.33%, +23.32%
and +18.83%, respectively.
<PAGE>
All results represent past performance and are not necessarily an indication of
future results. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost. All
Class A share results reflect the applicable expense subsidy which is explained
in the Notes to Financial Statements. Had the subsidy not been in effect, the
results would have been less favorable. The subsidy may be rescinded by MFS at
any time.
+Commencement of offering of this class of shares.
*These results do not include the sales charge. If the charge had been
included, the results would have been lower.
++These results do not include any CDSC. If the charge had been included, the
results would have been lower.
<PAGE>
PORTFOLIO OF INVESTMENTS (UNAUDITED) - May 31, 1995
Common Stocks and Warrants - 97.2%
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Issuer Shares Value
-----------------------------------------------------------------------------
Apparel and Textiles - 1.4%
Donnkenny, Inc.* 55,000 $ 1,045,000
Nine West Group, Inc.* 725,000 25,284,376
Norton McNaughton, Inc.* 10,000 142,500
Team Rent Group, Inc.* 125,000 953,125
--------------
$ 27,425,001
-----------------------------------------------------------------------------
Automotive - 0.3%
APS Holding Corp.* 160,000 $ 4,160,000
Automotive Industries Holdings, Inc.* 25,000 643,750
Deflecta-Shield Corp.* 36,400 345,800
Tower Automotive, Inc.* 42,400 384,250
--------------
$ 5,533,800
-----------------------------------------------------------------------------
Banks and Credit Companies - 0.1%
Capital One Financial Corp. 28,500 $ 598,500
First Bank System, Inc. 10,900 457,800
First Financial Management Corp. 7,600 539,600
Northern Trust Co. 10,700 414,626
Turkiye Garanti Bankasi## 160,000 340,000
--------------
$ 2,350,526
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Biotechnology - 0.6%
American Medical Electronics, Inc.* 6,600 $ 62,700
Guidant Corp.* 492,000 11,746,500
--------------
$ 11,809,200
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Building
Universal Forest Products, Inc. 65,000 $ 463,126
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Business Machines - 0.2%
Affiliated Computer Co.* 123,900 $ 3,438,226
CMC Industries, Inc.* 75,200 169,200
National Instruments Corp.* 23,800 452,200
--------------
$ 4,059,626
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Business Services - 5.5%
Accustaff, Inc.* 35,500 $ 723,313
BISYS Group, Inc.* 390,623 7,421,838
CUC International, Inc.* 1,378,500 50,659,875
Career Horizons, Inc.* 5,000 100,000
Careline, Inc.*++ 728,700 5,283,076
Computer Sciences, Inc.* 100,000 5,300,000
Equity Corp. International* 125,000 2,000,000
FIserv, Inc.* 247,500 6,527,813
Interim Services, Inc.* 200,000 4,950,000
Investment Technology Group, Inc.* 43,800 317,550
Policy Management Systems Corp.* 22,600 1,039,600
RTW, Inc.* 24,000 420,000
Rural/Metro Corp.* 209,700 3,669,750
SPS Transaction Services, Inc.* 411,945 12,718,802
Stewart Enterprises, Inc. 277,400 8,322,000
TRM Copy Centers Corp.* 18,700 133,238
Transaction Systems Architects, Inc., "A"* 27,700 595,550
--------------
$ 110,182,405
-----------------------------------------------------------------------------
Cellular Telephones - 0.1%
AirTouch Communications, Inc.* 85,000 $ 2,316,250
Telephone & Data Systems, Inc. 9,700 366,176
--------------
$ 2,682,426
-----------------------------------------------------------------------------
Chemicals - 0.1%
Uniroyal Chemical Corp.* 217,200 $ 2,470,650
-----------------------------------------------------------------------------
Computer Software - 0.7%
ATS Software, Inc.* 20,400 $ 206,550
Applix, Inc.* 24,000 525,000
CBT Group, PLC* 13,100 468,325
DSP Communications* 75,000 1,284,376
Diamond Multimedia Systems* 64,200 1,163,626
Epic Design Technology, Inc.* 15,900 433,276
Expert Software, Inc.* 16,500 243,375
Hummingbird Communications* 135,000 3,206,250
Interactive Group, Inc.* 26,500 172,250
Metatec Corp.* 70,000 822,500
Mustang Software, Inc.* 31,700 206,050
Network Peripherals* 20,000 440,000
Number Nine Visual Technology* 15,300 258,188
Open Environment Corp.* 23,200 493,000
P-COM, Inc.* 9,900 215,325
Performance Systems International, Inc.* 20,300 281,663
Remedy Corp.* 13,800 510,600
Renaissance Solution, Inc.* 16,600 203,350
Security Dynamics Technology, Inc.* 14,900 596,000
Storemedia, Inc.* 16,300 330,075
TGV Software, Inc.* 20,100 394,463
TIVOLI Systems, Inc.* 19,500 706,875
--------------
$ 13,161,117
-----------------------------------------------------------------------------
Computer Software - Personal Computers - 5.1%
ASM Lithography* 47,000 $ 1,515,750
Autodesk, Inc. 2,100,090 77,703,330
Datastream Systems, Inc.* 9,300 192,975
Electronic Arts, Inc.* 235,600 6,066,700
General Magic, Inc.* 35,000 393,750
Learning Co.* 73,100 2,183,863
Maxis, Inc.* 22,700 442,650
Saber Software Corp.* 26,000 204,750
Softdesk, Inc.* 35,000 726,250
Softkey International, Inc.* 387,363 10,119,858
Software Artistry, Inc.* 10,700 222,025
State of the Art, Inc.* 130,000 1,348,750
Tower Semiconductor Ltd.* 60,000 1,260,000
--------------
$ 102,380,651
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Computer Software - Systems - 18.6%
Aspen Technology, Inc.* 20,000 $ 410,000
BAAN Co.* 29,200 686,200
BMC Software, Inc.* 347,800 22,346,150
Cadence Design Systems, Inc.* 1,537,000 45,725,750
Compuware Corp.* 1,793,124 53,345,440
Firefox Communications, Inc.* 14,900 339,907
Informix Corp.* 856,859 36,202,293
Keane, Inc.* 212,900 5,136,213
Marcam Corp.*++ 576,800 9,120,650
Oracle Systems Corp.* 3,240,000 112,590,000
Periphonics Corp.* 26,400 392,700
Quickturn Design System, Inc.* 66,000 602,250
STB Systems, Inc.* 45,100 349,525
Shiva Corp.* 29,700 $ 1,150,875
Sybase, Inc.* 2,158,389 45,326,170
System Software Associates, Inc.++ 1,567,300 37,811,113
Uunet Technologies, Inc.* 32,200 764,750
--------------
$ 372,299,986
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Construction Services - 0.1%
Shaw Group, Inc.* 159,400 $ 1,295,125
-----------------------------------------------------------------------------
Consumer Goods and Services - 0.9%
American Recreation* 159,000 $ 1,192,500
American Standard Cos.* 347,800 9,303,650
Bollinger Industries, Inc.* 45,000 337,500
Bombay Co., Inc.* 33,000 251,625
Cerplex Group, Inc.* 133,800 1,036,950
Department 56, Inc.* 12,700 465,138
First Alert, Inc.* 20,000 285,000
Fresh America Corp.* 65,000 308,750
Perrigo Co.* 178,800 1,966,800
Sola International, Inc.* 93,100 2,071,475
Toy Biz, Inc.* 18,150 328,969
Winsloew Furniture, Inc.* 15,750 72,844
--------------
$ 17,621,201
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Containers
Shorewood Packaging Corp.* 10,000 $ 157,500
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Electrical Equipment - 0.1%
Brooks Automation, Inc.* 20,200 $ 383,800
Integrated Silicon Solution* 20,700 840,938
--------------
$ 1,224,738
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Electronics - 2.7%
ACT Manufacturing, Inc.* 24,800 $ 297,600
AG Associates, Inc.* 24,600 369,000
Actel Corp.* 40,000 460,000
Altera Corp.* 130,000 10,123,750
Anadigics, Inc.* 22,300 384,675
Flextronics International Ltd.* 10,000 182,500
Gasonics International Corp.* 61,300 1,501,850
Information Storage Devices* 12,450 311,250
LSI Logic Corp.* 12,000 807,000
Linear Technology Corp. 175,400 10,498,250
Micrel, Inc.* 29,800 629,525
Micro Linear Corp.* 98,600 1,269,475
Novellus Systems, Inc.* 152,000 9,424,000
Oak Technology, Inc.* 246,800 7,095,500
Quality Semiconductor, Inc.* 5,000 56,250
SDL, Inc.* 12,600 326,025
Semitool, Inc.* 25,800 744,975
Ultratech Stepper, Inc.* 114,800 3,444,000
Xilinx, Inc.* 71,100 5,990,175
--------------
$ 53,915,800
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Entertainment - 7.4%
Argosy Gaming Corp.* 230,600 $ 3,026,625
Boomtown, Inc.*## 55,000 611,875
Casino America, Inc.* 686,400 10,381,800
Central European Media Enterprises Ltd.* 21,700 320,075
Discovery Zone, Inc.* 122,600 1,134,050
Grand Casinos, Inc.* 905,600 28,866,000
Heftel Broadcasting Corp., "A"* 140,500 1,826,500
Heritage Media Corp.* 59,400 1,648,350
Hollywood Park, Inc. 150,000 2,025,000
Infinity Broadcasting Corp., "A"* 101,549 2,856,065
International Family Entertainment, Inc., "B"* 25,000 409,375
Jacor Communications, Inc., "A"* 35,000 472,500
Lodgenet Entertainment Corp.* 45,300 334,088
Marvel Entertainment Group, Inc.* 94,336 1,415,040
Monarch Casino & Resort, Inc.* 105,000 577,500
National Gaming Corp.*++ 248,000 2,077,000
Players International, Inc.* 251,250 5,276,250
President Casinos, Inc.* 655,000 2,947,500
Promus Cos., Inc.* 1,471,802 61,631,710
Radica Games Ltd. * 220,000 660,000
Showboat, Inc.* 180,000 3,015,000
Speedway Motorsports, Inc.* 20,000 412,500
Starsight Telecast, Inc.* 15,700 82,425
Tele Communications, "A"* 800,000 16,900,000
--------------
$ 148,907,228
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Financial Institutions - 0.4%
Advanta Corp., "B" 13,000 $ 468,000
BHC Financial, Inc. 37,875 558,657
Banca Quadrum S.A.* 131,800 790,800
Factory Stores America, Inc. 120,000 2,325,000
Finova Group, Inc. 10,900 401,938
First Merchants Acceptance Corp.* 43,000 666,500
Franklin Resources, Inc. 13,600 595,000
General Acceptance Corp.* 19,000 484,500
Green Tree Financial Corp. 14,100 615,113
McArthur Glen Realty Corp. 15,000 217,500
TFC Enterprises* 41,500 529,126
--------------
$ 7,652,134
-----------------------------------------------------------------------------
Insurance - 0.3%
Equitable of Iowa Cos. 18,500 $ 617,438
PMI Group, Inc. 120,300 4,917,263
United Wisconsin Services, Inc. 38,000 798,000
--------------
$ 6,332,701
-----------------------------------------------------------------------------
Machinery - 0.1%
Hardinge, Inc. 87,000 $ 1,734,564
Opal, Inc.* 13,200 198,000
--------------
$ 1,932,564
-----------------------------------------------------------------------------
Medical and Health Products - 1.2%
Amerisource Healthcare, "A"* 33,800 $ 768,950
Boston Scientific Corp.* 260,000 7,475,000
Gelman Sciences, Inc.* 25,000 465,625
Haemonetics Corp.* 70,000 1,260,000
Health Management, Inc.* 179,000 3,110,125
Healthdyne, Inc.* 378,500 1,797,875
Medcath, Inc.* 33,800 397,150
Medisense, Inc.* 77,500 1,375,625
Orthofix International N.V.* 262,500 3,773,438
Sofamor/Danek Group* 35,100 737,100
Tokos Medical Corp.* 200,000 1,150,000
Zoll Medical Corp.* 107,500 1,236,250
--------------
$ 23,547,138
-----------------------------------------------------------------------------
Medical and Health Technology and Services - 20.8%
APPS Dental, Inc.* 29,000 $ 554,625
Advantage Health Corp.* 128,300 3,592,400
American Homepatient, Inc.* 80,500 2,415,000
American Medical Response* 40,000 995,000
CRA Managed Care, Inc.* 31,900 594,138
Clintrials Research* 30,000 358,125
Columbia HCA Healthcare 584,023 23,871,940
Community Health Systems* 245,100 8,639,775
Continental Medical Systems, Inc.* 95,100 891,563
Coram Healthcare* 793,726 14,287,069
Emcare Holdings, Inc.* 25,200 494,550
FHP International Corp.* 90,000 1,980,000
FPA Medical Management, Inc.* 150,000 1,218,750
Foundation Health Corp.* 860,000 24,187,500
Genesis Health Ventures, Inc.* 95,000 2,814,375
HCIA, Inc.* 16,400 481,750
Health Management Assoc., Inc.* 26,000 711,750
Healthdyne, Inc.* 246,293 2,678,437
Healthplan Services Corp.* 58,000 884,500
Healthsource, Inc.* 257,005 10,151,698
HealthWise of America, Inc.* 102,500 2,998,125
Horizon Healthcare Corp.* 410,000 7,482,500
Horizon Mental Health Management* 35,000 411,250
Integrated Health Services, Inc.++ 1,352,327 45,133,914
Lincare Holdings, Inc.* 100,000 2,662,500
Living Centers of America* 190,600 5,908,600
Manor Care, Inc.* 63,600 1,860,300
Mariner Health Group, Inc.* 881,900 12,787,550
Medpartners, Inc.* 25,000 481,250
Mid-Atlantic Medical Services, Inc.*++ 3,075,800 63,822,850
Multicare Cos., Inc.* 100,900 1,879,263
Occusystems, Inc.* 13,100 232,525
Option Care, Inc.* 140,000 455,000
Orthodontic Centers of America* 225,000 4,612,500
Oxford Health Plans, Inc.* 16,600 838,300
Pacific Physician Services* 17,350 288,444
Pacificare Health Systems, Inc., "A"* 49,300 3,241,475
Pacificare Health Systems, Inc., "B"* 713,646 47,279,048
PerSeptive Biosystems*+** 16,078 119,380
Physician Reliance Network, Inc.* 72,000 1,314,000
Physician Sales & Service, Inc.* 14,000 500,500
Professional Sports Care Management* 75,000 862,500
Quorum Health Group* 66,100 1,313,738
Renal Treatment Centers, Inc.* 338,249 7,314,635
Sierra Health Services, Inc.* 27,700 744,438
Sun Health Group* 90,000 1,496,250
Surgical Care Affiliates, Inc. 145,000 2,972,500
United Healthcare Corp. 2,473,786 92,148,529
Wellcare Management, Inc.* 77,700 2,078,475
--------------
$ 415,043,284
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Metals and Minerals - 0.1%
Castech Alum Group* 69,400 $ 1,075,700
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Pollution Control
Continental Waste Industries, Inc.* 10,000 $ 101,250
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Printing and Publishing - 0.1%
Consolidated Graphics, Inc.* 80,000 $ 1,140,000
-----------------------------------------------------------------------------
Railroads
Railtex, Inc.* 5,000 $ 123,750
Wisconsin Central Transportation Corp.* 10,900 547,725
--------------
$ 671,475
-----------------------------------------------------------------------------
Restaurants and Lodging - 13.8%
Amerihost Properties, Inc.*++ 350,000 $ 1,815,625
Applebee's International, Inc.++ 1,895,000 47,848,750
Back Bay Restaurant Group, Inc.*++ 185,100 1,018,050
Bertucci's, Inc.* 379,700 2,657,900
Brinker International, Inc.* 1,603,500 27,059,063
Buffets, Inc.*++ 1,550,000 21,506,250
Bugaboo Creek Steak House, Inc.* 35,000 428,750
Cheesecake Factory* 10,000 248,750
DF&R Restaurants, Inc.* 255,900 4,862,100
Doubletree Corp.* 64,500 1,241,625
Ground Round Restaurants, Inc.* 241,000 677,813
Hammons (John Q) Hotels, Inc.*++ 354,300 5,004,488
Hometown Buffet, Inc.*++ 857,300 9,001,650
Hospitality Franchise System*++ 3,087,405 93,008,075
IHOP Corp.*++ 561,500 12,914,500
Innkeepers USA Trust++ 250,000 2,125,000
Lone Star Steakhouse and Saloon, Inc.* 352,900 11,072,238
Quantum Restaurant Group, Inc.*++ 540,700 5,947,700
Sbarro, Inc. 20,000 460,000
ShoLodge, Inc.* 335,600 4,866,200
Showbiz Pizza Time, Inc.*++ 755,000 8,399,375
Sonic Corp.* 253,100 6,833,700
Supertel Hospitality, Inc.* 65,000 845,000
Taco Cabana, Inc.*++ 962,395 5,052,574
UNO Restaurant Corp.* 169,500 1,864,500
--------------
$ 276,759,676
-----------------------------------------------------------------------------
Special Products and Services - 0.9%
Central Tractor Farm & Country, Inc.* 5,000 $ 56,250
Childrens Discovery Centers* 125,000 2,140,625
Daisytek International Corp.* 12,500 259,375
Educational Insights, Inc.* 46,500 255,750
ITT Educational Services, Inc.* 200,000 2,875,000
Simula, Inc.* 100,000 2,275,000
Sphere Drake Holdings Ltd.* 405,000 6,226,875
Sportmart, Inc.* 96,000 564,000
Strouds, Inc.* 20,000 155,000
U.S. Office Products Co.* 48,800 542,900
West Marine, Inc.* 103,000 2,523,500
--------------
$ 17,874,275
-----------------------------------------------------------------------------
Stores - 9.8%
American Studios, Inc. 147,200 $ 368,000
AutoZone, Inc.* 18,500 430,125
Bed Bath & Beyond, Inc.* 75,000 1,743,750
Boise Cascade Office Products* 152,600 3,776,850
Borders Group, Inc.* 200,000 2,925,000
Circle K Corp.* 217,000 3,661,875
CompUSA, Inc.* 150,000 3,937,500
Consolidated Stores Corp.* 842,700 15,800,625
Corporate Express, Inc.* 20,000 577,500
Creative Computers, Inc.* 26,900 611,975
Dollar Tree Stores, Inc.* 67,800 1,525,500
Duty Free International, Inc. 609,400 6,170,175
Finish Line (The), Inc., "A"* 72,300 632,625
Funco, Inc.* 15,000 65,625
Garden Ridge Corp.* 9,800 176,400
General Nutrition Cos., Inc.* 132,000 3,828,000
Grow Biz International, Inc.* 52,500 616,875
Gymboree Corp.* 45,000 1,096,875
Hello Direct, Inc.* 42,000 635,250
Hollywood Entertainment Corp.* 136,950 4,895,963
Micro Warehouse, Inc.*++ 1,488,800 57,691,000
Mothers Work, Inc.*++ 211,500 3,013,875
Movie Gallery, Inc.* 378,100 11,437,525
National Vision Associates Ltd.* 203,700 865,725
Natural Wonders, Inc.* 28,600 107,250
Office Depot, Inc.* 2,319,600 55,670,400
Officemax, Inc.* 71,000 1,757,250
PetSmart, Inc.* 51,600 1,328,700
Petstuff, Inc.* 38,100 404,813
Phar-Mor, Inc.*##** 178,350 178,350
Renters Choice, Inc.* 95,800 2,071,675
Shoe Carnival, Inc.* 487,000 3,386,172
Sports & Recreation, Inc.* 62,050 713,575
Sports Club, Inc.* 247,000 1,235,000
Sunglass Hut International, Inc.* 80,000 2,500,000
Welcome Home, Inc.* 88,900 388,938
--------------
$ 196,226,736
-----------------------------------------------------------------------------
Telecommunications - 3.9%
ACT Networks, Inc.* 16,400 $ 315,700
ALC Communications Corp.* 33,700 1,465,950
American Paging, Inc.* 42,000 283,500
Bay Networks, Inc.* 308,742 11,269,084
Cabletron Systems, Inc.* 118,800 6,355,800
Call Net Enterprises, Inc. "B"*## 125,000 786,609
Cisco Systems, Inc.* 50,000 2,187,500
Colonial Data Tech* 121,100 2,376,588
Equalnet Holding Corp.* 359,300 5,883,538
Harmonic Lightwaves, Inc.* 38,300 497,900
Newbridge Networks* 41,700 1,475,138
Ortel Corp.* 24,200 429,550
Paging Network, Inc.* 22,000 610,500
Premisys Communications, Inc.* 14,900 756,175
Rogers Communications, Inc.* 799,000 9,108,695
Tele-Matic Corp.* 27,000 330,750
Tessco Technologies* 13,400 217,750
Videoserver, Inc.* 19,600 507,150
Worldcom, Inc.* 1,239,885 $ 32,237,010
Xpedite Systems, Inc.* 35,000 717,500
--------------
$ 77,812,387
-----------------------------------------------------------------------------
Trucking - 0.5%
Celadon Group, Inc.* 33,000 $ 536,250
MTL, Inc.* 70,000 1,050,000
PST Vans, Inc.* 58,900 743,613
Transportation Corp. of America, "B"*+**++ 692,516 8,305,864
U.S. Xpress Enterprises, Inc., "A"* 34,200 342,000
--------------
$ 10,977,727
-----------------------------------------------------------------------------
Venture Capital - 0.4%
Copley Partners1*+** 3,000,000 $ 911,085
Copley Partners2*+** 3,000,000 2,464,020
Highland Capital Partners*+* 7,500,000 5,326,276
--------------
$ 8,701,381
-----------------------------------------------------------------------------
Foreign - 1.0%
Australia
Sydney Harbor Casino Ltd.* 22,104,000 $ 19,852,155
-----------------------------------------------------------------------------
Total Common Stocks and Warrants
(Identified Cost, $1,399,093,644) $1,943,640,689
-----------------------------------------------------------------------------
Convertible Bonds - 0.4%
-----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
-----------------------------------------------------------------------------
Entertainment - 0.2%
Argosy Gaming Corp., 12s, 2001 $ 4,676 $ 4,746,140
Medical and Health Technology and Services - 0.1%
CareLine, Inc., 8s, 2001## 1,500 1,350,000
Restaurants and Lodging - 0.1%
Sholodge, Inc., 7.5s, 2004 2,000 1,820,000
-----------------------------------------------------------------------------
Total Convertible Bonds (Identified
Cost, $8,379,429) $ 7,916,140
-----------------------------------------------------------------------------
Short-Term Obligations - 1.8%
-----------------------------------------------------------------------------
Dow Chemical Co., due 6/02/95 $ 1,300 $ 1,299,787
Federal Home Loan Mortgage Corp., due
5/15/95 - 6/01/95 3,150 3,150,000
Federal Home Loan Mortgage Corp., due
5/08/95 - 6/12/95 10,000 9,982,063
Federal Home Loan Mortgage Corp., due
4/25/95 - 6/15/95 2,045 2,040,340
Federal National Mortgage Assn., due
5/16/95 - 6/06/95 6,450 6,444,715
Philip Morris Cos., due 6/05/95 13,400 13,391,185
-----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 36,308,090
-----------------------------------------------------------------------------
Total Investments (Identified Cost,
$1,443,781,163) $1,987,864,919
Other Assets, Less Liabilities - 0.6% 11,902,338
-----------------------------------------------------------------------------
Net Assets - 100.0% $1,999,767,257
-----------------------------------------------------------------------------
*Non-income producing security.
**Security valued by or at the direction of the Trustees.
##SEC Rule 144A restriction.
+Restricted security.
++Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting securities of the issuer.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
------------------------------------------------------------------------------
May 31, 1995
------------------------------------------------------------------------------
Assets:
Investments, at value -
Unaffiliated issuers (identified cost, $1,155,046,861) $ 1,541,963,540
Affiliated issuers (identified cost, $288,734,302) 445,901,379
---------------
Total investments, at value (identified cost,
$1,443,781,163) $ 1,987,864,919
Cash 1,591
Receivable for investments sold 1,852,183
Receivable for Fund shares sold 41,659,491
Interest and dividends receivable 339,505
Other assets 38,780
---------------
Total assets $ 2,031,756,469
---------------
Liabilities:
Payable for investments purchased $ 27,997,497
Payable for Fund shares reacquired 2,464,555
Payable to affiliates -
Management fee 40,305
Shareholder servicing agent fee 6,407
Distribution fee 24,993
Accrued expenses and other liabilities 1,455,455
---------------
Total liabilities $ 31,989,212
---------------
Net assets $ 1,999,767,257
---------------
Net assets consist of:
Paid-in capital $ 1,476,190,209
Unrealized appreciation on investments and translation of
assets and liabilities in foreign
currencies 544,083,756
Accumulated distributions in excess of net realized gain
on investments and foreign currency transactions (9,006,968)
Accumulated net investment loss (11,499,740)
---------------
Total $ 1,999,767,257
---------------
Shares of beneficial interest outstanding 96,217,441
---------------
Class A shares:
Net asset value and redemption price per share
(net assets of $767,451,593 / 36,814,419 shares of
beneficial interest outstanding) $20.85
-----
Offering price per share (100/94.25) $22.12
-----
Class B shares:
Net asset value and offering price per share
(net assets of $1,232,315,664 / 59,403,022 shares of
beneficial interest outstanding) $20.74
-----
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 and
Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
------------------------------------------------------------------------------
Six Months Ended May 31, 1995
------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 1,804,134
Dividends (including $298,297 received from affiliated
issuers) 982,729
------------
Total investment income $ 2,786,863
------------
Expenses -
Management fee $ 5,911,000
Trustees' compensation 21,450
Shareholder servicing agent fee (Class A) 431,688
Shareholder servicing agent fee (Class B) 983,056
Distribution and service fee (Class A) 1,042,172
Distribution and service fee (Class B) 4,907,388
Custodian fee 201,644
Postage 121,238
Printing 87,241
Auditing fees 2,525
Legal fees 1,209
Miscellaneous 829,346
------------
Total expenses $ 14,539,957
Reduction of expenses by distributor (297,064)
------------
Net expenses $ 14,242,893
------------
Net investment loss $(11,456,030)
------------
Realized and unrealized loss on investments:
Realized loss (identified cost basis) -
Investment transactions (including $243,887 in losses from
transactions in affiliated issuers) $ (8,119,434)
Foreign currency transactions (23,730)
------------
Net realized loss on investments and foreign currency
transactions $ (8,143,164)
------------
Change in unrealized appreciation on investments $210,485,972
------------
Net realized and unrealized gain on investments and
foreign currency $202,342,808
------------
Increase in net assets from operations $190,886,778
------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
------------------------------------------------------------------------------
Six Months Ended Year Ended
May 31, 1995 November 30,
(Unaudited) 1994
------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (11,456,030) $ (18,775,234)
Net realized gain (loss) on
investments and foreign currency
transactions (8,143,164) 40,986,707
Net unrealized gain on
investments and foreign
currency transactions 210,485,972 64,922,879
-------------- --------------
Increase in net assets from
operations $ 190,886,778 $ 87,134,352
-------------- --------------
Distributions declared to shareholders -
From net realized gain on
investments and foreign
currency transactions (Class A) (5,404,816) (11,484,710)
From net realized gain on
investments and foreign
currency transactions (Class B) (5,673,160) (17,957,239)
In excess of net realized gain
on investments and foreign
currency transactions (Class A) (4,394,395) --
In excess of net realized gain
on investments and foreign
currency transactions (Class B) (4,612,573) --
-------------- --------------
Total distributions
declared to shareholders $ (20,084,944) $ (29,441,949)
-------------- --------------
Fund share (principal) transactions -
Net proceeds from sale of shares $1,183,931,280 $ 933,615,981
Net asset value of shares
issued to shareholders
in reinvestment of
distributions 17,789,139 25,655,969
Cost of shares reacquired (611,218,149) (750,977,096)
-------------- --------------
Increase in net assets from
Fund share transactions $ 590,502,270 $ 208,294,854
-------------- --------------
Total increase in net assets $ 761,304,104 $ 265,987,257
Net assets:
At beginning of period 1,238,463,153 972,475,896
-------------- --------------
At end of period (including
accumulated net investment
loss of $11,499,740 and
$43,710, respectively) $1,999,767,257 $1,238,463,153
-------------- --------------
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS - continued
Financial Highlights
----------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
May 31, November 30, May 31, November 30,
1995 ----------------------- 1995 -----------------------
(Unaudited) 1994 1993* (Unaudited) 1994 1993
----------------------------------------------------------------------------------------------------------
Class A 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 $18.73 $17.68 $16.43 $18.57 $17.64 $14.93
------ ------ ------ ------ ------ ------
Income from investment
operations -
Net investment loss $(0.11) $(0.20)<F3> $(0.03) $(0.21) $(0.35)<F3> $(0.33)
Net realized and
unrealized gain on
investments 2.62 1.78<F3> 1.28 2.63 1.78<F3> 3.19
---- ---- ---- ---- ---- ----
Total from investment
operations $ 2.51 $ 1.58 $ 1.25 $ 2.42 $ 1.43 $ 2.86
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net realized
gain on investments $(0.22) $(0.53) $ -- $(0.14) $(0.50) (0.15)
In excess of net
realized gain on
investments (0.17) -- -- (0.11) -- --
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.39) $(0.53) $ -- $(0.25) $(0.50) $(0.15)
------ ------ ------ ------ ------ ------
Net asset value - end
of period $20.85 $18.73 $17.68 $20.74 $18.57 $17.64
------ ------ ------ ------ ------ ------
Total return# 13.62%<F2> 9.06% 38.98%<F1> 13.14%<F1> 8.21% 19.36%
Ratios (to average net assets)/Supplemental data:
Expenses 1.31%<F1><F5> 1.33%<F5> 1.19%<F1> 2.11%<F1><F5> 2.14% 2.19%
Net investment loss <F5> (0.95)%<F1><F5> (1.09)%<F5> (0.98)%<F1> (1.76)%<F1><F5> (1.90)% (1.61)%
Portfolio turnover 103% 39% 58% 103% 39% 58%
Net assets at end of
period (000,000 omited) $ 767 $ 470 $ 371 $1,232 $ 769 $ 602
*For the period from the commencement of offering of Class A shares, September 13, 1993 to November 30, 1993.
<FN>
<F1>Annualized.
<F2>Not annualized.
<F3>Per share data for the periods subsequent to November 30, 1993 are based on average shares outstanding.
<F4>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.
<F5>The distributor did not impose a portion of its Class A distribution fee for the periods indicated. If this fee had been
incurred by the Fund, the net investment income per share and the ratios would have been:
</FN>
Net investment loss $(0.13) $(0.22) -- -- -- --
Ratios (to average
net assets):
Expenses 1.41% 1.43% -- -- -- --
Net investment loss (1.05)% (1.19)% -- -- -- --
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
-----------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987**
------------------------------------------------------------------------------------------------------------------------
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 $12.07 $ 6.89 $ 7.69 $ 5.91 $ 4.97 $ 5.50
------ ------ ------ ------ ------ ------
Income from investment operations -
Net investment loss $(0.07) $(0.13) $(0.14) $(0.13) $(0.11) $(0.06)
Net realized and unrealized gain
(loss) on investments 3.52 5.31 (0.66) 1.91 1.05 (0.47)
------ ------ ------ ------ ------ ------
Total from investment operations $ 3.45 $ 5.18 $(0.80) $ 1.78 $ 0.94 $(0.53)
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders from net realized
gain on investments $(0.59) $ -- $ -- $ -- $ -- $ --
------ ------ ------ ------ ------ ------
Net asset value - end of period $14.93 $12.07 $ 6.89 $ 7.69 $ 5.91 $ 4.97
------ ------ ------ ------ ------ ------
Total return 29.25% 75.18% (10.40)% 30.12% 18.91% (10.44)%+
Ratios (to average net assets)/
Supplemental data:
Expenses 2.33% 2.50% 2.75% 2.81% 2.30% 2.40%+
Net investment loss (2.00)% (1.98)% (1.86)% (1.91)% (1.65)% (1.50)%+
Portfolio turnover 59% 112% 86% 95% 57% 81%
Net assets at end of period
(000,000 omitted) $ 357 $ 145 $ 73 $ 82 $ 61 $ 50
**For the period from the commencement of investment operations, December 29, 1986 to November 30, 1987.
+Annualized.
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) Business and Organization
MFS Emerging Growth Fund (the Fund) is a diversified series of MFS Series Trust
II (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 Investment
Valuations - Equity securities listed on securities exchanges or reported
through the NASDAQ system are valued at last sale prices. Unlisted equity
securities or listed equity securities for which last sale prices are not
available are valued at last quoted bid prices. Short-term obligations, which
mature in 60 days or less, are valued at amortized cost, which approximates
value. Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction of the
Trustees.
Repurchase Agreements - The Fund may enter into repurchase agreements
with institutions that the Fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Fund requires
that the securities purchased in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the Fund to obtain those securities
in the event of a default under the repurchase agreement. The Fund monitors, on
a daily basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
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 and 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.
Written Options - The Fund may write covered call or put
options for which premiums are received and are recorded as liabilities, and are
subsequently adjusted to the current value of the options written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or are closed are
offset against the proceeds or amount paid on the transaction to determine the
realized gain or loss. If a put option is exercised, the premium reduces the
cost basis of the security purchased by the Fund. The Fund, as writer of an
option, may have no control over whether the underlying securities may be sold
(call) or purchased (put) and, as a result, bears the market risk of an
unfavorable change in the price of the securities underlying the written option.
In general, written call options may serve as a partial hedge against decreases
in value in the underlying securities to the extent of the premium received.
Written options may also be used as a part of an income producing strategy
reflecting the view of the Fund's management on the direction of interest rates.
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of stock-index contracts at a fixed price on a future date. In entering
such contracts, the Fund is required to deposit either in cash or securities an
amount equal to a certain percentage of the contract amount. Subsequent payments
are made or received by the Fund each day, depending on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Fund. The Fund's
investment in stock-index futures contracts is designed to hedge against
anticipated future changes in securities prices. The Fund may also invest in
stock-index futures contracts for non-hedging purposes, subject to applicable
law. Should securities prices move unexpectedly, the Fund may not achieve the
anticipated benefits of the futures contracts and may realize a loss.
Security Loans - The Fund may lend its securities to member banks of the Federal
Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. The loans are collateralized at all times by cash or
securities with a market value at least equal to the market value of securities
loaned. As with other extensions of credit, the Fund may bear the risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund receives compensation for lending its
securities in the form of fees or from all or a portion of the income from
investment of the collateral. The Fund would also continue to earn income on the
securities loaned. At May 31, 1995, the Fund had no securities on loan.
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 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 will 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.
It 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 for financial statement purposes as unrealized until the contract
settlement date.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for both financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. Dividend payments received in additional securities are recorded on the
ex-dividend date in an amount equal to the value of the security on such date.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV.
Foreign taxes have been provided for on interest and dividend income earned on
foreign investments in accordance with the applicable country's tax rates and to
the extent unrecoverable are recorded as a reduction of investment income.
Distributions to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A and
Class B shares. The two classes of shares differ in their respective shareholder
servicing agent, distribution and service fees. Shareholders of each class also
bear certain expenses that pertain only to that particular class. All
shareholders bear the common expenses of the Fund pro rata based on the average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses, including distribution and shareholder
service fees.
(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, computed daily and paid monthly at an
effective annual rate of 0.75% of average daily net assets, amounted to
$5,911,000 for the six months ended May 31, 1995.
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 of the 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 its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $7,450 for the six months
ended May 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$371,595 as its portion of the sales charge on sales of Class A shares of the
Fund for the period ended May 31, 1995. The Trustees have adopted separate
distribution plans for Class A and Class B shares pursuant to Rule 12b-1 of the
Investment Company Act of 1940 as follows:
The Class A 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
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, 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, commissions to dealers and payments to MFD wholesalers for
sales at or above a certain dollar level, and other such distribution-related
expenses that are approved by the Fund. MFD is waiving the 0.10% distribution
fee (amounting to $297,064 for the six months ended May 31, 1995) for an
indefinite period. Fees incurred under the distribution plan during the six
months ended May 31, 1995 net of waiver were 0.25% of average daily net assets
attributable to Class A shares on an annualized basis and amounted to $745,108,
(of which MFD retained $102,686).
The Class B Distribution Plan provides that the Fund will pay MFD a monthly
distribution fee, equal to 0.75% per annum, and a quarterly service fee of up to
0.25% per annum, of the Fund's average daily net assets attributable to Class B
shares. MFD will pay to each securities dealer that enters into a sales
agreement with MFD all or a portion of the service fee attributable to Class B
shares. The service fee is intended to be additional consideration for services
rendered by the dealer with respect to Class B shares. Fees incurred under the
distribution plan during the six months ended May 31, 1995 were 1.00% of average
daily net assets attributable to Class B shares on an annualized basis and
amounted to $4,907,388 (of which MFD retained $66,053).
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within 12 months following the share 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, 1995 were $854 and $753,587
for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
$431,688 and $983,056 for Class A and Class B shares, respectively, for its
services as shareholder servicing agent. The fee is calculated as a percentage
of the average daily net assets of each class of shares at an effective annual
rate of up to 0.15% and up to 0.22% attributable to Class A and Class B shares,
respectively.
(4) Portfolio Securities Purchases and sales of investments, other
than U.S. government securities, purchased option transactions and short-term
obligations, aggregated $689,079,246 and $142,910,982, respectively.
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $1,443,781,163
------------
Gross unrealized appreciation $ 657,957,432
Gross unrealized depreciation (113,873,676)
------------
Net unrealized appreciation $ 544,083,756
------------
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Class A Shares Six Months Ended Year Ended
May 31, 1995 November 30, 1994
------------------------------ ------------------------------
Shares Amount Shares Amount
----------------------------------------------------------------------------
Shares sold 28,242,887 $ 564,122,486 26,143,949 $ 483,879,494
Shares issued to
shareholders in
reinvestment of
distributions 487,892 9,177,066 584,374 10,565,806
Shares
reacquired (17,006,165) (339,912,394) (22,607,024) (420,205,407)
------------ ------------- ----------- -------------
Net increase 11,724,614 $ 233,387,158 4,121,299 $ 74,239,893
------------ ------------- ------------- -------------
Class B Shares Six Months Ended Year Ended
May 31, 1995 November 30, 1994
------------------------------ ------------------------------
Shares Amount Shares Amount
----------------------------------------------------------------------------
Shares sold 31,257,835 $ 619,808,794 24,347,440 $ 449,736,487
Shares issued to
shareholders in
reinvestment of
distributions 458,578 8,612,073 835,529 15,090,163
Shares
reacquired (13,703,588) (271,305,755) (17,900,602) (330,771,689)
------------ ------------- ------------ -------------
Net increase 18,012,825 $ 357,115,112 7,282,367 $ 134,054,961
------------ ------------- ------------ -------------
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit
with a bank which permits borrowings up to $350 million, collectively.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the six
months ended May 31, 1995 was $13,335.
<PAGE>
(7) Transactions in Securities of Affiliated Issuers
Affiliated issuers, as defined under the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the six months ended May
31, 1995 is set forth below:
<TABLE>
<CAPTION>
Acquisitions Dispositions Interest
Beginning ------------------------ ---------------------- Ending Realized and
Share/Par Share/Par Share/Par Share/Par Gain Dividend Ending
Affiliate Amount Amount Cost Amount Cost Amount (Loss) Income Value
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amerihost Prospectus, Inc. 100,000 250,000 $ 1,095,513 -- $ -- 350,000 $ -- $ -- $ 1,815,625
Applebee's
International, Inc. 1,864,200 30,000 459,965 -- -- 1,895,000 -- 94,525 47,848,750
Back Bay Restaurant
Group, Inc. 185,100 -- -- -- -- 185,100 -- -- 1,018,050
Buffets, Inc. 1,350,100 199,900 1,761,569 -- -- 1,550,000 -- -- 21,506,250
CareLine, Inc. 728,700 -- -- -- -- 728,700 -- -- 5,283,076
Hammond (John Q.)
Hotels, Inc. 133,200 221,100 3,267,269 -- -- 354,300 -- -- 5,004,488
Hometown Buffet, Inc. 823,000 34,300 374,913 -- -- 857,300 -- -- 9,001,650
Hospitality Franchise
System 2,450,000 657,405 18,761,645 -- -- 3,087,405 -- -- 93,008,075
IHOP Corp. 65,000 496,500 $11,183,625 -- -- 561,500 -- -- $ 12,914,500
Innkeepers USA Trust 250,000 -- -- -- -- 250,000 -- -- 2,125,000
Integrated Health
Services, Inc. 434,800 418,027 14,258,538 -- -- 1,352,327 -- 19,020 45,133,914
Marcam Corp. 696,800 -- -- 20,000 320,000 576,800 (187,788) -- 9,120,650
Micro Warehouse, Inc. 1,149,000 339,800 9,971,094 -- -- 1,488,800 -- -- 57,691,000
Mid-Atlantic Medical
Services, Inc. 2,370,000 706,000 16,333,419 200 3,765 3,075,800 (2,261) -- 63,822,850
Mothers Work, Inc. 211,500 -- -- -- -- 211,500 -- -- 3,013,875
National Gaming Corp. 243,000 5,000 4,416,025 -- -- 248,000 -- -- 2,077,000
Quantum Restaurant
Group, Inc. 540,700 -- -- -- -- 540,700 -- -- 5,947,700
Showbiz Pizza Time,
Inc. 750,000 5,000 48,125 -- -- 755,000 -- -- 8,399,375
System Software
Associates, Inc. 1,539,600 27,700 726,025 -- -- 1,567,300 -- 184,752 37,811,113
Taco Cabana, Inc. 968,295 -- -- 5,900 49,413 962,395 (53,838) -- 5,052,574
Transportation Corp.
of America, "B" 692,516 -- -- -- -- 692,516 -- -- 8,305,864
------------ ----------- --------- -------- ------------
$82,657,725 $ 373,178 $(243,887) $298,297 $445,901,379
------------ ----------- --------- -------- ------------
</TABLE>
<PAGE>
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At May 31, 1995, the
Fund owned the following restricted securities (constituting 1.0% of net assets)
which may not be publicly sold without registration under the Securities Act of
1933. The Fund does not have the right to demand that such securities be
registered. The value of these securities is determined by valuations supplied
by a pricing service or brokers or, if not available, in good faith by or at the
direction of the Trustees. Certain of these securities may be offered and sold
to "qualified institutional buyers" under Rule 144A of the 1933 Act.
<TABLE>
<CAPTION>
Date of Share/Par
Description Acquisition Amount Cost Value
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Boomtown, Inc. 10/23/92 - 5/25/93 55,000 $1,399,000 $ 611,875
Call Net Enterprises, Inc., "B" 11/10/93 125,000 1,051,600 786,609
CareLine, Inc., 8s, 2001 9/27/94 1,500,000 1,500,000 1,350,000
Copley Partners 1 12/02/86 3,000,000 1,437,794 911,085
Copley Partners 2 12/02/86 - 8/09/91 3,000,000 2,451,234 2,464,020
Highland Capital Partners 6/28/88 - 6/28/93 7,500,000 4,636,048 5,326,275
PerSeptive Biosystems, Inc. 10/24/93 16,078 41,200 119,380
Phar-Mor, Inc. 3/06/87 178,350 5,045,462 178,350
Transportation Corp. of America, "B" 10/23/91 - 5/15/92 692,516 2,000,000 8,305,864
Turkiye Garanti Bankasi 10/29/93 160,000 593,800 340,000
----------
$20,393,458
----------
</TABLE>
---------------------------------------------
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.
<PAGE>
THE MFS FAMILY OF FUNDS(R)
Americas Oldest Mutual Fund Group
<TABLE>
The members of the MFS Family of Funds are grouped below according to the types of
securities in their portfolios. For free prospectuses containing more complete information,
including the exchange privilege and all charges and expenses, please contact your
financial adviser or call MFS at 1-800-637-2929 any business day from 9 a.m. to 5 p.m.
Eastern time (or, leave a message any time). This material should be read carefully before
investing or sending money.
<CAPTION>
STOCK LIMITED MATURITY BOND
<S> <C>
Massachusetts Investors Trust MFS(R) Government Limited Maturity Fund
Massachusetts Investors Growth Stock Fund MFS(R) Limited Maturity Fund
MFS(R) Capital Growth Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) Emerging Growth Fund
MFS(R) Gold & Natural Resources Fund World
MFS(R) Growth Opportunities Fund MFS(R) World Asset Allocation Fund
MFS(R) Managed Sectors Fund MFS(R) World Equity Fund
MFS(R) OTC Fund MFS(R) World Governments Fund
MFS(R) Research Fund MFS(R) World Growth Fund
MFS(R) Value Fund MFS(R) World Total Return Fund
STOCK AND BOND NATIONAL TAX-FREE BOND
MFS(R) Total Return Fund MFS(R) Municipal Bond Fund
MFS(R) Utilities Fund MFS(R) Municipal High Income Fund
(closed to new investors)
BOND MFS(R) Municipal Income Fund
MFS(R) Bond Fund
MFS(R) Government Mortgage Fund STATE TAX-FREE BOND
MFS(R) Government Securities Fund Alabama, Arkansas, California,
MFS(R) High Income Fund Florida, Georgia, Louisiana, Maryland,
MFS(R) Intermediate Income Fund Massachusetts, Mississippi, New York,
MFS(R) Strategic Income Fund North Carolina, Pennsylvania, South
(formerly MFS(R) Income & Opportunity Fund) Carolina, Tennessee, Texas, Virginia,
Washington, West Virginia
MONEY MARKET
MFS(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
</TABLE>
<PAGE>
MFS(R) EMERGING -------------
GROWTH FUND [LOGO: NUMBER 1 DALBAR BULK RATE
TOP RATED SERVICE] U.S. POSTAGE
PAID
500 Boylston Street PERMIT #55638
Boston, MA 02116 BOSTON, MA
-------------
[LOGO: M F S
THE FIRST NAME IN MUTUAL FUNDS]
MEG-3 7/95 230M 7/207
