<PAGE>
[LOGO] SEMIANNUAL REPORT
THE FIRST NAME IN MUTUAL FUNDS MAY 31, 1996
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MFS(R) EMERGING GROWTH FUND
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[GRAPHIC OMITTED: A Picture of two men in a window.]
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MFS(R) EMERGING GROWTH FUND
<C> <C>
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
Director, Cambridge Bancorp; Director, a touch-tone telephone.
Cambridge Trust Company
For information on MFS mutual funds,
Marshall N. Cohan - Private Investor call your financial adviser or, for an
information kit, call toll free:
Lawrence H. Cohn, M.D. - Chief of Cardiac 1-800-637-2929 any business day from
Surgery, Brigham and Women's Hospital; 9 a.m. to 5 p.m. Eastern time (or leave
Professor of Surgery, Harvard Medical School a message anytime).
The Hon. Sir J. David Gibbons, KBE - Chief INVESTOR SERVICE
Executive Officer, Edmund Gibbons Ltd.; MFS Service Center, Inc.
Chairman, Bank of N.T. Butterfield & Son Ltd. P.O. Box 2281
Boston, MA 02107-9906
Abby M. O'Neill - Private Investor;
Director, Rockefeller Financial Services, Inc. For current account service, call toll free:
(investment advisers) 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
Walter E. Robb, III - President and Treasurer,
Benchmark Advisors, Inc. (corporate financial For service to speech- or hearing-impaired,
consultants); President, Benchmark Consulting call toll free: 1-800-637-6576 any business
Group, Inc. (office services); Trustee, Landmark day from 9 a.m. to 5 p.m. Eastern time.
Funds (mutual funds) (To use this service, your phone must be
equipped with a Telecommunications Device
Arnold D. Scott* - Senior Executive Vice for the Deaf.)
President, Director and Secretary,
Massachusetts Financial Services Company For share prices, account balances and
exchanges, call toll free: 1-800-MFS-TALK
Jeffrey L. Shames* - President and Director, (1-800-637-8255) anytime from a touch-tone
Massachusetts Financial Services Company telephone.
J. Dale Sherratt - President, Insight Resources,
Inc. (acquisition planning specialists)
Ward Smith - Former Chairman (until 1994),
NACCO Industries; Director, Sundstrand
Corporation
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street --------------------------------------------
Boston, MA 02116-3741
TOP RATED SERVICE
PORTFOLIO MANAGER For the second year in a row,
John W. Ballen* [DALBAR MFS earned a #1 ranking in
LOGO] DALBAR, Inc.'s Broker/Dealer
TREASURER Survey, Main Office Operations
W. Thomas London* Service Quality category. The
firm achieved a 3.49 overall score - on a
ASSISTANT TREASURER scale of 1 to 4 - in the 1995 survey. A total
James O. Yost* of 71 firms responded, offering input on the
quality of service they receive from 36
SECRETARY mutual fund companies nationwide. The survey
Stephen E. Cavan* contained questions about service quality in
17 categories, including "knowledge of phone
ASSISTANT SECRETARY service contracts," "accuracy of transaction
James R. Bordewick, Jr.* processing," and "overall ease of doing
*Affiliated with the Investment Adviser business with the firm."
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
With the help of strong performance from many of its holdings in the consumer
and technology sectors, as well as from many smaller companies, Class A shares
of the Fund provided a total return of 18.29% for the six months ended May 31,
1996, while Class B shares had a total return of 17.85%. Class C shares, which
became available on April 1, 1996, returned 10.33%. All of these returns
assume the reinvestment of distributions but exclude the effects of any sales
charges. Over the six-month period, the stock market, as measured by Standard
& Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index of
common stock performance, returned 11.78%, while 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 18.12%. 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 Outlook
Real (inflation-adjusted) economic growth in the first quarter of 1996 was
2.3% on an annualized basis, and it appears that second-quarter growth could
be even stronger. Thus, real growth in gross domestic product has started the
year at a rate exceeding our expectations. While we continue to believe that
growth from quarter to quarter will be uneven, it is now our expectation that
growth for all of 1996 could exceed 2.50%. Although individual consumers
appear to be carrying an excessive debt load, the consumer sector itself,
which represents two-thirds of the economy, continues to be impressive as the
auto and housing markets remain resilient. Consumer spending has also been
positively impacted by widespread job growth. At the same time, however, the
economies of Europe and Japan continue to be in the doldrums, weakening U.S.
export markets while subduing the capital spending plans of American
corporations. Finally, due to the pickup in economic activity and increasing
job growth, it appears that inflation may accelerate slightly this year, and
the Federal Reserve Board is expected to continue its diligent anti-
inflationary stance.
Stock Market
While we do not expect the U.S. stock market to match the extraordinary
performance of 1995, we continue to be positive about the equity market this
year. Although we believe the equity market represents fair value at current
levels, the expected slowdown in the growth of corporate earnings and the
increases in interest rates experienced so far this year raise near-term
concerns. Further increases in interest rates, and an acceleration of inflation
coupled with an additional slowdown in corporate earnings growth, could have a
negative effect on the stock market. However, to the extent that some earnings
disappointments are taken as a sign that the economy is not overheating, this
may prove beneficial for the longer-term health of the equity market. We
continue to believe that many of the technology-driven productivity gains that
U.S. companies have made in recent years will continue to enhance corporate
America's competitiveness and profitability. Therefore, while we have some
near-term concerns, we remain quite constructive on the long-term viability of
the equity market.
Portfolio Performance and Strategy
The Fund's performance has benefited in the first months of 1996 from the
strong appreciation in the stock prices of many of its holdings in the
technology and consumer sectors. The technology sector started the year with
very poor performance as investors worried about the slowdown in this sector's
earnings growth versus 1995's very strong earnings growth of 50%. However,
once investors became accustomed to the fact that 1996 earnings for the
technology sector could still be in a range of 25% to 30%, and that this
growth could appear to be very strong compared to corporate America as a
whole, the sector rebounded strongly.
Consumer stocks, which were some of the most disappointing in terms of
earnings and stock performance in 1995, have rebounded very smartly in the
first half of 1996. One sector which has not performed as yet for the Fund in
1996 is health care. Perhaps because of the strength in other areas of the
market, many of our health care companies lagged the general market in spite
of strong earnings growth.
The performance of our consumer-oriented stocks has been particularly
helpful. HFS, the nation's largest franchiser of hotels and real estate
companies, saw the price of its stock appreciate almost 50% as strong earning
gains and acquisitions such as Caldwell Banker appeared to assure investors of
its future growth prospects. In our opinion, HFS has one of the most creative
and shareholder-oriented managements around, and this position is the Fund's
largest.
Several of the Fund's retail and restaurant stocks rebounded dramatically
based on strong consumer sentiment. Applebee's, the nation's largest
franchiser of casual restaurants, appreciated substantially when strong
earnings were reported from the first quarter. Similarly, Gymboree, perhaps
the retailer best-positioned to service the lucrative children's clothing
niche, soared almost 100% from depressed levels as first-quarter earnings were
very strong.
While the Fund's technology stocks had, on average, mixed results,
fortunately the Fund was overweighted in software and networking stocks
relative to computer systems and semiconductors. Stocks of the former, such as
Oracle and Cisco, responded quite positively to strong earnings reports.
Meanwhile, an excess of investors in the stocks of semiconductor manufacturers
has been a drag on earnings for this sector so far this year. While we expect
this overhang to dissipate, other investors have aggressively sold their
positions and depressed the stocks.
We have been surprised that our health care stocks have not performed
better. United Healthcare, the largest managed health care company in the
nation and one of the Fund's largest positions, has been a particularly poor
performer this year. Despite reporting strong earnings versus last year and
maintaining its position as a dominant force in the sector, the stock is down
for the year. We expect health maintenance organizations (HMOs) to perform
better by the end of the year and have recently added to our holdings in this
area with stocks such as Healthsource, which operates HMOs in New England, the
Midwest, and the Southeast.
This year, the stock market and the Fund's investments moved higher
despite a rise in interest rates and a slowdown in overall corporate earnings.
While we have not been surprised by the strong performance of smaller
companies relative to larger companies, we have been surprised by how strong
the market has been this year. We believe 1996 could end with smaller
companies substantially outperforming larger companies. We are living through
an unprecedented time of productivity gains for corporate America. We believe
smaller companies are the ones that are providing the technology and resources
to drive this productivity to the bottom line, and that the stock market will
continue to reward these companies.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
[Photo of A. Keith Brodkin, Chairman and President]
[Photo of John W. Ballen, Portfolio Manager]
/s/ A. Keith Brodkin /s/ John W. Ballen
A. Keith Brodkin John W. Ballen
Chairman and President Portfolio Manager
June 10, 1996
<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.
Please note that effective April 1, 1996, Class C shares were offered. Class C
shares have no initial sales charge but, along with Class B shares, have
higher annual fees and expenses than Class A shares. Class C shares purchased
on or after April 1, 1996, will be subject to a 1% contingent deferred sales
charge (CDSC) if redeemed within 12 months of purchase.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
Class A Investment Results
(net asset value change including reinvested distributions)
9/13/93+-
6 Months 1 Year 5/31/96
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Cumulative Total Return* +18.29% +51.99% +102.67%
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Average Annual Total Return* -- +51.99% + 29.72%
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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, 1996 and for the period from September 13, 1993+ to March 31,
1996, were +29.08% and +23.81%, respectively.
Class B Investment Results
(net asset value change including reinvested distributions)
12/29/86+-
6 Months 1 Year 5 Years 5/31/96
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Cumulative Total Return++ +17.85% +50.92% +216.21% +525.52%
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Average Annual Total Return++ -- +50.92% + 25.89% + 21.47%
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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 CDSC of 4%, 2% and 0% for the 1- and 5-year
periods ended March 31, 1996 and for the period from December 29, 1986+ to
March 31, 1996, were +31.91%, +24.64% and +20.56%, respectively.
All results represent past performance and are not 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, 1996
Common Stocks - 97.2%
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Issuer Shares Value
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Advertising
CKS Group, Inc. 11,100 $ 428,738
Outdoor Systems, Inc. 21,100 675,200
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$ 1,103,938
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Airlines - 0.1%
Atlas Air, Inc. 77,400 $ 4,508,550
Eagle U.S.A. Airfreight 15,600 546,000
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$ 5,054,550
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Apparel and Textiles - 1.6%
Designer Holdings, Ltd. 70,200 $ 2,158,650
Donnkenny, Inc. 35,000 665,000
Gucci Group 677,600 45,399,200
Loehmanns, Inc. 40,900 1,053,175
Mossimo, Inc. 18,200 891,800
Nine West Group, Inc.* 687,316 33,420,740
Team Rent Group, Inc. 130,000 2,063,750
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$ 85,652,315
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Automotive - 0.1%
APS Holding Corp. 154,000 $ 3,388,000
Safety Components Inc. 28,000 392,000
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$ 3,780,000
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Banks and Credit Companies - 0.1%
Capital One Financial Corp. 28,500 $ 865,687
First Bank System, Inc. 10,900 658,088
Northern Trust Co. 10,700 585,825
Turkiye Garanti Bankasi, ADR## 72,000 338,400
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$ 2,448,000
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Biotechnology - 0.6%
ESC Medical Systems, Ltd. 28,000 $ 1,319,500
Guidant Corp.* 487,000 28,246,000
Millennium Pharmaceuticals 30,700 621,675
Myriad Genetics, Inc. 26,800 743,700
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$ 30,930,875
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Business Machines - 0.3%
Affiliated Computer Co. 241,400 $ 11,587,200
Avid Technology, Inc. 17,828 403,359
CMC Industries, Inc. 75,200 620,400
National Instruments Corp. 23,800 523,600
Sun Microsystems, Inc. 10,000 626,250
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$ 13,760,809
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Business Services - 6.4%
APAC Teleservices, Inc. 391,400 $ 15,460,300
Acustaff, Inc. 513,300 16,168,950
Affinity Technology 39,200 754,600
American List Corp. 130,000 3,282,500
BDM International, Inc. 43,400 1,931,300
BISYS Group, Inc. 390,623 14,355,395
Business Resource Group 59,600 346,425
CUC International, Inc. 2,122,450 78,530,650
Carbo Ceramics, Inc. 27,800 667,200
Career Horizons, Inc. 218,400 8,654,100
Caribiner International, Inc. 28,200 895,350
Ceridian Corp. 162,700 8,602,763
Computer Sciences, Inc.* 95,000 7,493,125
Corestaff, Inc. 526,300 23,288,775
DST Systems, Inc. 76,150 2,655,732
Data Processing Resources 2,500 65,000
Dendrite International, Inc. 155,400 4,234,650
Employee Solutions, Inc. 42,600 1,352,550
Equity Corp., International++ 283,700 8,298,225
First U.S.A. Paymentech 19,500 904,312
FIserv, Inc.* 307,500 9,647,813
Franklin Quest Co. 770,200 16,751,850
Global Directmail Corp. 313,300 14,059,337
HPR, Inc. 29,000 674,250
Intelliquest Information Group 26,300 848,175
Interim Services, Inc. 279,200 13,262,000
Learning Tree International 47,700 1,419,075
Loewen Group, Inc. 535,000 15,381,250
Mail-Well, Inc. 414,000 3,570,750
May & Speh, Inc. 200,000 3,100,000
Mecon, Inc. 33,600 865,200
National Data Corp. 70,700 2,668,925
Personnel Group of America, Inc. 29,900 683,963
Philip Environmental, Inc. 183,300 1,603,875
Profit Recovery Group 75,000 1,518,750
RTW, Inc. 36,000 954,000
Romac International, Inc. 60,100 1,712,850
Rural/Metro Corp. 272,700 9,135,450
SOS Staffing Services, Inc. 67,000 804,000
SPS Transaction Services Corp. 558,245 14,444,589
Stewart Enterprises, Inc. 267,400 12,634,650
Superior Services, Inc. 28,700 487,900
TRM Copy Centers Corp. 18,700 205,700
Technology Solutions, Co. 42,700 1,510,513
Transaction Systems Architects, Inc., "A" 111,400 6,266,250
Vincam Group, Inc. 21,900 621,412
Walsh International, Inc. 47,500 712,500
Western Staff Services 21,200 325,950
Workgroup Technology 19,600 546,350
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$ 334,359,229
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Cellular Telephones
Telephone & Data Systems, Inc. 9,700 $ 423,163
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Chemicals - 0.1%
Polymer Group, Inc. 299,600 $ 5,767,300
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Computer Software - Personal Computers - 4.2%
A.D.A.M. Software, Inc. 5,000 $ 18,750
ASM Lithography Holdings 25,000 1,181,250
Acclaim Entertainment, Inc. 73,100 877,200
Arbor Software Corp. 9,700 589,275
Autodesk, Inc.++ 2,914,770 101,288,257
Avant Corp. 16,800 327,600
CBT Group PLC, ADR 124,000 5,828,000
DSP Communications 120,000 4,530,000
Datastream Systems, Inc. 5,000 182,500
Diamond Multimedia Systems 64,200 1,033,219
Electronic Arts, Inc. 332,900 10,527,963
Epic Design Technology, Inc. 31,800 938,100
Expert Software, Inc. 16,500 222,750
First Data Corp. 12,052 961,148
Hummingbird Communications 302,200 12,276,875
Insight Enterprises 81,000 1,609,875
Macromedia 76,000 3,239,500
MapInfo Corp. 50,000 875,000
Maxis, Inc. 22,700 533,450
McAfee Associates, Inc. 16,948 627,095
Metatools, Inc. 24,100 753,125
Microsoft Corp. 202,800 24,082,500
P-Com, Inc. 54,800 1,637,150
Pure Software, Inc. 25,400 1,016,000
SS&C Technologies, Inc. 24,900 491,775
Sierra On-Line, Inc. 145,000 6,525,000
Simware, Inc. 70,000 332,500
Smith Micro Software 28,200 398,325
Softdesk, Inc. 37,600 404,200
Softkey International, Inc. 390,000 9,701,250
Software Artistry 10,700 101,650
Spectrum Holobyte Industries 65,600 483,800
State of the Art, Inc. 65,000 1,251,250
Symantic Corp. 1,372,500 21,616,875
Touchstone Software Corp. 100,700 415,387
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$ 216,878,594
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Computer Software - Systems - 20.5%
Adobe Systems, Inc. 980,900 $ 36,415,913
Alphanet Solutions 50,000 518,750
Analogy, Inc. 19,200 182,400
Applied Microsystems 32,000 528,000
Applix, Inc. 48,000 1,572,000
Aspect Development, Inc. 25,500 771,375
Aspen Technology, Inc. 20,000 1,110,000
Astea International, Inc. 22,000 522,500
Axent Technologies, Inc. 22,300 426,488
BAAN Co. 58,400 2,102,400
BMC Software, Inc.* 2,026,375 127,661,625
Black Box Corp. 60,000 1,245,000
CATS Software, Inc. 20,400 135,150
Cadence Design Systems, Inc.++ 2,665,950 151,292,663
Carnegie Group, Inc. 150,000 1,462,500
Cerion Technologies 62,700 909,150
Checkfree Corp. 243,003 5,437,193
Cheyenne Software 100,000 2,162,500
Citrix Systems, Inc. 15,500 1,174,125
Clarify, Inc. 16,200 822,150
Computer Association International 1,606,200 116,851,050
Computer Management Sciences, Inc. 13,100 442,126
Computron Software, Inc. 29,400 154,350
Compuware Corp.++ 2,199,524 86,331,317
Continuum, Inc. 100,000 6,150,000
Cooper & Chyan Technology 22,200 555,000
Cotelligent Group, Inc. 303,100 5,721,013
Cybercash, Inc. 9,900 589,050
Cylink Corp. 35,000 665,000
Datalogix International, Inc. 22,100 190,613
Discreet Logic, Inc. 29,200 237,250
Documetum, Inc. 12,200 524,600
Edify Corp. 23,600 991,200
En Pointe Technologies 50,000 556,250
Engineering Animation, Inc. 20,700 460,575
Enterprise Systems, Inc. 12,900 477,300
Firefox Communications, Inc. 14,900 130,142
Forte Software, Inc. 15,700 1,016,575
Gensym Corp. 31,400 730,050
HMT Technology Corp. 200,000 4,800,000
HNC Software, Inc. 25,600 1,120,000
Harbinger Corp. 5,000 120,000
Helisys, Inc. 50,000 237,500
I2 Technologies, Inc. 12,500 503,125
IDT Corp. 90,000 1,102,500
Imnet Systems, Inc. 35,700 981,750
Individual, Inc. 15,600 315,900
Indus Group, Inc. 19,800 400,950
Infonautics Corp. 70,000 875,000
Informix Corp. 1,580,000 35,945,000
Insignia Solutions, Inc., ADR 482,400 4,884,300
Integrated Measurement Systems 28,900 758,625
Intersolv, Inc. 85,500 1,015,313
Isocor 53,000 960,625
Keane, Inc. 100,000 3,987,500
Lexmark International Group 276,800 6,089,600
LogicWorks, Inc. 57,100 870,775
Marcam Corp.++ 576,800 7,282,100
Mechanical Dynamics 21,800 386,950
Meta-Software, Inc. 18,900 314,213
Metatec Corp. 70,000 866,250
Microware Systems 100,400 1,882,500
Mysoftware Co. 28,800 216,000
Network Appliance, Inc. 22,600 774,050
Nova Corp. 22,700 862,600
Objective Systems Integrator 38,500 1,732,500
Open Environment Corp. 23,200 150,800
Open Market, Inc. 27,600 876,300
Open Text Corp. 10,000 108,750
Openvision Technology 25,300 449,075
Oracle Systems Corp. 7,376,000 244,330,000
Orcad, Inc. 42,600 631,013
Ozemail Ltd. 28,100 400,425
Photon Dynamics, Inc. 32,100 321,000
Planning Sciences International, ADR 20,600 545,900
Powercerv Corp. 13,800 227,700
Premenos Technology 35,700 714,000
Prism Solutions, Inc. 16,300 578,650
Programmers Paradise, Inc. 100,000 687,500
Quality Systems, Inc. 90,000 2,655,000
Quickturn Design System, Inc. 66,000 969,375
Radisys Corp. 125,400 4,467,375
Raptor Systems, Inc. 14,200 440,200
Red Brick Systems, Inc. 11,300 468,950
Remedy Corp. 20,700 1,619,775
Renaissance Solutions, Inc. 67,200 2,385,600
SCB Computer Technology 11,100 233,100
SQA, Inc. 11,400 393,300
Sapeint Corp. 12,400 620,000
Scopus Technology 15,800 335,750
Secure Computing 16,800 550,200
Security Dynamics Technology 29,800 2,644,750
Seer Technologies, Inc. 17,600 136,400
Segue Software 25,800 890,100
Smartflex Systems, Inc. 42,300 785,195
Spyglass, Inc. 10,000 271,250
Sterling Software 10,000 805,000
Summit Medical Systems, Inc. 26,900 642,238
Sunquest Information Systems, Inc. 91,900 648,863
Sybase, Inc. 3,027,389 70,008,372
Sykes Enterprises, Inc. 9,900 472,725
Sync Research, Inc. 19,400 339,500
Synopsys, Inc. 488,000 21,838,000
System Software Associates, Inc.++ 3,270,550 53,555,256
Techforce Corp. 50,000 550,000
Ultradata Corp. 63,700 541,450
Ultrak, Inc. 85,000 1,646,875
Unison Software, Inc. 16,200 445,500
Uunet Technologies, Inc. 32,200 1,923,950
Verity, Inc. 30,400 1,193,200
Visioneer, Inc. 16,500 204,188
Vocaltec Ltd. 8,700 95,700
Whittman-Hart, Inc. 18,800 705,000
Zoran Corp. 52,600 1,236,100
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$ 1,065,250,319
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Construction Services - 0.1%
Barnett, Inc. 53,300 $ 1,279,200
Shaw Group Inc. 159,400 2,749,650
---------------
$ 4,028,850
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Consumer Goods and Services - 0.5%
Bell Sports Corp. 109,551 $ 1,081,817
Blyth Industries, Inc. 115,400 5,308,400
Bollinger Industries, Inc. 45,000 106,875
Cerplex Group, Inc. 133,800 894,787
Childtime Learning Centers 70,000 682,500
Department 56 Inc. 50,000 1,200,000
First Alert, Inc. 20,000 130,000
Fresh America Corp. 42,500 568,438
Meta Group, Inc. 12,500 353,125
Oakley, Inc. 15,000 763,125
Perrigo Co. 130,000 1,462,500
Revlon, Inc. 37,700 1,182,837
Service Corp. International 161,200 9,007,050
Sola International, Inc. 63,000 1,905,750
York Group 38,800 679,000
---------------
$ 25,326,204
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Electrical Equipment - 0.1%
Integrated Silicon Solution 20,700 $ 309,206
JPM Co. 150,000 1,312,500
LSI Industries, Inc. 40,000 760,000
Remec, Inc. 141,400 2,934,050
Zycon Corp. 52,700 724,626
---------------
$ 6,040,382
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Electronics - 4.0%
ACT Manufacturing, Inc. 24,800 $ 427,800
ADE Corp. 20,000 390,000
AG Associates, Inc. 24,600 196,800
AVX Corp. 95,800 2,083,650
Aavid Thermal Technologies 65,000 528,125
Actel Corp. 40,000 785,000
Altera Corp. 1,040,000 50,310,000
Anadigics, Inc. 22,300 590,950
Analog Devices, Inc. 465,450 12,858,057
Atmel Corp. 30,000 1,065,000
BE Semiconductor Industries 65,000 1,064,375
Blonder Tongue Laboratories 57,500 941,563
Burr Brown Corp. 398,300 8,364,300
CP Clare Corp. 180,000 3,825,000
Cyberoptics Corp. 35,000 551,250
ESS Technology Inc. 37,100 825,475
Gasonics International Corp. 69,000 914,250
General Scanning, Inc. 16,000 352,000
Information Storage Devices 54,600 573,300
LSI Logic Corp. 1,044,600 32,513,175
Linear Technology, Corp. 386,900 13,348,050
MEMC Electronic Materials, Inc. 25,000 1,237,500
Maxim Integrated Products, Inc. 155,900 5,300,600
Micrel, Inc. 29,800 491,700
Micro Linear Corp. 198,000 2,153,250
National Semiconductor Corp. 60,000 975,000
Novellus Systems, Inc. 152,000 7,448,000
Oak Technologies, Inc. 493,600 6,293,400
Ontrak Systems, Inc. 23,800 541,450
Paradigm Technology, Inc. 17,900 165,575
ROSS Technology, Inc. 19,300 243,663
Sandisk Corp. 33,500 502,500
Semitool, Inc. 38,700 595,013
Telcom Semiconductor, Inc. 42,200 262,431
Thermoquest Corp. 5,600 90,300
Tower Semiconductor Ltd. 418,700 6,175,825
Trident International, Inc. 40,000 910,000
Ultratech Stepper, Inc. 104,800 2,620,000
VLSI Technology 10,000 171,250
Veeco Instruments, Inc. 30,000 540,000
Xilinx, Inc. 1,172,382 40,740,275
---------------
$ 209,965,852
- -----------------------------------------------------------------------------
Entertainment - 4.0%
Ambassadors International, Inc. 81,100 $ 1,135,400
American Radio Systems, "A" 161,500 6,177,375
Ascent Entertainment Group 104,000 1,885,000
Central European Media Enterprises Ltd. 21,700 569,625
Chancellor Broadcast, "A" 800 20,500
Digital Generation Systems 39,600 524,700
GT Bicycles, Inc. 81,600 1,336,200
Grand Casinos, Inc. 1,474,950 51,623,250
Harrah's Entertainment, Inc. 2,104,402 70,760,518
Heftel Broadcasting Corp., "A" 130,500 2,936,250
Heritage Media Corp. 59,400 2,361,150
Infinity Broadcasting Corp., "A" 552,725 15,061,757
Jacor Communications, Inc., "A" 30,000 881,250
LIN Television Corp. 178,700 5,718,400
Monarch Casino & Resort, Inc. 67,500 236,250
National Lodging Corp. 260,000 3,640,000
Penske Motorsports, Inc. 21,900 651,525
Platinum Entertainment, Inc. 89,800 1,504,150
Players International, Inc. 261,250 2,514,532
Premier Parks, Inc. 35,700 722,925
President Casinos 600,000 1,237,500
Radica Games Ltd.* 210,000 367,500
Showboat, Inc. 245,000 6,829,375
Sinclair Broadcast Group, "A" 38,900 1,478,200
Starsight Telecast, Inc. 15,700 156,755
Station Casinos, Inc. 85,000 1,328,125
Stratosphere Corp. 45,000 393,750
Trump Hotels & Casinos 550,000 17,325,000
West Coast Entertainment Corp. 605,000 7,789,375
---------------
$ 207,166,337
- -----------------------------------------------------------------------------
Financial Institutions - 0.6%
ACC Consumer Finance Corp. 64,000 $ 528,000
Advanta Corp., "B" 13,000 676,000
BHC Financial, Inc. 37,875 534,985
Banca Quadrum S.A., ADR 131,800 733,137
Charles Schwab Corp. 25,000 606,250
Contifinancial Corp. 52,050 1,633,069
Credit Acceptance Corp. 165,000 3,300,000
Dignity Partners Corp. 78,100 1,073,875
Finova Group, Inc. 10,900 577,700
First Investment Financial Services
Group 88,300 1,059,600
First Merchants Acceptance Corp. 45,000 1,012,500
Franklin Resources, Inc. 13,600 797,300
Harrington Financial Group 20,000 212,500
Investors Financial Services 9,300 210,413
Jayhawk Acceptance Corp. 270,000 3,847,500
National Auto Credit, Inc. 848,100 10,389,225
RAC Financial Group, Inc. 97,300 2,821,700
TFC Enterprises 15,000 39,375
WFS Financial, Inc. 32,600 700,900
---------------
$ 30,754,029
- -----------------------------------------------------------------------------
Food and Beverage Products - 0.1%
Boston Beer, Inc. 17,100 $ 320,625
Hart Brewing, Inc. 15,600 175,500
Nuco2, Inc. 8,500 248,625
Pete's Brewing Co. 33,700 577,113
Rocky Mountain Chocolate Factory 67,100 603,900
Suiza Foods Corp. 225,000 $ 4,106,250
---------------
$ 6,032,013
- -----------------------------------------------------------------------------
Insurance - 0.5%
Amerin Corp. 117,100 $ 2,634,750
Capmac Holdings, Inc. 53,000 1,464,125
Chartwell Re Corp. 315,000 6,930,000
Compdent Corp. 159,300 7,726,050
Equitable of Iowa Cos. 18,500 682,188
Everest Reinsurance Holdings 40,000 935,000
IPC Holdings Ltd. 209,300 4,316,812
---------------
$ 24,688,925
- -----------------------------------------------------------------------------
Machinery - 0.1%
Computational Systems, Inc. 25,000 $ 537,500
Thermo Sentron, Inc. 6,500 99,937
Westinghouse Air Brake Co. 178,900 2,236,250
---------------
$ 2,873,687
- -----------------------------------------------------------------------------
Medical and Health Products - 1.0%
Aksys Ltd. 32,600 $ 554,200
Amerisource Healthcare Corp., "A" 33,800 1,174,550
Arterial Vascular Engineer 24,800 1,046,250
Arthrocare Corp. 8,000 184,000
Biopsys Medical, Inc. 16,300 407,500
Biosource International, Inc. 131,000 1,326,375
Boston Scientific Corp. 260,000 11,147,500
Cardiogenesis Corp. 19,500 336,375
Cardiothoracic Systems, Inc. 8,700 189,225
Cohr, Inc. 56,800 1,505,200
Conceptus, Inc. 31,400 580,900
Digene Corp. 75,000 806,250
Health Management, Inc. 179,000 962,125
Heartstream, Inc. 45,000 663,750
Housecall Medical Resources 75,000 1,378,125
ICU Medical, Inc. 50,000 1,112,500
Imagyn Medical, Inc. 34,100 588,225
Iridex Corp. 65,000 1,072,500
Kensey Nash Corp. 115,200 1,699,200
Lanvision Systems, Inc. 40,700 702,075
Matria Healthcare, Inc. 578,500 4,844,937
Medcath, Inc. 30,000 1,147,500
Meridian Diagnostics, Inc. 61,300 727,937
NCS Healthcare, Inc., "A" 36,200 1,104,100
Neuromedical Systems, Inc. 42,300 724,388
Optical Sensors, Inc. 48,500 600,187
Orthofix International N.V. 473,748 6,277,175
Parexel International Corp. 19,500 1,057,875
Physiometrix, Inc. 65,000 698,750
Sofamor/Danek Group 30,100 1,076,075
Sunrise Assisted Living, Inc. 91,900 2,297,500
Transition Systems, Inc. 51,900 1,582,950
Urologix, Inc. 29,900 433,550
Uromed Corp. 48,765 591,276
Vitalcom, Inc. 20,100 442,200
Zoll Medical Corp. 107,500 1,639,375
---------------
$ 52,682,600
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 14.4%
AHI Healthcare Systems 47,700 $ 310,050
Access Health, Inc. 37,500 2,043,750
American Homepatient, Inc. 280,500 12,412,125
American Medical Response 44,500 1,618,687
American Onocology Resources, Inc. 36,800 1,729,600
Amisys Managed Care Systems, Inc. 12,500 281,250
Biotransplant, Inc. 100,000 937,500
CRA Managed Care, Inc. 31,900 1,467,400
Clintrials Research 30,000 1,432,500
Columbia HCA Healthcare 472,123 25,435,628
Community Care of America 100,000 1,231,250
Community Health Systems* 597,800 25,929,575
Equimed, Inc. 207,500 1,919,375
FPA Medical Management, Inc. 260,000 4,582,500
First Commonwealth, Inc. 12,600 362,250
Foundation Health Corp. 1,006,500 40,008,375
General Surgical Innovation 20,500 410,000
Genesis Health Ventures, Inc. 145,350 4,596,694
HCIA, Inc. 148,000 9,583,000
Health Management Assoc., Inc. 39,000 1,345,500
Health Systems Design 7,400 138,750
Healthdyne, Inc. 246,293 3,263,382
Healthdyne Technologies Information
Enterprises 378,500 2,791,437
Healthplan Services Corp. 58,000 1,493,500
Healthsource, Inc. 1,746,110 39,505,739
Healthsouth Corp. 775,310 27,135,850
Heartport, Inc. 23,600 920,400
Horizon/CMS Healthcare Corp. 585,325 7,170,231
IDX Systems Corp. 21,300 886,612
Impath, Inc. 17,300 324,375
Integrated Health Services, Inc.++ 1,416,000 36,993,000
Intercardia, Inc. 21,100 696,300
Lincare Holdings, Inc. 206,900 7,810,475
Living Centers of America 278,700 10,520,925
Manor Care, Inc. 78,600 3,065,400
Mariner Health Group, Inc. 898,900 15,955,475
Medpartners/Mullikin, Inc. 35,765 836,007
Medquist, Inc. 178,000 3,604,500
Mid-Atlantic Medical Services, Inc.++ 3,120,600 59,681,475
Multicare Cos., Inc. 121,350 2,427,000
National Surgery Center 18,800 770,800
Occusystems, Inc. 13,100 442,125
Option Care, Inc. 140,000 1,032,500
Orthodontic Centers of America 507,700 18,848,362
Owen Healthcare, Inc. 503,400 9,187,050
Oxford Health Plans, Inc. 466,800 22,056,300
Pacificare Health Systems, Inc., "A" 350,900 27,721,100
Pacificare Health Systems, Inc., "B" 672,546 55,653,181
Pediatrics Services of America 30,000 731,250
Pediatrix Medical Group 37,400 2,356,200
Pharmaceutical Product Development 16,200 720,900
Phymatrix Corp. 98,200 2,430,450
Physician Corp. of America 23,500 308,437
Physician Reliance Network, Inc. 100,000 5,250,000
Physician Sales & Service, Inc. 42,000 1,354,500
Physician Support Systems 38,100 809,625
Physicians Resource Group, Inc. 280,000 8,330,000
Professional Sports Care Management++ 550,300 4,196,038
Quorum Health Group 66,100 1,693,812
Renal Care Group, Inc. 29,100 974,850
Renal Treatment Centers, Inc. 820,000 27,880,000
Renal Treatment Centers, Inc.* 35,302 1,200,268
Riscorp, Inc. "A" 67,900 1,527,750
Schein (Henry), Inc. 26,850 993,450
Sierra Health Services, Inc. 27,700 893,325
St. Jude Medical, Inc. 260,000 9,880,000
Sterling Healthcare Group 105,600 2,151,600
Sterling House Corp. 22,000 423,500
Total Renal Care Holdings, Inc. 218,900 9,029,625
United Dental Care, Inc. 25,400 1,022,350
United Healthcare Corp. 3,001,154 164,688,326
Urocor, Inc. 21,200 302,100
Wellcare Management, Inc. 77,700 980,962
---------------
$ 748,698,578
- -----------------------------------------------------------------------------
Metals and Minerals
Castech Alum Group 69,400 $ 1,223,175
- -----------------------------------------------------------------------------
Oil Services - 0.1%
Geoscience Corp. 16,700 $ 338,175
Tosco Corp. 110,916 5,490,342
Trico Marine Service, Inc. 44,000 979,000
---------------
$ 6,807,517
- -----------------------------------------------------------------------------
Pollution Control - 1.9%
Allied Waste Industries 208,000 $ 2,106,000
Laidlaw, Inc. 801,570 8,115,896
Republic Industries, Inc. 626,500 32,578,000
Republic Industries, Inc.## 1,000,000 51,875,000
Sanfill, Inc. 80,800 $ 3,625,900
---------------
$ 98,300,796
- -----------------------------------------------------------------------------
Printing and Publishing
Applied Graphics Technologies 41,200 $ 607,700
Desktop Data, Inc. 15,400 515,900
Xeikon, N.V., ADR 48,600 1,202,850
---------------
$ 2,326,450
- -----------------------------------------------------------------------------
Railroad
Wisconsin Central Transportation Corp. 10,900 $ 1,155,400
- -----------------------------------------------------------------------------
Real Estate - 0.2%
NHP, Inc. 444,700 $ 8,449,300
- -----------------------------------------------------------------------------
Restaurants and Lodging - 14.5%
Amerihost Properties, Inc.++ 522,000 $ 4,698,000
Apple South, Inc. 412,150 10,303,750
Applebee's International, Inc.++ 3,086,100 87,568,087
Back Bay Restaurant Group, Inc.++ 185,100 751,969
Bertucci's, Inc. 379,700 2,468,050
Brinker International, Inc. 463,400 7,761,950
Bristol Hotel Co. 47,100 1,348,237
Buffets, Inc.++ 1,623,600 20,497,950
Bugaboo Creek Steak House, Inc. 35,000 288,750
Cheesecake Factory 10,000 265,000
Doubletree Corp. 254,600 9,038,300
Extended Stay America, Inc. 392,000 12,348,000
Ground Round Restaurants, Inc. 200,000 700,000
HFS, Inc.++ 6,441,610 401,795,424
Hammons (John Q) Hotels, Inc.++ 549,300 5,973,637
Hometown Buffet, Inc.++ 930,000 13,833,750
IHOP Corp.++ 612,200 17,294,650
Innkeepers USA Trust 115,000 1,164,375
Italian Oven, Inc.++ 250,000 1,250,000
La Quinta Inns, Inc. 76,000 2,394,000
Lone Star Steakhouse and Saloon, Inc. 370,500 14,958,937
Morton's Restaurant Group, Inc.++ 553,200 9,957,600
Papa John's International, Inc. 88,200 4,343,850
Planet Hollywood International, "A" 39,200 1,048,600
Promus Hotel Corp. 1,590,801 43,747,027
Red Roof Inns, Inc. 182,100 2,685,975
Renaissance Hotel Group 887,800 19,975,500
Schlotzsky's, Inc. 33,700 429,675
ShoLodge, Inc. 375,600 5,821,800
Showbiz Pizza Time, Inc.++ 1,125,000 18,000,000
Sonic Corp. 464,450 11,146,800
Studio Plus Hotels of America, Inc. 20,700 631,350
Suburban Lodges of America 19,000 465,500
Sun International Hotels Ltd. 121,800 6,150,900
Taco Cabana, Inc.++ 962,395 8,300,657
UNO Restaurant Corp. 164,500 1,172,062
Wyndham Hotel Corp. 40,550 902,237
---------------
$ 751,482,349
- -----------------------------------------------------------------------------
Special Products and Services - 1.1%
Central Packaging Corp. 66,600 $ 2,064,600
Childrens Discovery Centers 220,000 1,457,500
Columbus McKinnon Co. 180,000 2,925,000
Compuserve Corp. 85,100 2,106,225
Educational Insights, Inc. 46,500 165,656
F.Y.I., Inc. 193,300 4,155,950
Globe Business Resources, Inc. 70,000 717,500
ITT Educational Services, Inc. 165,000 4,991,250
Loewen Group## 857,200 24,652,320
Physio-Control International Corp. 212,300 4,113,312
Simula, Inc. 20,000 400,000
Sphere Drake Holdings Ltd. 405,000 3,948,750
Sportmart, Inc., "A" 96,000 336,000
Wackenhut Corp. 200,000 4,625,000
West Marine, Inc. 10,000 715,000
Wilmar Industries, Inc. 66,600 1,764,900
---------------
$ 59,138,963
- -----------------------------------------------------------------------------
Steel - 0.2%
Carbide/Graphite Group, Inc. 20,000 $ 390,000
Citation Corp. 640,000 9,440,000
---------------
$ 9,830,000
- -----------------------------------------------------------------------------
Stores - 10.4%
99 Cents Only Stores 45,900 $ 705,712
Alrenco, Inc. 100,000 1,800,000
AutoZone, Inc. 21,487 754,730
BT Office Products International, Inc. 664,800 13,960,800
Bed Bath & Beyond, Inc. 240,000 6,750,000
Boise Cascade Office Products 321,400 13,338,100
Borders Group, Inc. 200,000 6,550,000
CompUSA, Inc. 220,000 9,625,000
Consolidated Stores Corp. 897,900 34,007,962
Corporate Express, Inc. 348,000 14,616,000
Cost Plus, Inc./California 38,000 1,035,500
Creative Computers, Inc. 76,000 722,000
Dollar Tree Stores, Inc. 204,750 8,701,875
Duty Free International, Inc. 687,800 10,317,000
Friedman's, Inc. 125,000 3,531,250
Garden Botanika, Inc. 13,400 358,450
General Nutrition Cos., Inc. 1,974,108 30,598,674
Grow Biz International, Inc. 60,000 487,500
Gymboree Corp. 600,650 20,422,100
Hello Direct, Inc. 42,000 299,250
Hollywood Entertainment Corp.++ 3,436,500 53,265,750
MSC Industrial Direct Co. 31,400 1,095,075
Mark Brothers Jewelers, Inc. 18,600 437,100
Micro Warehouse, Inc.++ 1,860,400 72,555,600
Mothers Work, Inc.++ 211,500 5,657,625
Movie Gallery, Inc. 378,100 11,532,050
Movies, Inc. 18,300 194,437
National Vision Associates Ltd. 203,700 916,650
Natural Wonders, Inc. 28,600 182,325
Office Depot, Inc. 5,571,100 142,759,437
Officemax, Inc. 739,100 19,308,987
Party City Corp. 30,900 548,475
PetSmart, Inc. 67,487 3,003,171
Renters Choice, Inc. 315,900 8,529,300
Saks Holdings, Inc. 70,500 2,291,250
Shoe Carnival, Inc. 487,000 2,252,375
Sports & Recreation, Inc. 28,000 266,000
Sports Club, Inc. 196,000 514,500
Sunglass Hut International, Inc. 150,000 4,125,000
Thrifty Payless Holdings, Inc., "B" 890,800 12,805,250
U.S. Office Products Co. 443,200 16,841,600
Welcome Home, Inc. 88,900 222,250
---------------
$ 537,886,110
- -----------------------------------------------------------------------------
Supermarkets
PIA Merchandising Services 35,500 $ 576,875
- -----------------------------------------------------------------------------
Telecommunications - 8.4%
3Com Corp. 104,622 $ 5,152,633
ACC Corp. 60,000 2,482,500
Accom, Inc. 30,500 125,812
American Portable Telecommunications 129,200 1,711,900
Ascend Communications, Inc. 230,000 15,381,250
Bay Networks, Inc. 1,076,128 31,207,712
Brooks Fiber Properties 66,500 2,244,375
CSG Systems International, Inc. 23,300 739,775
Cable Design Technologies 374,200 17,026,100
Cabletron Systems, Inc. 1,533,000 111,525,750
Call Net Enterprises, Inc., "B"## 125,000 1,459,853
Celeritek, Inc. 80,500 1,127,000
Cisco Systems, Inc. 1,050,000 57,487,500
Colonial Data Tech 171,200 3,338,400
Comdial Corp. 125,000 1,390,625
Equalnet Holdings Corp.++ 560,400 2,206,575
Excel Communication, Inc. 104,700 3,415,837
Glenayre Technologies, Inc. 437,600 21,551,800
Midcon Communication, Inc. 99,000 1,243,687
Mobilemedia Corp. "A" 74,500 1,424,812
Omnipoint Corp. 40,400 1,242,300
Ortel Corp. 24,200 592,900
Paging Network, Inc. 44,000 990,000
Polycom, Inc. 41,500 368,311
Premiere Technologies, Inc. 35,200 1,663,200
Premisys Communications, Inc. 29,800 1,698,600
Shiva Corp. 59,400 4,440,150
Sitel Corp. 138,200 3,627,750
Spectralink Corp. 35,000 420,000
Sterling Commerce, Inc. 43,900 1,926,112
Tel-Save Holdings, Inc.++ 1,782,350 38,320,525
Tellabs, Inc. 50,000 3,225,000
Teltrend, Inc. 10,000 460,000
T-Netix, Inc. 27,000 398,250
Trescom International, Inc. 46,100 806,750
Videoserver, Inc. 19,600 769,300
Voice Control Systems, Inc. 40,000 525,000
Westell Technologies, Inc. 33,900 2,593,350
Worldcom, Inc. 1,743,685 85,222,603
Worldtalk Communications Corp. 12,000 132,000
Xpedite Systems, Inc. 35,000 953,750
Xylan Corp. 21,100 1,337,211
---------------
$ 433,956,958
- -----------------------------------------------------------------------------
Transportation - 0.1%
Airnet Systems, Inc. 202,000 $ 3,080,500
- -----------------------------------------------------------------------------
Trucking - 0.2%
Celadon Group, Inc. 23,000 $ 232,875
Coach U.S.A., Inc. 46,300 926,000
Hub Group, Inc. 115,800 2,489,700
MTL, Inc. 45,000 781,875
PST Vans, Inc. 58,900 250,325
Transportation Corp. of America, "B"++ 370,000 4,717,500
U.S. Xpress Enterprises, Inc., "A" 34,200 243,675
---------------
$ 9,641,950
- -----------------------------------------------------------------------------
Venture Capital - 0.1%
Copley Partners 1(++)+ 3,000,000 $ 649,272
Copley Partners 2(++)+ 3,000,000 1,914,990
Highland Capital Partners(++)+ 7,500,000 3,466,350
---------------
$ 6,030,612
- -----------------------------------------------------------------------------
Foreign Stocks - 0.6%
Australia - 0.4%
Sydney Harbor Casino Ltd. 15,612 $ 23,543,378
New Zealand - 0.2%
Sky City Ltd. 1,950 8,535,092
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 32,078,470
- -----------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $3,154,067,290) $ 5,045,631,974
- -----------------------------------------------------------------------------
Convertible Bond
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
Restaurants and Lodging
Sholodge, Inc. 7.5s, 2003
(Identified Cost, $2,000,000) $ 2,000 $ 1,850,000
- -----------------------------------------------------------------------------
Short-Term Obligations - 2.5%
- -----------------------------------------------------------------------------
Dow Chemical, due 6/03/96 $ 50,000 $ 49,985,139
Federal Home Loan Bank, due 6/07/96 29,950 29,923,943
Federal Home Loan Mortgage Corp., due
6/03/96 32,350 32,340,636
Federal Home Loan Mortgage Corp., due
6/12/96 1,300 1,297,928
Federal Home Loan Mortgage Corp., due
6/14/96 1,500 1,497,184
Federal National Mortgage Association,
due 6/07/96 1,900 1,898,347
Federal National Mortgage Association,
due 6/13/96 1,800 1,796,862
Tennessee Valley Authority, due 6/04/96 10,000 9,995,683
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 128,735,722
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $3,284,803,012) $ 5,176,217,696
Other Assets, Less Liabilities - 0.3% 15,253,395
- -----------------------------------------------------------------------------
Net Assets - 100.0% $ 5,191,471,091
- -----------------------------------------------------------------------------
*Non-income producing security.
(++)Security valued by or at the direction of the Trustees.
+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.
##SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- ------------------------------------------------------------------------------
May 31, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value -
Unaffiliated issuers (identified cost, $2,687,149,479) $3,900,654,066
Affiliated issuers (identified cost, $597,653,533) 1,275,563,630
--------------
Total investments, at value (identified cost,
$3,284,803,012) $5,176,217,696
Cash 140,056
Receivable for investments sold 9,063,402
Receivable for Fund shares sold 63,881,969
Interest and dividends receivable 41,189
Other assets 57,476
--------------
Total assets $5,249,401,788
--------------
Liabilities:
Payable for investments purchased $ 43,308,513
Payable for Fund shares reacquired 12,257,590
Payable to affiliates -
Management fee 100,460
Shareholder servicing agent fee 19,000
Distribution fee 1,971,064
Accrued expenses and other liabilities 274,070
--------------
Total liabilities $ 57,930,697
--------------
Net assets $5,191,471,091
==============
Net assets consist of:
Paid-in capital $3,292,638,794
Unrealized appreciation on investments and foreign
currency translation 1,891,414,684
Accumulated undistributed net realized gain on
investments and foreign currency transactions 36,187,916
Accumulated net investment loss (28,770,303)
--------------
Total $5,191,471,091
==============
Shares of beneficial interest outstanding 165,011,409
==============
Class A shares:
Net asset value and redemption price per share
(net assets of $2,076,498,763 / 65,504,032 shares of
beneficial interest outstanding) $31.70
======
Offering price per share (100/94.25) $33.63
======
Class B shares:
Net asset value and offering price per share
(net assets of $3,079,566,338 / 98,376,421 shares of
beneficial interest outstanding) $31.30
======
Class C shares:
Net asset value, offering price and redemption price per
share (net assets of $35,405,990 / 1,130,956 shares of
beneficial interest outstanding) $31.31
======
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A,
Class B and Class C shares.
See notes to financial statements
<PAGE>
Statement of Operations (Unaudited)
- ------------------------------------------------------------------------------
Six Months Ended May 31, 1996
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 2,974,818
Dividends (including $804,189 received from affiliated
issuers) 1,598,266
------------
Total investment income $ 4,573,084
------------
Expenses -
Management fee $ 14,799,226
Trustees' compensation 22,597
Shareholder servicing agent fee (Class A) 966,643
Shareholder servicing agent fee (Class B) 1,910,991
Shareholder servicing agent fee (Class C) 3,672
Distribution and service fee (Class A) 2,871,489
Distribution and service fee (Class B) 11,992,792
Distribution and service fee (Class C) 24,481
Custodian fee 390,852
Postage 240,079
Printing 42,377
Auditing fees 15,815
Miscellaneous 882,071
------------
Total expenses $ 34,163,085
Fees paid indirectly (65,000)
Preliminary reduction of expenses by distributor (817,275)
------------
Net expenses $ 33,280,810
------------
Net investment loss $(28,707,726)
------------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) -
Investment transactions (including $1,697,101 net gain from
transactions with affiliated issuers) $ 36,442,093
Foreign currency transactions 53
------------
Net realized gain on investments $ 36,442,146
------------
Change in unrealized appreciation on investments and foreign
currency translation $710,803,070
------------
Net realized and unrealized gain on investments and
foreign currency $747,245,216
------------
Increase in net assets from operations $718,537,490
============
See notes to financial statements
<PAGE>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Six Months Ended
May 31, 1996 Year Ended
(Unaudited) November 30, 1995
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (28,707,726) $ (32,364,501)
Net realized gain on investments and
foreign currency transactions 36,442,146 9,896,203
Net unrealized gain on investments
and foreign currency 710,803,070 847,013,830
--------------- ---------------
Increase in net assets from
operations $ 718,537,490 $ 824,545,532
--------------- ---------------
Distributions declared to shareholders -
From net realized gain on investments
and foreign currency transactions
(Class A) $ -- $ (9,533,382)
From net realized gain on investments
and foreign currency transactions
(Class B) -- (10,006,703)
Tax return of capital -- (544,859)
--------------- ---------------
Total distributions declared to
shareholders $ -- $ (20,084,944)
--------------- ---------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 2,798,799,580 $ 3,022,835,060
Net asset value of shares issued to
shareholders in reinvestment of
distributions 182,793 17,796,191
Cost of shares reacquired (1,638,568,770) (1,771,034,994)
--------------- ---------------
Increase in net assets from Fund
share transactions $ 1,160,413,603 $ 1,269,596,257
--------------- ---------------
Total increase in net assets $ 1,878,951,093 $ 2,074,056,845
Net assets:
At beginning of period 3,312,519,998 1,238,463,153
--------------- ---------------
At end of period (including
accumulated net investment loss
of $28,770,303 and $62,577,
respectively) $ 5,191,471,091 $ 3,312,519,998
=============== ===============
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended November 30,
May 31, 1996 --------------------------------------------------------
(Unaudited) 1995 1994 1993*
- -----------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $26.79 $18.73 $17.68 $16.43
------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.14) $(0.23) $(0.20) $(0.03)
Net realized and unrealized gain on
investments 5.05 8.68 1.78 1.28
------ ------ ------ ------
Total from investment operations $ 4.91 $ 8.45 $ 1.58 $ 1.25
------ ------ ------ ------
Less distributions declared to shareholders -
From net realized gain on investments -- $(0.38) $(0.53) --
In excess of net realized gain on
investments -- -- ** -- --
Tax return of capital -- (0.01) -- --
------ ------ ------ ------
Total distributions declared to shareholders -- $(0.39) $(0.53) --
------ ------ ------ ------
Net asset value - end of period $31.70 $26.79 $18.73 $17.68
====== ====== ====== ======
Total return(+) 18.29%++ 45.98% 9.06% 38.98%+
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.17%+ 1.28% 1.33% 1.19%+
Net investment loss (0.95)%+ (1.04)% (1.09)% (0.98)%+
Portfolio turnover 5% 20% 39% 58%
Average commission rate### $0.0476 -- -- --
Net assets at end of period (000,000 omitted) $2,076 $1,312 $ 470 $ 371
<FN>
*For the period from the commencement of offering of Class A shares, September 13, 1993 to November 30, 1993.
**The per share distribution in excess of net realized gain on investments was $0.0049 per share.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to December 1, 1993 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
###Average commission rate is calculated for fiscal years beginning on or after September 1, 1995.
(+)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.
(S)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 loss per share and ratios would have been:
Net investment loss $(0.15) $(0.25) $(0.22) --
Ratios (to average net assets):
Expenses 1.27% 1.38% 1.43% --
Net investment loss (1.05)% (1.14)% (1.19)% --
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended November 30,
May 31, 1996 -----------------------------------------------------------------
(Unaudited) 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $26.56 $18.57 $17.64 $14.93 $12.07
------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.24) $(0.41) $(0.35) $(0.33) $(0.07)
Net realized and unrealized gain on
investments 4.98 8.65 1.78 3.19 3.52
------ ------ ------ ------ ------
Total from investment operations $ 4.74 $ 8.24 $ 1.43 $ 2.86 $ 3.45
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net realized gain on investments $ -- $(0.24) $(0.50) $(0.15) $(0.59)
In excess of net realized gain on
investments -- -- ** -- -- --
Tax return of capital -- (0.01) -- -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $ -- $(0.25) $(0.50) $(0.15) $(0.59)
------ ------ ------ ------ ------
Net asset value - end of period $31.30 $26.56 $18.57 $17.64 $14.93
====== ====== ====== ====== ======
Total return 17.85%++ 44.89% 8.21% 19.36% 29.25%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.98%+ 2.08% 2.14% 2.19% 2.33%
Net investment loss (1.75)%+ (1.83)% (1.90)% (1.61)% (2.00)%
Portfolio turnover 5% 20% 39% 58% 59%
Average commission rate### $0.0476 -- -- -- --
Net assets at end of period
(000,000 omitted) $3,080 $2,001 $ 769 $ 602 $ 357
<FN>
**The per share distribution in excess of net realized gain on investments was $0.0031 per share.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to December 1, 1993 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for fiscal years beginning on or after September 1, 1995.
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended
Year Ended November 30, May 31,
--------------------------------------------------------------- 1996
1991 1990 1989 1988 1987* (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Class B Class C**
- -----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 6.89 $ 7.69 $ 5.91 $ 4.97 $ 5.50 $28.37
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.13) $(0.14) $(0.13) $(0.11) $(0.06) $(0.09)
Net realized and unrealized gain (loss) on
investments 5.31 (0.66) 1.91 1.05 (0.47) 3.03
------ ------ ------ ------ ------ ------
Total from investment operations $ 5.18 $(0.80) $ 1.78 $ 0.94 $(0.53) $31.31
------ ------ ------ ------ ------ ------
Net asset value - end of period $12.07 $ 6.89 $ 7.69 $ 5.91 $ 4.97 $31.31
====== ====== ====== ====== ====== ======
Total return 75.18% (10.40)% 30.12% 18.91% (10.44)%+ 10.33%++
Ratios (to average net assets)/Supplemental data:
Expenses## 2.50% 2.75% 2.81% 2.30% 2.40%+ 1.97%+
Net investment loss (1.98)% (1.86)% (1.91)% (1.65)% (1.50)%+ (1.80)%+
Portfolio turnover 112% 86% 95% 57% 81% 5%
Average commission rate### -- -- -- -- -- $0.0476
Net assets at end of period
(000,000 omitted) $ 145 $ 73 $ 82 $ 61 $ 50 $ 35
<FN>
*For the period from the commencement of investment operations, December 29, 1986 to November 30, 1987.
**For the period from the commencement of offering of Class C shares, April 1, 1996 to May 31, 1996.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to December 1, 1993 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for fiscal years beginning on or after September 1, 1995.
</TABLE>
See notes to financial statements
<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
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal and economic environment.
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 market value. Securities for which there are no such quotations
or valuations are valued at fair value as determined in good faith by or at
the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments 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.
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 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.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the
Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of
net investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return, and
consequently, the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on Form
1099-DIV. 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 tax 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,
Class B, and Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, distribution and service fees. 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.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate
of 0.75% of average daily net assets.
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 of its independent Trustees and Mr.
Bailey. Included in Trustees' compensation is a net periodic pension expense
of $8,197 for the period ended May 31, 1996.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$1,028,907 for the period ended May 31, 1996, as its portion of the sales
charge on sales of Class A shares of the Fund. The Trustees have adopted a
separate distribution plan for Class A, Class B and Class C shares pursuant to
Rule 12b-1 of the Investment Company Act of 1940 as follows:
The 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 retains the
service fee for accounts not attributable to a securities dealer which
amounted to $177,699 for the period ended May 31, 1996. Payment of the 0.10%
per annum Class A distribution fee will commence on such date as the Trustees
of the Trust determine. Fees incurred under the distribution plan during the
period ended May 31, 1996 were 0.25% of average daily net assets attributable
to Class A shares on an annualized basis.
The Class B and Class C distribution plans provide that the Fund will pay MFD
a distribution fee of 0.75% per annum, and a service fee of up to 0.25% per
annum, of the Fund's average daily net assets attributable to Class B and
Class C shares. MFD will pay to securities dealers that enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class B
and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended
to be additional consideration for services rendered by the dealer with
respect to Class B and Class C shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $76,043
and $119 for Class B and Class C shares, respectively, for the period ended
May 31, 1996. Fees incurred under the distribution plans during the period
ended May 31, 1996 were 1.00% of average daily net assets attributable to
Class B and Class C shares on an annualized basis.
Purchases over $1 million into Class A shares and certain purchases into
retirement plans are subject to a contingent deferred sales charge in the
event of a shareholder redemption within twelve months following such
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. A contingent deferred sales charge is imposed on
shareholder redemptions of Class C shares in the event of a shareholder
redemption within twelve months of purchases. MFD receives all contingent
deferred sales charges. Contingent deferred sales charges imposed during the
period ended May 31, 1996 were $20,123, $1,381,379 and $2,663 for Class A,
Class B, and Class C shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15%, up to 0.22% and up to 0.15% attributable
to Class A, Class B, and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions and short-term obligations, aggregated
$1,269,901,107 and $218,289,268, 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 $3,284,803,012
==============
Gross unrealized appreciation $2,006,021,642
Gross unrealized depreciation (114,606,958)
--------------
Net unrealized appreciation $1,891,414,684
==============
(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, 1996 November 30, 1995
------------------------------------ ------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 55,903,092 $1,576,023,201 67,800,740 $1,533,247,118
Shares issued to shareholders in
reinvestment of distributions 2,358 62,374 488,159 9,182,865
Shares reacquired (39,361,427) (1,107,142,067) (44,418,694) (1,017,261,903)
---------- -------------- ---------- --------------
Net increase 16,544,023 $ 468,943,508 23,870,205 $ 525,168,080
========== ============== ========== ==============
<PAGE>
<CAPTION>
Class B Shares
Six Months Ended Year Ended
May 31, 1996 November 30, 1995
------------------------------------ ------------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 42,089,343 $1,187,094,927 67,040,946 $1,489,587,942
Shares issued to shareholders in
reinvestment of distributions 4,450 117,287 458,635 8,613,326
Shares reacquired (19,066,943) (529,999,408) (33,540,206) (753,773,091)
---------- -------------- ---------- --------------
Net increase 23,026,850 $ 657,212,806 33,959,375 $ 744,428,177
========== ============== ========== ==============
<CAPTION>
Class C Shares
Period Ended
May 31, 1996*
------------------------------------
Shares Amount
- ------------------------------------------------------------------------------------
<S> <C> <C>
Shares sold 1,178,625 $35,681,452
Shares issued to shareholders in
reinvestment of distributions 99 3,132
Shares reacquired (47,768) (1,427,295)
--------- -----------
Net increase 1,130,956 $34,257,289
========= ===========
<FN>
*For the period from the commencement of offering of Class C shares, April 1, 1996 to May 31, 1996.
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by 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 period ended May 31,
1996 was $22,411.
(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 period ended May
31, 1996 is set forth below:
<PAGE>
<TABLE>
<CAPTION>
Acquisitions Dispositions
Beginning ------------------------- ------------------------- Ending
Share/Par Share/Par Share/Par Share/Par
Affiliate Amount Amount Cost Amount Cost Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amerihost Properties, Inc. 451,000 71,000 $ 468,375 -- $ -- 522,000
Applebee's International Inc. 1,960,800 1,125,300 23,785,683 -- -- 3,086,100
Autodesk, Inc. 2,894,770 20,000 780,625 -- -- 2,914,770
Back Bay Restaurant Group, Inc. 185,100 -- -- -- -- 185,100
Buffets Inc. 1,568,000 55,600 732,738 -- -- 1,623,600
Cadence Design Systems, Inc. 2,513,250 152,700 5,711,820 -- -- 2,665,950
Compuware Corp. 2,199,524 -- -- -- -- 2,199,524
Equalnet Holdings Corp. 447,000 113,400 969,300 -- -- 560,400
Equity Corp. International 125,000 158,700 4,284,900 -- -- 283,700
HFS, Inc. 3,220,805 3,220,805 -- -- -- 6,441,610
Hammons, John Q Hotels, Inc. 544,300 5,000 40,925 -- -- 549,300
Hollywood Entertainment Corp. 1,050,000 2,386,500 20,349,293 -- -- 3,436,500
Hometown Buffet, Inc. 909,000 21,000 232,693 -- -- 930,000
IHOP Corp. 612,200 -- -- -- -- 612,200
Integrated Health Services 1,404,927 11,073 233,063 -- -- 1,416,000
Italian Oven, Inc. 230,000 20,000 137,500 -- -- 250,000
Marcam Corp. 576,800 -- -- -- -- 576,800
Micro Warehouse, Inc. 1,730,600 129,800 5,184,394 -- -- 1,860,400
Mid-Atlantic Medical Services, Inc. 3,120,600 -- -- -- -- 3,120,600
Morton's Restaurant Group, Inc. -- 553,200 6,515,300 -- -- 553,200
Mothers Work, Inc. 211,500 -- -- -- -- 211,500
Professional Sports Care Management 60,000 490,300 3,860,561 -- -- 550,300
Quantum Restaurant Group, Inc. 553,200 -- -- 553,200 6,515,300 --
Showbiz Pizza Time, Inc. 755,000 370,000 -- -- -- 1,125,000
System Software Associates Inc. 2,045,100 1,239,950 4,637,462 14,500 188,155 3,270,550
Taco Cabana, Inc. 962,395 -- -- -- -- 962,395
Tel-Save Holdings, Inc. 704,900 1,077,450 10,815,044 -- -- 1,782,350
Transportation Corp. of America, "B" 540,000 -- -- 170,000 490,963 370,000
----------- ----------
$88,739,676 $7,194,418
=========== ==========
</TABLE>
<PAGE>
Realized Dividend Ending
Affiliate Gain Income Value
- ------------------------------------------------------------------------------
Amerihost Properties, Inc. $ -- $ -- $ 4,698,000
Applebee's International Inc. -- 118,968 87,568,087
Autodesk, Inc. -- 347,372 101,288,257
Back Bay Restaurant Group, Inc. -- -- 751,969
Buffets Inc. -- -- 20,497,950
Cadence Design Systems, Inc. -- -- 151,292,663
Compuware Corp. -- -- 86,331,317
Equalnet Holdings Corp. -- -- 2,206,575
Equity Corporation International -- -- 8,298,225
HFS, Inc. -- -- 401,795,424
Hammons, John Q Hotels, Inc. -- -- 5,973,637
Hollywood Entertainment Corp. -- -- 53,265,750
Hometown Buffet, Inc. -- -- 13,833,750
IHOP Corp. -- -- 17,294,650
Integrated Health Services -- 28,099 36,993,000
Italian Oven, Inc. -- -- 1,250,000
Marcam Corp. -- -- 7,282,100
Micro Warehouse, Inc. -- -- 72,555,600
Mid-Atlantic Medical Services, Inc. -- -- 59,681,475
Morton's Restaurant Group, Inc. -- -- 9,957,600
Mothers Work, Inc. -- -- 5,657,625
Professional Sports Care Management -- -- 4,196,038
Quantum Restaurant Group, Inc. -- -- --
Showbiz Pizza Time, Inc. -- -- 18,000,000
System Software Associates, Inc. 141,720 309,750 53,555,256
Taco Cabana, Inc. -- -- 8,300,657
Tel-Save Holdings, Inc. -- -- 38,320,525
Transportation Corp. of America, "B" 1,555,381 -- 4,717,500
---------- -------- --------------
$1,697,101 $804,189 $1,275,563,630
========== ======== ==============
(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, 1996,
the Fund owned the following restricted securities (constituting 1.62% of net
assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1933 Act). 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>
Share
Description Date of Acquisition Amount Cost Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Call Net Enterprises, Inc., "B" 11/10/93 125,000 $ 1,051,600 $ 1,459,853
Copley Partners 1 12/06/86 3,000,000 751,263 649,272
Copley Partners 2 12/02/86 - 8/09/91 3,000,000 2,207,091 1,914,990
Highland Capital Partners 6/28/88 - 6/28/93 7,500,000 2,561,094 3,466,350
Loewen Group 1/31/96 - 5/24/96 857,200 24,624,870 24,652,320
Republic Industries, Inc. 5/15/96 1,000,000 40,500,000 51,875,000
Turkiye Garanti Bankasi, ADR 10/29/93 - 4/26/96 72,000 643,115 338,400
-----------
$84,356,185
===========
</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.
