<PAGE>
[MFS LOGO] Semiannual Report
THE FIRST NAME IN MUTUAL FUNDS May 31, 1995
MFS(R) CAPITAL GROWTH FUND
[GRAPHIC OMITTED: art work:
Silhouette of two men talking
in front of a large window.]
<PAGE>
<TABLE>
<S> <C>
MFS(R) CAPITAL 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 general information, 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 Company day from 9 a.m. to 5 p.m. Eastern time.
(To use this service, your phone must be
Jeffrey L. Shames* - President, Massachusetts equipped with a Telecommunications
Financial Services Company Device for the Deaf.)
J. Dale Sherratt - President, Insight Resources, Inc. For share prices, account balances and
(Acquisition Planning Specialists) exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone
Ward Smith - Former Chairman (until 1994), telephone.
NACCO Industries; Director, Sundstrand
Corporation
-------------------------------------------------
INVESTMENT ADVISER TOP-RATED SERVICE
Massachusetts Financial Services Company MFS was rated first when
500 Boylston Street NUMBER securities firms evaluated the
Boston, Massachusetts 02116-3741 1 quality of service they receive
DALBAR from 40 mutual fund companies.
PORTFOLIO MANAGER MFS got high marks for
John F. Brennan, Jr.* answering calls quickly,
processing transactions
TREASURER accurately and sending statements
W. Thomas London* out on time.
ASSISTANT TREASURER (Source: 1994 DALBAR Survey)
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:
During the past six months, Class A shares of the Fund provided a total return
of +20.25%, while Class B shares had a total return of +19.67%. Both of these
returns include the reinvestment of distributions but exclude the effects of
any sales charges. The Fund's results outperformed the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock
performance, which returned +19.2% over the same period. A discussion of
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 evidenced
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.
Portfolio Performance and Strategy
The Fund's strong performance can be attributed to two factors: relative
sector weightings and stock selection. The Fund's overweighting of the
financial services sector contributed significantly to performance during this
period, as the value of our holdings in this sector increased 27.7%. This
performance was broad-based, as both insurance and bank industry holdings
contributed to the Fund's results. Our underweighting of the utility sector
proved advantageous, as utility stocks lagged the overall return of the S&P
500.
The technology sector, which was the strongest component of the S&P 500,
was up nearly 31% over the period. The Fund's relatively low level of exposure
to this sector detracted from performance, although one of its holdings, Intel
Co. (a manufacturer of microprocessors), showed a dramatic rise in share price
and contributed significantly to its results.
Several individual stocks also had a favorable impact on the Fund's
return. McDonnell Douglas continued its dramatic turnaround and its share
price increased 55% during the past six months. Lockheed-Martin, another
company in the aerospace industry, began to reap the benefits of
consolidation, and its share price increased 37%. And, Philip Morris, after
working through excess inventory problems, increased share price 22%.
<PAGE>
LETTER TO SHAREHOLDERS - continued
Our current outlook remains optimistic. We believe the Federal Reserve
has significantly reduced the threat of inflation and that business prospects
should remain positive. This environment of low inflation, low interest rates
and steady economic growth should prove rewarding for investors in equity
securities.
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, John F. Brennan, Jr.,
Chairman and President Portfolio Manager
----------------------- -----------------------
/s/ A. Keith Brodkin /s/ John F. Brennan, Jr.
A. Keith Brodkin John F. Brennan, Jr.
Chairman and President Portfolio Manager
June 23, 1995
PORTFOLIO MANAGER PROFILE
John Brennan has been a member of the MFS investment staff since 1985. A
graduate of the University of Rhode Island and Stanford University's Graduate
School of Business Administration, he began his career at MFS as an industry
specialist and was promoted to Assistant Vice President - Investments in 1987.
He was named Vice President - Investments in 1988 and Senior Vice President -
Investments in February 1995. Mr. Brennan became Portfolio Manager of MFS
Capital Growth Fund on May 1, 1995.
OBJECTIVE AND POLICIES
The Fund seeks to provide growth of capital. Dividend income, if any, is a
consideration incidental to the Fund's objective of growth of capital.
In seeking to achieve its investment objective, the Fund generally invests in
companies believed to possess above-average growth opportunities. While the
policy of the Fund is to invest primarily in common stocks, it may also seek
appreciation in fixed-income securities, convertible bonds, convertible
preferred stocks and warrants. The Fund may also invest up to 25% of its total
assets in foreign securities.
<PAGE>
PERFORMANCE SUMMARY
Because mutual funds like MFS Capital 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)
9/07/93+
6 Months 1 Year 5/31/95-
------------------------------------------------------------------------------
Cumulative Total Return* +20.25% +16.45% +21.08%
------------------------------------------------------------------------------
Average Annual Total Return* -- +16.45% +11.70%
------------------------------------------------------------------------------
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 7, 1993+ to March 31,
1995, were +4.52% and +4.15%, 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++ +19.67% +15.19% +62.27% +177.49%
------------------------------------------------------------------------------
Average Annual Total Return++ -- +15.19% +10.17% + 12.88%
------------------------------------------------------------------------------
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 +5.58%,
+9.61% and +12.24%, respectively.
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.
+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 - 92.4%
------------------------------------------------------------------------
Issuer Shares Value
------------------------------------------------------------------------
Aerospace - 6.6%
Allied Signal, Inc. 140,000 $ 5,652,500
Lockheed-Martin Corp. 300,000 17,850,000
McDonnell Douglas Corp. 90,000 6,502,500
------------
$ 30,005,000
------------------------------------------------------------------------
Apparel and Textiles - 3.9%
Nike, Inc., "B" 140,000 $ 11,042,500
VF Corp. 130,000 6,922,500
------------
$ 17,965,000
------------------------------------------------------------------------
Automotive - 1.6%
Eaton Corp. 120,000 $ 7,335,000
------------------------------------------------------------------------
Banks and Credit Companies - 13.8%
First Bank System, Inc. 200,000 $ 8,400,000
First Interstate Bancorp 60,000 5,040,000
Firstar Corp. 160,000 5,060,000
NBD Bancorp, Inc. 140,000 4,602,500
National City Corp. 120,000 3,645,000
Norwest Corp. 520,000 14,755,000
SunTrust Banks, Inc. 160,000 9,280,000
U.S. Bancorp 200,000 4,925,000
West One Bancorp 220,000 7,425,000
------------
$ 63,132,500
------------------------------------------------------------------------
Business Machines - 1.3%
Motorola, Inc. 100,000 $ 5,987,500
------------------------------------------------------------------------
Business Services - 0.5%
Bell & Howell Holdings Co.* 115,900 $ 2,144,150
------------------------------------------------------------------------
Consumer Goods and Services - 11.2%
Colgate-Palmolive Co. 150,000 $ 11,550,000
Gillette Co. 80,000 6,750,000
Leggett & Platt, Inc. 60,000 2,505,000
Philip Morris Cos., Inc. 180,000 13,117,500
RJR Nabisco Holdings Corp. 136,000 3,876,000
Tyco International Ltd. 250,000 13,531,250
------------
$ 51,329,750
------------------------------------------------------------------------
Containers - 1.4%
Corning, Inc. 200,000 $ 6,400,000
------------------------------------------------------------------------
Defense Electronics - 1.5%
Loral Corp. 140,000 $ 6,702,500
------------------------------------------------------------------------
Electrical Equipment - 1.7%
Honeywell, Inc. 200,000 $ 7,925,000
------------------------------------------------------------------------
Electronics - 1.7%
Intel Corp. 70,000 $ 7,857,500
------------------------------------------------------------------------
Entertainment - 1.6%
Disney (Walt) Co. 75,000 $ 4,171,875
Promus Cos., Inc.* 79,600 3,333,250
------------
$ 7,505,125
------------------------------------------------------------------------
Financial Institutions - 4.6%
Federal Home Loan Mortgage Corp. 135,000 $ 9,196,875
Finova Group, Inc. 140,000 5,162,500
State Street Boston Corp. 200,000 6,725,000
------------
$ 21,084,375
------------------------------------------------------------------------
Food and Beverage Products - 6.6%
Anheuser-Busch Cos., Inc. 100,000 $ 5,912,500
CPC International, Inc. 190,000 11,542,500
Kellogg Co. 70,000 4,698,750
PepsiCo, Inc. 160,000 7,840,000
------------
$ 29,993,750
------------------------------------------------------------------------
Forest and Paper Products - 0.7%
Kimberly Clark Corp. 50,000 $ 3,000,000
------------------------------------------------------------------------
Insurance - 8.4%
AFLAC Inc. 120,000 $ 5,040,000
Allmerica Property & Casualty Co. 50,000 1,031,250
American RE Corp. 120,000 4,470,000
Equitable of Iowa Cos. 50,000 1,668,750
Progressive Corp. - Ohio 170,000 6,460,000
Torchmark Corp. 140,000 5,582,500
Transamerica Corp. 120,000 7,170,000
UNUM Corp. 160,000 6,840,000
------------
$ 38,262,500
------------------------------------------------------------------------
Medical and Health Products - 3.9%
Johnson & Johnson 120,000 $ 7,950,000
Warner-Lambert Co. 120,000 9,945,000
------------
$ 17,895,000
------------------------------------------------------------------------
Medical and Health Technology and Services - 4.3%
Beverly Enterprises, Inc.* 243,100 $ 2,765,264
Genesis Health Ventures, Inc.* 165,000 4,888,125
Living Centers of America, Inc.* 155,000 4,805,000
Pacificare Health Systems, Inc., "B"* 85,000 5,631,250
St. Jude Medical, Inc. 30,700 1,389,175
------------
$ 19,478,814
------------------------------------------------------------------------
Metals and Minerals - 0.9%
Lukens, Inc. 29,600 $ 999,000
Phelps Dodge Corp. 60,000 3,307,500
------------
$ 4,306,500
------------------------------------------------------------------------
Oils - 4.1%
Amoco Corp. 100,000 $ 6,837,500
Chevron Corp. 120,000 5,895,000
Mobil Corp. 60,000 6,022,500
------------
$ 18,755,000
------------------------------------------------------------------------
Printing and Publishing - 1.4%
Belo (A.H.) Corp., "A" 60,000 $ 3,765,000
Central Newspapers, Inc., "A" 100,000 2,800,000
------------
$ 6,565,000
------------------------------------------------------------------------
Railroads - 2.8%
Illinois Central Corp. 190,000 $ 6,721,250
Norfolk Southern Corp. 90,000 6,165,000
------------
$ 12,886,250
------------------------------------------------------------------------
Restaurants and Lodging - 0.2%
Apple South, Inc. 61,800 $ 1,073,775
------------------------------------------------------------------------
Stores - 5.3%
Dayton-Hudson Corp. 100,000 $ 7,087,500
May Department Stores Co. 200,000 7,850,000
Penney (J.C.), Inc. 200,000 9,425,000
------------
$ 24,362,500
------------------------------------------------------------------------
Telecommunications - 0.1%
Cox Communications, Inc., "A"* 9,567 $ 155,463
------------------------------------------------------------------------
Utilities - Gas - 0.3%
Pacific Enterprises 50,000 $ 1,262,500
------------------------------------------------------------------------
Utilities - Telephone - 1.2%
American Telephone & Telegraph Co. 110,000 $ 5,582,500
------------------------------------------------------------------------
Foreign - 0.8%
Sweden - 0.8%
Astra AB, Free, "B" (Pharmaceuticals) 100,000 $ 2,871,211
Hennes & Mauritz AB (Retail) 16,000 927,517
------------
$ 3,798,728
------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $334,445,367) $422,751,680
------------------------------------------------------------------------
Short-Term Obligations - 8.1%
------------------------------------------------------------------------
Principal Amount
(000 Omitted)
------------------------------------------------------------------------
Dow Chemical, due 6/02/95 $6,500 $ 6,498,929
Federal Home Loan Bank, due 6/02/95 5,685 5,684,076
Federal Home Loan Mortgage Corp.,
due 6/01/95 9,285 9,285,000
Federal Home Loan Mortgage Corp.,
due 6/05/95 7,220 7,215,291
Federal Home Loan Mortgage Corp.,
due 6/21/95 3,000 2,990,217
Ford Motor Credit Co., due 6/07/95 5,340 5,334,678
------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost and Value $ 37,008,191
------------------------------------------------------------------------
Total Investments (Identified Cost, $371,453,558) $459,759,871
Other Assets, Less Liabilities - (0.5)% (2,372,224)
------------------------------------------------------------------------
Net Assets - 100.0% $457,387,647
------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
------------------------------------------------------------------------------
May 31, 1995
------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $371,453,558) $459,759,871
Cash 26,845
Receivable for Fund shares sold 499,595
Dividends receivable 1,210,201
Other assets 6,451
------------
Total assets $461,502,963
------------
Liabilities:
Payable for investments purchased $ 2,750,890
Payable for Fund shares reacquired 960,853
Payable to affiliates -
Management fee 9,268
Shareholder servicing agent fee 2,668
Distribution fee 8,731
Accrued expenses and other liabilities 382,906
------------
Total liabilities $ 4,115,316
------------
Net assets $457,387,647
------------
Net assets consist of:
Paid-in capital $348,655,004
Unrealized appreciation on investments 88,306,343
Accumulated undistributed net realized gain on investments 19,699,115
Accumulated undistributed net investment income 727,185
------------
Total $457,387,647
============
Shares of beneficial interest outstanding 30,065,587
============
Class A shares:
Net asset value and redemption price per share
(net assets of $26,471,070 / 1,737,880 shares of beneficial
interest outstanding) $15.23
======
Offering price per share (100/94.25) $16.16
======
Class B shares:
Net asset value and offering price per share
(net assets of $430,916,577 / 28,327,707 shares of
beneficial interest outstanding) $15.21
======
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 -
Dividends $ 5,085,081
Interest 320,447
-----------
Total investment income $ 5,405,528
-----------
Expenses -
Management fee $ 1,569,210
Trustees' compensation 18,310
Shareholder servicing agent fee (Class A) 5,957
Shareholder servicing agent fee (Class B) 451,564
Distribution and service fee (Class B) 2,052,562
Custodian fee 77,102
Postage 36,164
Printing 34,855
Auditing fees 4,950
Miscellaneous 182,274
-----------
Total expenses $ 4,432,948
-----------
Net investment income $ 972,580
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $19,963,829
Foreign currency transactions (9,503)
-----------
Net realized gain on investments and foreign currency
transactions $19,954,326
Change in unrealized appreciation on investments and foreign
currency translation 55,120,300
-----------
Net realized and unrealized gain on investments and
foreign currency transactions $75,074,626
-----------
Increase in net assets from operations $76,047,206
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Statement of Changes in Net Assets
-----------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended
May 31, 1995 Year Ended
(Unaudited) November 30, 1994
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 972,580 $ 1,393,864
Net realized gain on investments and
foreign currency transactions 19,954,326 17,833,858
Net unrealized gain (loss) on investments
and foreign currency translation 55,120,300 (23,927,833)
------------ ------------
Increase (decrease) in net assets from
operations $ 76,047,206 $ (4,700,111)
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (43,087) $ (961)
From net investment income (Class B) (1,541,960) (95,487)
From net realized gain on investments and foreign
currency transactions (Class A) (120,843) (19,561)
From net realized gain on investments and
foreign currency transactions (Class B) (17,999,182) (35,570,518)
------------ ------------
Total distributions declared to shareholders $(19,705,072) $(35,686,527)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 68,491,180 $ 66,138,962
Net asset value of shares issued to
shareholders in reinvestment of distributions 18,309,003 33,058,598
Cost of shares reacquired (72,866,758) (125,984,050)
------------ ------------
Increase (decrease) in net assets from
Fund share transactions $ 13,933,425 $ (26,786,490)
------------ ------------
Total increase (decrease) in net assets $ 70,275,559 $(67,173,128)
Net assets:
At beginning of period 387,112,088 454,285,216
------------ ------------
At end of period (including accumulated
undistributed net investment income of $727,185
and $1,339,652, respectively) $457,387,647 $387,112,088
============ ============
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
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
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $13.49 $14.75 $14.58 $13.37 $14.72 $14.83
------ ------ ------ ------ ------ ------
Income from investment operations<F4> -
Net investment
income $ 0.18 $ 0.21 $ 0.03 $ 0.04 $ 0.04 $ 0.03
Net realized and
unrealized gain
(loss) on
investments 2.40 (0.25) 0.14 2.47 (0.23) 0.50
------ ------ ------ ------ ------ ------
Total from
investment
operations $ 2.58 $(0.04) $ 0.17 $ 2.51 $ (0.19) $ 0.53
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment
income $(0.22) $(0.06) $ -- $(0.05) $ 0.00<F6> $ (0.02)
From net realized
gain on investments (0.62) (1.16) -- (0.62) (1.16) (0.62)
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.84) $ (1.22) $ -- $(0.67) $(1.16) $(0.64)
------ ------ ------ ------ ------ ------
Net asset value -
end of period $15.23 $13.49 $14.75 $15.21 $13.37 $14.72
====== ====== ====== ====== ====== ======
Total return<F5> 20.25%<F2> (0.47)% 5.01%<F3> 19.67%<F2> (1.52)% 3.70%
Ratios (to average net assets)/Supplemental data:
Expenses 1.07%<F3> 1.12% 0.91%<F3> 2.14%<F3> 2.18% 2.15%
Net investment income 1.66%<F3> 1.59% 1.67%<F3> 0.44%<F3> 0.32% 0.10%
Portfolio turnover 35% 50% 70% 35% 50% 70%
Net assets at end
of period (000
omitted) $26,471 $2,608 $ 196 $430,917 $384,504 $454,089
<F1> For the period from the commencement of offering of Class A shares,
September 7, 1993 to
<F2> Not annualized.
<F3> Annualized.
<F4> Per share data for the periods subsequent to November 30, 1992 are based on
average shares outstanding.
<F5> 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.
<F6> The per share distribution from net investment income on Class B shares was
$0.00312 per share.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended November 30, 1992 1991 1990 1989 1988 1987<F1>
-----------------------------------------------------------------------------------------------------------------
Class B
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $13.27 $11.29 $12.05 $ 9.38 $ 7.59 $ 7.50
------ ------ ------ ------ ------ ------
Income from investment
operations -
Net investment income $ 0.02 $ 0.10 $ 0.18 $ 0.17 $ 0.12 $ 0.04
Net realized and
unrealized gain
(loss) on investments 2.61 2.15 (0.75) 2.63 1.76 0.06
------ ------ ------ ------ ------ ------
Total from investment
operations $ 2.63 $ 2.25 $(0.57) $ 2.80 $ 1.88 $ 0.10
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $ -- $(0.14) $(0.19) $(0.13) $(0.09) $(0.01)
From net realized
gain on investments (1.07) (0.13) -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(1.07) $(0.27) $(0.19) $(0.13) $(0.09) $(0.01)
------ ------ ------ ------ ------ ------
Net asset value -
end of period $14.83 $13.27 $11.29 $12.05 $ 9.38 $ 7.59
====== ====== ====== ====== ====== ======
Total return 20.61% 20.22% (4.80)% 30.11% 24.79% 1.41%<F2>
Ratios (to average net assets)/Supplemental data:
Expenses 2.24% 2.28% 2.38% 2.46% 2.17% 2.26%<F2>
Net investment income 0.18% 0.75% 1.56% 1.56% 1.34% 0.36%<F2>
Portfolio turnover 65% 86% 68% 58% 93% 139%
Net assets at end of
period (000 omitted) $436,561 $317,375 $226,245 $202,861 $130,961 $88,471
<F1> For the period from the commencement of investment operations, December 29,
1986 to November 30, 1987.
<F2> Annualized.
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) Business and Organization
MFS Capital 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. Debt securities (other
than short-term obligations which mature in 60 days or less), including listed
issues and forward contracts, are valued on the basis of valuations furnished
by dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates value. Non-U.S. dollar denominated short-
term obligations are valued at amortized cost as calculated in the base
currency and translated into U.S. dollars at the closing daily exchange rate.
Futures contracts, options and options on futures contracts listed on
commodities exchanges are valued at closing settlement prices. Over-the-
counter options are valued by brokers through the use of a pricing model which
takes into account closing bond valuations, implied volatility and short-term
repurchase rates. 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 securities, currency or contracts based on indices 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 futures contracts is
designed to hedge against anticipated future changes in securities prices.
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 net 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 $1,569,210.
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. Included in
Trustees' compensation is a net periodic pension expense of $4,638 for the six
months ended May 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$2,174 as its portion of the sales charge on sales of Class A shares of the
Fund. 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. Payments will
commence under the distribution plan on the date on which the net assets of
the Fund attributable to Class A shares first equals or exceeds $40 million.
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 securities dealers that enter 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 $2,052,562 (of which MFD retained $47,674).
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
amounted to $256,887 for Class B shares.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earned
$5,957 and $451,564 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 purchased option transactions
and short-term obligations, aggregated $142,359,491 and $172,851,978,
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 $371,453,558
============
Gross unrealized appreciation $ 88,938,971
Gross unrealized depreciation (632,658)
------------
Net unrealized appreciation $ 88,306,313
============
(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:
<TABLE>
<CAPTION>
Class A Shares Six Months Ended Year Ended
May 31, 1995 November 30, 1994
-------------------------------- ----------------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,623,924 $23,541,330 231,629 $3,234,603
Shares issued to shareholders in
reinvestment of distributions 12,212 158,146 1,363 18,815
Shares reacquired (91,621) (1,296,702) (52,922) (732,165)
--------- ----------- ------- ----------
Net increase 1,544,515 $22,402,774 180,070 $2,521,253
========= =========== ======= ==========
Class B Shares Six Months Ended Year Ended
May 31, 1995 November 30, 1994
-------------------------------- ----------------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------
Shares sold 3,259,476 $44,949,850 4,507,115 $ 62,904,359
Shares issued to shareholders in
reinvestment of distributions 1,397,258 18,150,857 2,390,715 33,039,783
Shares reacquired (5,094,105) (71,570,056) (8,988,227) (125,251,885)
---------- ----------- ---------- ------------
Net decrease (437,371) $(8,469,349) (2,090,397) $(29,307,743)
========== =========== ========== ============
</TABLE>
(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 $3,365.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options, forward foreign currency
exchange contracts and futures contracts. The notional or contractual amounts
of these instruments represent the investment the Fund has in particular
classes of financial instruments and does not necessarily represent the
amounts potentially subject to risk. The measurement of the risks associated
with these instruments is meaningful only when all related and offsetting
transactions are considered. The Fund did not invest in any such obligations
during the six months ended May 31, 1995.
---------------------------------------------
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) CAPITAL -------------
GROWTH FUND (Seal: NUMBER 1 DALBAR BULK RATE
TOP RATED SERVICE] U.S. POSTAGE
PAID
500 Boylston Street PERMIT #55638
Boston, MA 02116 BOSTON, MA
-------------
[lOGO] MFS(R)
THE FIRST NAME IN MUTUAL FUNDS
MCG-3 7/95 49.5M 3/203
