[MFS LOGO]
Semiannual Report
May 31, 1997
MFS[R] Emerging Growth Fund
[GRAPHIC] MAN & WOMAN IN WINDOW
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter from the Chairman .................................................. 1
Portfolio Manager's Overview ............................................ 2
Portfolio Manager's Profile ............................................... 4
Fund Facts .............................................................. 5
Performance Summary ..................................................... 5
Portfolio Concentration .................................................. 7
Portfolio of Investments .................................................. 8
Financial Statements ..................................................... 21
Notes to Financial Statements ............................................ 29
Trustees and Officers ..................................................... 37
</TABLE>
[shaded box]
Highlights
[bullet] For the six months ended May 31, 1997, Class A shares of the Fund
provided a total return at net asset value of 4.31%, Class B shares
3.94%, Class C shares 3.96%, and Class I shares 5.60%.
[bullet] The Fund's performance was hampered by the underperformance of small,
rapidly growing companies, at a time when the Russell 2000 Total
Return Index (the Russell 2000) had the largest one-year
underperformance of that index relative to the Standard & Poor's 500
Composite Index since the Russell 2000 began.
[bullet] Several technology companies, including software companies such as
Compuware, Altera, BMC Software, and Microwarehouse, have been strong
performers for the Fund.
[bullet] Above-average earnings growth in 1997 is expected for the computer
software, health care, and consumer industries, three sectors that
make up the largest weightings in the Fund.
<PAGE>
Letter from the Chairman
[PICTURE A. KEITH BRODKIN]
Dear Shareholders:
After more than six years of expansion, the U.S. economy is experiencing another
year of growth in 1997, although a few signs point to the possibility of a
modest rise in inflation during the year. On the positive side, the pattern of
moderate growth and inflation set over the past few years now seems fairly well
entrenched in the economy and, short of a major international or domestic
crisis, appears to have enough momen- tum to remain on track for some time. The
U.S. economy exhibited a great deal of strength in the first quarter of 1997,
growing at an annualized rate of 5.8%. This pace would clearly lead to
inflationary pressures were it to continue, as could the ongoing tightness in
the labor market. Moreover, there is reason for caution as a result of the
continuing high level of consumer debt and rising personal bankruptcies. Given
these somewhat conflicting indicators, we expect real (inflation-adjusted)
growth to revolve around 2% to 2-1/2% in 1997, with the strength of the first
quarter moderating as we move through the balance of the year.
We continue to urge U.S. equity investors to remain cautious for 1997. Just as
the slowdown in corporate earnings growth and the increases in interest rates in
1996 raised some near-term concerns, further interest-rate increases and the
fear of an acceleration of inflation have added some volatility to the stock
market in 1997. However, while the U.S. equity market enjoyed several years
without a major correction, we would like to point out that such downturns are a
natural part of the investment environment and, when they end, they often result
in more attractive valuations for stocks.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
June 12, 1997
1
<PAGE>
Portfolio Manager's Overview
[GRAPHIC John W. Ballen]
Dear Shareholders:
For the six months ended May 31, 1997, Class A shares of the Fund provided a
total return of 4.31%, Class B shares 3.94%, Class C shares 3.96%, and Class I
shares 5.60%. These returns, which include the reinvestment of distributions but
exclude the effects of any sales charges, com- pare to a 13.18% return for the
Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index
of common stock total return performance, and to an 8.44% return for the Russell
2000 Total Return Index (the Russell 2000), an unmanaged index comprised of
2,000 of the smallest U.S.-domiciled company common stocks that are traded on
the New York Stock Exchange, the American Stock Exchange, and NASDAQ.
The Fund's performance relative to the Russell 2000 and the S&P 500 in the first
months of 1997 has been hampered by the underperformance of small, rapidly
growing companies, the continuation of a trend that began in the summer of 1996.
The underperformance of the Russell 2000 has been the largest one-year
underperformance of that index relative to the S&P 500 since the Russell 2000
began. Not only have smaller stocks underperformed, but so have
mid-capitalization stocks. Because of this underperformance, we believe the
smaller companies are currently very attractively valued, although we are unsure
what catalyst will re-ignite interest in this sector, or when. However, we
remain confident that earnings growth will eventually be recognized.
One action that we have taken is to increase the Fund's average company size as
measured by market capitalization, a move which has helped performance. Despite
this increase in size, we have not altered the Fund's growth characteristics.
Last year we projected the average earnings growth of the companies in the Fund
to be 25%; currently, the average growth is actually slightly in excess of that
level. While a short-term abandoning of our focus might be appealing, we believe
that our focus on smaller, rapidly growing companies should produce strong
returns for investors.
More important than sector selection this year has been stock selection.
Technology companies have benefited the Fund this year, including companies in
the software industry such as Compuware, Altera, BMC Software, and
Microwarehouse, all of which have been strong performers. Meanwhile, Cadence
Design Systems and Synopsys, both market leaders in the software industry, have
been laggards.
2
<PAGE>
Portfolio Manager's Overview - continued
Most health maintenance organizations (HMOs) have performed well this year, with
Healthsource selling to CIGNA for a very large premium. Similarly, United
Healthcare has been an excellent performer.
A major disappointment so far this year has been HFS, the Fund's largest
position. HFS, as well as owning Avis and several other brands, is the nation's
largest hotel and real estate franchiser and has far exceeded analysts' earnings
estimates in each quarter for the past year, enhancing its future prospects.
However, Wall Street has chosen to ignore the company, and its valuation has
suffered. We believe this to be a temporary phenomenon and maintain the stock as
the Fund's largest investment. Investors should remember that the management
team at HFS has been responsible for a 14-fold increase in its stock price over
the past five years, a period during which the Fund has been a continuous, major
shareholder. While we are discouraged by the company's recent stock price
performance, cash flow and earnings for this year are substantially in excess of
what we would have expected a year ago, and we see strong gains ahead.
In the U.S. economy as a whole, there are several sectors in which we see very
strong growth. The software industry is expected to grow its earnings in excess
of 30% in 1997 and in excess of 25% in 1998 -- the fastest growth of any
industry. Similarly, above-average growth is expected for the health care and
consumer industries. These three sectors make up the largest weightings in the
Fund, and we expect them to grow their earnings in excess of 20% in 1997, a
healthy pace when compared to the 12% to 13% anticipated earnings growth for
corporate America as a whole.
One sector which did not perform well in 1996 but has rebounded nicely in 1997
is health care, a resurgence which was reflected in the strong performance of
our large positions in HMOs such as United Healthcare, Pacificare, Oxford
Health, and Healthsource. After profit margins compressed in 1996, premiums have
been rising in excess of costs so far this year, a trend we expect to continue.
The stock market and the Fund's investments rose this year, helped by
above-average growth in corporate earnings and despite a rise in interest rates.
We have been surprised by the very strong performance of the S&P 500 and by how
poorly smaller-company stocks have performed. However, we believe 1997 will end
with smaller companies substantially outperforming larger companies. We are
living through an unprecedented time of productivity gains for corporate
America, and the smaller companies are the ones providing the technology and
resources to drive this productivity to
3
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Portfolio Manager's Overview - continued
the bottom line. We believe the stock market will eventually reward the
earnings growth of these companies.
Respectfully,
/s/ John W. Ballen
John W. Ballen
Portfolio Manager
[shaded box]
Portfolio Manager's Profile
John W. 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 in 1995 he became Chief Equity Officer. He
has been the Portfolio Manager of MFS(R) Emerging Growth Fund since its
inception in 1986.
4
<PAGE>
[shaded box]
Fund Facts
Strategy: The Fund's investment objective is to provide long-term
growth of capital by investing primarily in common
stocks of companies that MFS believes are early in
their life cycle but which have the potential to
become major enterprises.
Commencement of
investment operations: Class A: September 13, 1993
Class B: December 29, 1986
Class C: April 1, 1996
Class I: January 2, 1997
Size: $7.3 billion net assets as of May 31, 1997
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, Class B, Class C, and Class I shares
for the applicable time periods.
Average Annual and Cumulative Total Rates of Return
as of May 31, 1997
Class A Investment Results
(net asset value change including reinvested distributions)
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<CAPTION>
6 Months 1 Year 5 Years 10 Years
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +4.31% +5.40% +171.05% +341.90%
- -----------------------------------------------------------------------------
Average Annual Total Return -- +5.40% + 22.07% + 16.02%
- -----------------------------------------------------------------------------
SEC Results -- -0.65% + 20.64% + 15.34%
- -----------------------------------------------------------------------------
</TABLE>
Class B Investment Results
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +3.94% +4.54% +163.15% +329.12%
- -----------------------------------------------------------------------------
Average Annual Total Return -- +4.54% + 21.35% + 15.68%
- -----------------------------------------------------------------------------
SEC Results -- +0.54% + 21.17% + 15.68%
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</TABLE>
Class C Investment Results
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +3.96% +4.56% +163.26% +329.12%
- -----------------------------------------------------------------------------
Average Annual Total Return -- +4.56% + 21.36% + 15.68%
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SEC Results -- +3.56% + 21.36% + 15.68%
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</TABLE>
5
<PAGE>
Performance Summary - continued
Class I Investment Results
(net asset value change including reinvested distributions)
<TABLE>
<CAPTION>
6 Months 1 Year 5 Years 10 Years
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +5.60% +6.21% +167.40% +335.85%
- -----------------------------------------------------------------------------
Average Annual Total Return -- +6.21% + 21.74% + 15.86%
- -----------------------------------------------------------------------------
</TABLE>
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Class A share SEC results include the maximum 5.75% sales charge. Class B share
SEC results reflect the applicable contingent deferred sales charge (CDSC),
which declines over six years as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%. 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 share purchases are
subject to a 1% CDSC if redeemed within 12 months of purchase. Class I shares,
which became available on January 2, 1997, have no sales charge or Rule 12b-1
fees and are only available to certain institutional investors.
Class A and Class C share results include the performance and the operating
expenses (e.g., Rule 12b-1 fees) of the Fund's Class B shares for periods prior
to the commencement of offering of Class A and Class C shares. Because
operating expenses attributable to Class A shares are lower than those of Class
B shares, Class A share performance generally would have been higher than Class
B share performance. Operating expenses attributable to Class C shares are not
significantly different from those of Class B shares. The Class B share
performance included in the Class A share SEC performance has been adjusted to
reflect the maximum initial sales charge generally applicable to Class A shares
rather than the CDSC generally applicable to Class B shares. The Class C share
SEC performance has been adjusted to reflect the lower CDSC generally
applicable to Class B shares.
Class I share results include the performance and the operating expenses (e.g.,
Rule 12b-1 fees) of the Fund's Class B shares for periods prior to the
commencement of offering of Class I shares. Because operating expenses
attributable to Class B shares are greater than those of Class I shares, Class
I share performance generally would have been higher than Class B share
performance. The Class B share performance included in the Class I share per-
formance has been adjusted to reflect the fact that Class I shares have no
CDSC.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Current subsidies and
waivers may be discontinued at any time.
6
<PAGE>
Portfolio Concentration as of May 31, 1997
Top 10 Holdings
HFS, Inc.
Franchiser of hotels and real estate companies
Oracle Systems Corp.
Developer and manufacturer of database software
Computer Associates International, Inc.
Computer software company
Cisco Systems, Inc.
Computer network developer
United Healthcare Corp.
Health maintenance organization
BMC Software, Inc.
Computer software company
Compuware Corp.
Computer software and systems company
Cadence Design Systems, Inc.
Computer software and systems company
Microsoft Corp.
Computer software and systems company
Republic Industries, Inc.
Waste disposal company
Largest Sectors
[pie chart]
Technology 39.7%
Health Care 14.6%
Leisure 14.5%
Retail 10.0%
Other Sectors 9.5%
Miscellaneous 11.7%
(Conglomerates, special products/services)
For a more complete breakdown, refer to the Portfolio of Investments.
7
<PAGE>
Portfolio of Investments (Unaudited) - May 31, 1997
Stocks - 99.2%
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<TABLE>
<CAPTION>
Issuer Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 94.8%
Advertising - 0.2%
Lamar Advertising Co., "A"* 51,300 $ 1,295,325
Leap Group, Inc.* 150,000 468,750
Outdoor Systems, Inc.* 350,425 11,607,828
Universal Outdoor Holdings, Inc.* 122,000 3,965,000
------------
$ 17,336,903
- -----------------------------------------------------------------------------
Aerospace - 0.3%
Greenwich Air Services, Inc., "B"* 649,900 $ 18,847,100
Gulfstream Aerospace Corp.* 40,000 1,175,000
------------
$ 20,022,100
- -----------------------------------------------------------------------------
Airlines - 0.1%
Airnet Systems, Inc.* 200,000 $ 3,375,000
Atlas Air, Inc.* 96,400 2,771,500
------------
$ 6,146,500
- -----------------------------------------------------------------------------
Apparel and Textiles - 0.3%
Nike, Inc., "B" 35,000 $ 1,995,000
Nine West Group, Inc.* 417,316 16,066,666
------------
$ 18,061,666
- -----------------------------------------------------------------------------
Automotive
APS Holding Corp., "A"* 144,000 $ 1,440,000
Dura Automotive Systems, Inc.* 58,400 1,518,400
United Auto Group, Inc.* 21,400 395,900
------------
$ 3,354,300
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Building
Dayton Superior Corp.++* 265,000 $ 3,312,500
- -----------------------------------------------------------------------------
Business Machines - 0.9%
Affiliated Computer Services, Inc.* 980,000 $ 25,970,000
Sun Microsystems, Inc.* 1,211,900 39,083,775
------------
$ 65,053,775
- -----------------------------------------------------------------------------
Business Services - 7.9%
AccuStaff, Inc.* 4,254,500 $102,108,000
Administaff, Inc.* 31,600 628,050
ADT Ltd.* 2,704,300 78,762,738
American List Corp. 120,000 3,330,000
BA Merchants Services, Inc.* 224,900 3,682,737
BISYS Group, Inc.* 390,623 14,892,502
Caribiner International, Inc.* 28,200 1,825,950
Ceridian Corp.* 131,300 4,825,275
Claremont Technology Group, Inc.* 53,400 1,221,525
Computer Sciences Corp.* 267,400 20,690,075
Corestaff, Inc.* 1,189,300 28,245,875
Cornell Corrections, Inc.* 104,300 1,251,600
CUC International, Inc.* 3,450,112 79,352,576
Data Processing Corp.* 229,000 5,038,000
Dendrite International, Inc.* 155,400 1,981,350
Donnelley Enterprise Solution* 57,400 552,475
DST Systems, Inc.* 297,850 9,158,887
Education Management Corp.* 20,000 477,500
Employee Solutions, Inc.* 813,200 4,320,125
</TABLE>
8
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issuer Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
U.S Stocks - continued
Business Services - continued
F.Y.I., Inc.* 333,400 $ 7,334,800
Fine Host Corp.* 226,500 6,908,250
First Data Corp. 1,024,804 40,992,160
Fiserv, Inc.* 281,143 11,562,006
Forrester Research, Inc.* 21,000 614,250
Franklin Quest Co. 482,800 11,587,200
Global Directmail Corp.* 313,300 7,440,875
ICT Group, Inc.* 300,000 1,387,500
Ikon Office Solutions, Inc. 1,541,700 44,709,300
Intelliquest Information Group* 53,800 1,049,100
Interim Services, Inc.* 565,800 22,066,200
International Network Services* 17,800 462,800
ITT Educational Services, Inc.* 186,000 4,208,250
Labor Ready, Inc.* 50,000 487,500
Lason Holdings, Inc.* 12,500 276,563
Learning Tree International, Inc.* 71,550 2,790,450
May and Speh, Inc.* 80,000 920,000
Mecon, Inc.* 33,600 105,000
Medquist, Inc.* 112,500 2,896,875
MoneyGram Payment Systems, Inc.* 145,000 1,848,750
National Data Corp. 70,700 3,101,962
National Processing, Inc.* 220,900 1,850,038
NOVA Corp.* 22,700 411,438
Nu Skin Asia Pacific, Inc.* 20,000 535,000
PIA Merchandising Services, Inc.* 35,500 195,250
PMT Services, Inc.* 47,500 760,000
Precision Response Corp.* 100,000 2,287,500
RemedyTemp, Inc.* 80,000 1,390,000
Romac International, Inc.* 60,100 1,757,925
Rural/Metro Corp.* 272,700 8,726,400
Sabre Group Holding, Inc.* 124,400 3,467,650
Service Experts, Inc.* 182,100 5,144,325
Sitel Corp.* 276,400 4,560,600
SPS Transaction Services, Inc.* 558,245 10,746,216
Strayer Education, Inc. 20,000 655,000
Technology Solutions Co.* 44,000 1,595,000
Walsh International, Inc.* 47,500 380,000
Wesley Jessen Visioncare, Inc.* 125,000 2,093,750
------------
$581,651,123
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Chemicals
Polymer Group, Inc.* 185,000 $ 2,682,500
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Computer Hardware - Systems - 0.2%
Radiant Systems, Inc.* 87,500 $ 1,575,000
Waters Corp.* 355,000 11,448,750
------------
$ 13,023,750
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Computer Software - Personal Computers - 3.6%
Autodesk, Inc.* 1,379,437 $ 53,625,613
Clarify, Inc.* 25,000 303,125
</TABLE>
9
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
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<TABLE>
<CAPTION>
Issuer Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
U.S Stocks - continued
Computer Software - Personal Computers - continued
Cybermedia, Inc. 15,000 $ 258,750
Electronic Arts, Inc.* 168,200 5,382,400
HNC Software, Inc.* 15,600 514,800
Imnet Systems, Inc.* 30,000 750,000
Insight Enterprises, Inc.* 210,000 5,985,000
InterSolv, Inc.* 135,500 1,338,063
Keane, Inc.* 180,000 10,147,500
McAfee Associates, Inc.* 26,271 1,728,960
Microsoft Corp.* 1,380,200 171,144,800
Quality Systems* 90,000 697,500
Spectrum Holobyte, Inc.* 65,600 418,200
Transaction System Architects, Inc.* 222,800 9,357,600
------------
$261,652,311
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Computer Software - Services - 0.1%
Ingram Micro, Inc.* 162,900 $ 3,889,238
XLConnect Solutions, Inc.* 10,200 68,850
------------
$ 3,958,088
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Computer Software - Systems - 22.4%
Adobe Systems, Inc. 788,100 $ 35,168,962
Applix, Inc.* 48,000 216,000
Aspen Technology, Inc.* 150,000 5,737,500
Astea International, Inc.* 22,000 71,500
Aurum Softwave, Inc.* 19,000 363,375
BDM International, Inc.* 86,800 2,256,800
BMC Software, Inc.* 4,325,530 234,119,311
Cadence Design Systems, Inc.++* 5,179,535 172,219,539
Carnegie Group, Inc.* 150,000 843,750
CCC Information Services Group 275,000 4,743,750
Compaq Computer Corp.* 10,000 1,082,500
Computer Associates International, Inc. 7,465,800 408,752,550
Compuware Corp.* 3,947,448 183,062,901
Cotelligent Group, Inc.* 303,100 3,712,975
CSG Systems International, Inc.* 15,000 356,250
Desktop Data, Inc.* 15,400 123,200
Edify Corp.* 59,900 748,750
Factset Research Systems, Inc.* 37,000 721,500
Helisys, Inc.* 50,000 75,000
HMT Technology Corp.* 70,000 936,250
HPR, Inc.* 29,000 471,250
IA Corp. I* 5,000 16,563
Information Management Resources, Inc.* 106,800 3,751,350
Intelidata Technologies Corp.* 171,200 877,400
Isocor* 53,000 159,000
Larscom, Inc.* 150,000 1,818,750
Learning Co., Inc.* 390,000 2,778,750
LHS Group, Inc.* 65,300 2,171,225
Mastech Corp.* 15,000 270,000
Metatec Corp.* 45,000 140,625
Metro Information Services, Inc. 10,600 194,775
</TABLE>
10
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issuer Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
U.S Stocks - continued
Computer Software - Systems - continued
Metromail Corp.* 50,000 $ 1,100,000
Oak Technology* 400,000 3,750,000
Objective Systems Integrators, Inc.* 38,500 418,688
Oracle Systems Corp.* 8,923,300 416,048,862
Programmers Paradise, Inc.* 80,000 640,000
Radisys Corp.* 55,000 2,021,250
Remedy Corp.* 41,400 1,671,525
Renaissance Solutions, Inc.* 67,200 2,486,400
Rogue Wave Software, Inc.* 24,400 338,550
Simulation Sciences, Inc.* 93,200 1,374,700
Sybase, Inc.* 2,755,689 43,918,793
Synopsys, Inc.* 1,692,894 63,271,913
System Software Associates, Inc.++* 2,429,350 22,471,487
Techforce Corp.* 50,000 381,250
Ultradata Corp.* 40,000 121,250
USCS International, Inc.* 317,300 7,258,238
Veritas Software Co.* 8,753 435,462
Versatility, Inc.* 37,000 462,500
Whittman-Hart, Inc.* 200,000 5,200,000
Xionics Document Technologies* 114,500 1,588,688
---------------
$1,642,921,607
- -----------------------------------------------------------------------------
Construction Services - 0.1%
American Residential Services, Inc.* 78,000 $ 1,618,500
Barnett, Inc.* 100,000 2,225,000
Shaw Group, Inc.* 149,400 2,595,825
---------------
$ 6,439,325
- -----------------------------------------------------------------------------
Consumer Goods and Services - 0.7%
Blyth Industries, Inc.* 105,400 $ 4,690,300
Carson, Inc.* 132,100 1,304,487
Childtime Learning Centers, Inc.* 40,000 390,000
DBT Online, Inc.* 60,000 2,715,000
Hertz Corp., "A"* 69,200 2,370,100
Keystone International, Inc. 849,000 27,698,625
Meta Group, Inc.* 12,500 284,375
Silgan Holdings, Inc.* 85,200 2,556,000
Swisher International Group, Inc., "A"* 230,000 4,197,500
Ticketmaster Group, Inc.* 115,000 1,667,500
Tyco International Ltd. 15,000 952,500
U.S. Rentals, Inc.* 145,000 3,443,750
---------------
$ 52,270,137
- -----------------------------------------------------------------------------
Electrical Equipment - 0.3%
AFC Cable Systems, Inc.* 65,000 $ 1,779,375
AVX Corp. 70,000 1,907,500
Comdial Corp.* 40,000 265,000
CP Clare Corp.* 180,000 2,497,500
JPM Co.* 145,000 4,495,000
Micrel, Inc.* 29,800 1,579,400
Westinghouse Electric Corp. 513,721 10,402,850
---------------
$ 22,926,625
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</TABLE>
11
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issuer Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
U.S Stocks - continued
Electronics - 5.1%
Actel Corp.* 40,000 $ 840,000
Altera Corp.* 2,601,200 137,863,600
Analog Devices, Inc.* 980,000 26,215,000
Atmel Corp.* 861,000 24,753,750
Blonder Tongue Laboratories, Inc.* 52,500 420,000
Burr Brown* 597,450 18,744,994
Intel Corp.* 260,000 28,795,000
Lattice Semiconductor Corp.* 25,000 1,450,000
Linear Technology Corp. 376,900 18,892,112
LSI Logic Corp.* 810,700 33,846,725
Maxim Integrated Products, Inc.* 135,900 7,304,625
Micro Linear Corp.* 198,000 3,960,000
Novellus Systems, Inc.* 118,735 9,721,428
Speedfam International, Inc.* 30,000 1,093,125
Triumph Group, Inc.* 23,000 589,375
Ultrak, Inc.* 18,000 229,500
Ultratech Stepper, Inc.* 80,800 1,646,300
Xilinx, Inc.* 1,124,782 60,316,435
-------------
$376,681,969
- -----------------------------------------------------------------------------
Entertainment - 2.7%
American Radio Systems Corp., "A"* 397,800 $ 14,818,050
Chartwell Leisure, Inc.* 319,800 3,757,650
Clear Channel Communications, Inc.* 10,000 528,750
Cox Radio, Inc.* 258,800 5,790,650
Grand Casinos, Inc.* 700,000 9,012,500
Harrah's Entertainment, Inc.* 1,689,102 31,459,525
Jacor Communications, Inc., "A"* 542,200 18,705,900
LIN Television Corp.* 699,200 30,327,800
Macromedia, Inc.* 76,000 764,750
Metro Networks Inc.* 35,000 888,125
Midway Games, Inc.* 30,000 603,750
Premier Parks, Inc.* 120,000 3,637,500
Showboat, Inc. 33,100 653,725
Sinclair Broadcast Group, Inc.,"A"* 38,900 962,775
Time Warner, Inc. 1,500,000 69,750,000
Univision Communications, Inc., "A"* 35,700 1,285,200
Vistana, Inc.* 324,000 3,847,500
West Coast Entertainment Corp.* 605,000 3,025,000
-------------
$199,819,150
- -----------------------------------------------------------------------------
Financial Institutions - 0.9%
Advanta Corp., "B" 13,000 $ 360,750
AmeriTrade Holding Corp.* 26,900 376,600
ContiFinancial Corp.* 35,800 1,208,250
Credit Acceptance Corp.* 154,300 2,179,488
Emergent Group, Inc.* 140,000 1,557,500
Firstplus Financial Group, Inc.* 370,000 9,435,000
Franklin Resources, Inc. 543,750 35,207,812
Harrington Financial Group, Inc.* 20,000 235,000
</TABLE>
12
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issuer Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
U.S Stocks - continued
Financial Institutions - continued
Healthcare Financial Partners, Inc.* 40,000 $ 665,000
IMC Mortgage Co.* 120,000 1,725,000
National Auto Credit, Inc.* 796,900 7,769,775
Schwab (Charles) Corp. 25,000 1,015,625
Southern Pacific Funding Corp.* 87,000 1,218,000
------------
$62,953,800
- -----------------------------------------------------------------------------
Food and Beverage Products - 0.1%
Rocky Mountain Chocolate Factory* 67,100 $ 301,950
Suiza Foods Corp.* 248,700 7,429,913
------------
$ 7,731,863
- -----------------------------------------------------------------------------
Forest and Paper Products - 0.1%
Unisource Worldwide, Inc. 297,650 $ 5,171,669
- -----------------------------------------------------------------------------
Insurance - 0.4%
Amerin Corp.* 100,000 $ 2,350,000
CapMAC Holdings, Inc. 30,000 840,000
CIGNA Corp. 15,000 2,606,250
Compdent Corp.* 298,400 5,408,500
Conseco, Inc. 200,000 8,000,000
FPA Medical Management, Inc.* 379,075 7,581,500
Hartford Life, Inc.* 70,500 2,361,750
Nationwide Financial Services, Inc., "A"* 111,700 3,141,562
------------
$32,289,562
- -----------------------------------------------------------------------------
Machinery - 0.1%
ITEQ, Inc.* 250,000 $ 1,968,750
Prime Service, Inc.* 107,600 2,636,200
-----------
$ 4,604,950
- -----------------------------------------------------------------------------
Medical and Health Products - 0.7%
Arterial Vascular Engineering, Inc.* 24,800 $ 517,700
Boston Scientific Corp.* 405,000 21,616,875
Coast Dental Services, Inc.* 30,000 472,500
Guidant Corp. 215,000 16,689,375
Matria Healthcare, Inc.* 578,500 2,530,937
Orthofix International N.V.* 473,749 4,441,397
Transition Systems, Inc.* 51,900 726,600
Uromed Corp.* 48,765 231,634
Xomed Surgical Products, Inc.* 50,000 806,250
Zoll Medical Corp.* 107,500 954,063
------------
$48,987,331
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 13.8%
Access Health, Inc.* 37,500 $ 825,000
American Homepatient, Inc.* 420,750 8,204,625
American Medserve Corp.* 47,600 690,200
American Oncology Resources, Inc.* 100,000 1,412,500
Applied Analytical Industries, Inc.* 10,000 182,500
BioSource International, Inc.* 144,400 1,083,000
Cardinal Health, Inc. 329,490 19,192,792
Carematrix Corp.* 450,000 8,550,000
ClinTrials Research, Inc.* 45,000 444,375
</TABLE>
13
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issuer Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
U.S Stocks - continued
Medical and Health Technology and Services - continued
Cohr, Inc.* 56,800 $ 915,900
Columbia/HCA Healthcare Corp. 708,184 25,937,239
Community Care America, Inc.* 100,000 343,750
Coventry Corp.* 70,000 1,019,375
Equimed, Inc.* 200,000 656,250
Foundation Health Systems, Inc.* 1,313,609 39,244,069
Genesis Health Ventures, Inc.* 181,150 5,955,306
HBO & Co. 39,600 2,539,350
HCIA, Inc.* 565,000 13,983,750
Health Management Associates, Inc., "A"* 208,500 6,098,625
HealthSource, Inc.++* 5,020,210 107,934,515
HealthSouth Corp.* 2,103,716 48,122,503
Horizon CMS Healthcare Corp.* 659,100 12,028,575
ICU Medical, Inc.* 50,000 443,750
IDX Systems Corp.* 21,300 686,925
Integrated Health Services, Inc.* 1,180,000 42,480,000
Integrated Living Communities, Inc.* 250,000 2,781,250
Iridex Corp.* 14,000 85,750
Kapson Senior Quarters Corp.* 230,000 2,558,750
Lincare Holdings, Inc.* 196,900 7,679,100
Living Centers of America* 35,000 1,334,375
Manor Care, Inc. 50,000 1,431,250
Mariner Health Group, Inc.* 1,048,900 12,586,800
Medpartners, Inc.* 35,765 679,535
Medtronic Inc. 50,000 3,700,000
Mid Atlantic Medical Services, Inc.* 2,249,888 28,967,308
Multicare Cos., Inc.* 121,350 3,018,581
National Surgery Centers, Inc.* 28,200 1,085,700
NCS Healthcare, Inc.* 36,200 1,013,600
Occusystems, Inc.* 13,100 343,875
Option Care, Inc.* 115,000 704,375
Orthodontic Centers America, Inc.++* 2,190,000 36,682,500
Oxford Health Plans, Inc.* 718,000 50,619,000
Pacificare Health Systems, Inc., "A"* 364,900 27,367,500
Pacificare Health Systems, Inc., "B"* 672,546 53,299,270
Parexel International Corp.* 39,000 1,282,125
Pediatrix Medical Group* 37,400 1,486,650
Pharmaceutical Product Development, Inc.* 16,200 309,825
Phymatrix Corp.* 98,200 1,387,075
Physician Reliance Network, Inc.* 510,000 4,494,375
Physician Sales and Service, Inc.* 42,000 609,000
Physician Support Systems, Inc.* 38,100 385,763
Physicians Resource Group, Inc.* 300,000 3,525,000
Physio-Control International Corp.* 147,500 1,880,625
Premier Research Worldwide Ltd.* 16,500 165,000
Quorum Health Group, Inc.* 50,000 1,768,750
Renal Care Group, Inc.* 29,100 1,083,975
Renal Treatment Centers* 855,302 24,589,933
</TABLE>
14
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issuer Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
U.S Stocks - continued
Medical and Health Technology and Services - continued
Schein (Henry), Inc.* 26,850 $ 896,119
St. Jude Medical, Inc.* 961,550 32,572,506
Summit Medical Systems, Inc.* 13,000 34,938
Total Renal Care Holdings, Inc.* 200,000 7,200,000
Trigon Healthcare, Inc.* 136,500 2,661,750
United Dental Care, Inc.* 20,000 340,000
United Healthcare Corp. 5,546,454 313,374,651
United Payors and United Providers, Inc.* 170,000 2,252,500
Vivra, Inc.* 175,000 6,190,625
WellCare Management Group, Inc.* 77,700 367,861
Wellpoint Health Networks, Inc.* 386,500 18,455,375
--------------
$1,012,227,814
- -----------------------------------------------------------------------------
Pollution Control - 2.6%
Allied Waste Industries, Inc.* 208,000 $ 3,068,000
Laidlaw, Inc. 480,000 6,480,000
Philip Services Corp.* 183,300 2,680,763
Republic Industries, Inc.+*[dbldag] 6,505,000 156,526,562
USA Waste Services, Inc.* 519,300 18,824,625
--------------
$ 187,579,950
- -----------------------------------------------------------------------------
Printing and Publishing - 0.2%
Applied Graphics Technologies* 41,200 $ 1,359,600
Journal Register Company* 90,000 1,361,250
Mail Well Holdings, Inc.* 385,000 12,416,250
--------------
$ 15,137,100
- -----------------------------------------------------------------------------
Railroads - 0.2%
Wisconsin Central Transportation Corp.* 358,600 $ 12,954,425
- -----------------------------------------------------------------------------
Real Estate - 0.1%
CB Commercial Real Estate Services Group, Inc.* 20,000 $ 442,500
NHP, Inc.* 444,700 9,783,400
--------------
$ 10,225,900
- -----------------------------------------------------------------------------
Restaurants and Lodging - 10.9%
Amerihost Properties, Inc.++* 522,000 $ 3,784,500
Apple South, Inc. 412,150 6,233,769
Applebee's International, Inc.++* 3,131,500 77,896,062
Back Bay Restaurant Group, Inc.* 87,000 358,875
Bertucci's, Inc.* 200,000 1,200,000
Brinker International, Inc.* 390,000 5,411,250
Bristol Hotel Co.* 40,000 1,470,000
Buffets, Inc.++* 2,953,050 26,208,319
Candlewood Hotel Company, Inc.* 245,000 2,097,812
Capstar Hotel Co.* 614,800 18,444,000
Choice Hotels Holdings, Inc.* 78,600 1,237,950
Doubletree Corp.* 359,600 16,092,100
Extended Stay America##[dbldag]* 1,000,000 13,875,000
Extended Stay America, Inc.* 302,704 4,200,018
Four Seasons Hotels, Inc. 150,000 3,900,000
</TABLE>
15
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issuer Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
U.S Stocks - continued
Restaurants and Lodging - continued
Hammons (John Q) Hotels, Inc.++* 549,300 $ 4,943,700
HFS, Inc.++* 8,096,890 436,219,949
IHOP, Inc.++* 545,800 15,282,400
Interstate Hotels Co.* 240,000 6,300,000
Lone Star Steakhouse & Saloon, Inc.* 370,500 8,521,500
Marriot International, Inc. 100,000 5,775,000
MGM Grand, Inc.* 369,900 14,009,962
Mortons Restaurant Group, Inc.++* 540,000 8,977,500
Outback Steakhouse, Inc.* 120,000 2,790,000
Papa John's International, Inc.* 132,300 4,217,062
PJ America, Inc.* 14,100 239,700
Promus Hotel Corp.* 1,602,501 57,890,349
Rainforest Cafe, Inc.* 115,000 2,817,500
Roadhouse Grill, Inc.* 140,000 770,000
Schlotzskys, Inc.* 33,700 459,163
ShoLodge, Inc.++* 375,600 4,976,700
Showbiz Pizza Time, Inc.++* 1,017,000 22,882,500
Signature Resorts, Inc.* 90,000 2,643,750
Sonic Corp.* 464,450 8,127,875
Sun International Hotels Ltd.* 121,800 4,613,175
Taco Cabana, Inc.++* 962,395 4,811,975
U.S. Franchise Systems, Inc., "A"* 37,600 338,400
Wyndham Hotel Corp.* 40,550 1,120,194
------------
$801,138,009
- -----------------------------------------------------------------------------
Special Products and Services - 0.5%
Carriage Services, Inc.* 92,000 $ 1,644,500
Central Parking Corp. 66,600 2,081,250
Childrens Discovery Centers America* 220,000 1,622,500
Columbus McKinnon Corp.* 155,000 2,790,000
Equity Corp. International* 415,550 9,973,200
Gargoyles Inc.* 30,000 270,000
Staffmark, Inc.* 120,000 2,250,000
Stewart Enterprises, Inc.* 401,100 13,537,125
Wackenhut Corp. 200,000 3,025,000
Wilmar Industries, Inc.* 66,600 1,465,200
------------
$ 38,658,775
- -----------------------------------------------------------------------------
Steel - 0.1%
Citation Corp.* 612,500 $ 9,110,938
- -----------------------------------------------------------------------------
Stores - 8.9%
Alrenco, Inc.* 230,000 $ 2,788,750
American Pad and Paper Co.* 840,000 15,540,000
Bed Bath & Beyond, Inc. 138,000 3,915,750
Boise Cascade Office Products Corp.* 341,400 6,657,300
Borders Group, Inc.* 400,000 8,700,000
BT Office Products International, Inc.* 771,800 6,077,925
CompUSA, Inc.* 440,000 10,230,000
Consolidated Stores Corp.* 872,500 33,373,125
Corporate Express, Inc.* 3,025,000 41,593,750
</TABLE>
16
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issuer Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
U.S Stocks - continued
Stores - continued
Creative Computers, Inc.* 60,000 $ 341,250
Duty Free International, Inc. 677,800 10,590,625
Friedmans, Inc.* 125,000 2,335,938
General Nutrition Cos., Inc.* 1,457,088 33,877,296
Globe Business Resources, Inc.* 30,000 307,500
Guitar Center, Inc. 50,400 963,900
Gymboree Corp.* 673,050 16,826,250
Hollywood Entertainment Corp.++* 3,166,443 63,724,665
Home Depot, Inc. 205,000 12,915,000
Linens 'n Things, Inc. 76,800 1,987,200
Mail Boxes Etc.* 78,700 1,810,100
Micro Warehouse, Inc.++* 2,878,500 49,654,125
Mothers Work, Inc.++* 211,500 1,692,000
Movie Gallery, Inc.* 378,100 2,599,437
MSC Industrial Direct, Inc.* 150,800 5,372,250
Office Depot, Inc.* 6,762,200 116,647,950
OfficeMax, Inc.* 893,000 12,390,375
PETsMART, Inc.* 182,674 2,237,757
Rental Service Corp.* 122,800 2,670,900
Renters Choice, Inc.* 321,000 6,179,250
Rite Aid Corp. 1,077,300 50,094,450
Shoe Carnival, Inc.* 487,000 3,835,125
Sports Club, Inc.* 196,000 980,000
Staples, Inc.* 1,816,000 39,952,000
Sunglass Hut International, Inc.* 500,000 3,390,625
U.S. Office Products Co.++* 3,305,000 81,798,750
Viking Office Products, Inc.* 10,000 188,750
------------
$654,240,068
- -----------------------------------------------------------------------------
Telecommunications - 9.7%
ACC Corp.* 90,000 $ 2,317,500
APAC Teleservices, Inc.* 450,000 8,831,250
Ascend Communications, Inc.* 784,700 43,747,025
Aspect Telecommunications Corp.* 160,400 3,609,000
Boston Communications Group, Inc.* 165,996 1,618,461
Cable Design Technologies Corp.* 586,800 16,137,000
Cabletron Systems, Inc.* 92,300 4,061,200
Cisco Systems, Inc.* 4,900,950 332,039,362
Digital Lightwave, Inc.* 34,100 247,225
DSP Communications, Inc.* 240,000 2,670,000
Equalnet Holding Corp.++* 400,000 362,500
Excel Communication, Inc.* 104,700 2,028,562
Glenayre Technologies, Inc.* 1,650,000 24,234,375
Heritage Media Corp.* 118,800 2,168,100
International Telecommunication Data
Systems, Inc.* 30,100 504,175
LCC International, Inc.* 33,400 425,850
Lightbridge, Inc.* 39,300 338,963
Lucent Technologies, Inc. 100,000 6,362,500
McLeodUSA, Inc., "A"* 81,200 1,928,500
</TABLE>
17
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issuer Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
U.S Stocks - continued
Telecommunications - continued
Metro One Telecommunications, Inc.* 34,500 $ 267,375
Omnipoint Corp.* 40,400 555,500
Orckit Communications Ltd.* 13,000 175,500
Premisys Communications, Inc.* 29,800 428,375
RMH Teleservices, Inc.* 238,000 1,844,500
Shiva Corp.* 59,400 764,775
Snyder Communications, Inc.* 62,600 1,721,500
Sterling Commerce, Inc.* 59,826 1,989,215
Tel-Save Holdings, Inc.++* 3,624,700 56,182,850
Tel-Save Holdings, Inc.##++[dbldag]* 2,588,700 41,419,200
Telespectrum Worldwide, Inc.* 485,000 7,850,937
Teletech Holdings, Inc.* 194,500 4,497,812
Tellabs, Inc.* 90,000 4,522,500
Transaction Network Services, Inc.* 255,700 3,771,575
VDI Media* 300,000 2,812,500
West Teleservices Corp.* 60,950 967,581
Westell Technologies, Inc.* 67,800 1,372,950
WorldCom, Inc.* 4,327,582 128,204,617
--------------
$ 712,980,810
- -----------------------------------------------------------------------------
Transportation - 0.2%
Budget Group, Inc.* 302,700 $ 8,437,763
Carey International, Inc.* 93,900 1,338,075
Coach USA, Inc.* 121,300 3,184,125
Hub Group, Inc.* 10,000 280,000
--------------
$ 13,239,963
- -----------------------------------------------------------------------------
Utilities - Telephone - 0.3%
Brooks Fiber Properties, Inc.* 66,500 $ 1,712,375
LCI International, Inc.* 60,000 1,455,000
MCI Communications Corp. 100,000 3,837,500
Telco Communications Group, Inc.* 215,700 5,095,912
Teleport Communications Group, Inc., "A"* 400,000 12,100,000
--------------
$ 24,200,787
- -----------------------------------------------------------------------------
Venture Capital - 0.1%
Copley Partners 1+[dbldag]* 3,000,000 $ 587,340
Copley Partners 2+[dbldag]* 3,000,000 1,287,570
Highland Capital Partners+[dbldag]* 7,500,000 3,205,800
--------------
$ 5,080,710
- -----------------------------------------------------------------------------
Total U.S. Stocks $6,955,828,753
- -----------------------------------------------------------------------------
Foreign Stocks - 4.4%
Australia
Sydney Harbor Casino Holdings Ltd., Preferred
(Entertainment)* 700,000 $ 1,139,446
- -----------------------------------------------------------------------------
Canada - 0.9%
Loewen Group, Inc. (Business Services) 1,115,600 $ 36,814,800
Loewen Group, Inc. (Business Services)## 857,200 28,345,410
--------------
$ 65,160,210
- -----------------------------------------------------------------------------
France
Dassault Systems S.A., ADR (Computer
Software - Systems)* 40,000 $ 2,540,000
- -----------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Portfolio of Investments (Unaudited) - continued
Stocks - continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issuer Shares Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks - continued
Germany - 1.5%
Sap AG (Computer Software - Systems) 174,300 $ 31,150,184
Sap AG, Preferred (Computer Software - Systems) 311,625 56,825,198
Sap Aktiengesellschaft, ADR (Computer Software - Systems)## 312,200 18,810,050
--------------
$ 106,785,432
- --------------------------------------------------------------------------------------------------
Ireland - 0.1%
CBT Group PLC, ADR (Publishing)* 124,000 $ 6,758,000
- --------------------------------------------------------------------------------------------------
Italy - 0.5%
Gucci Group NV (Apparel and Textiles) 577,600 $ 40,287,600
- --------------------------------------------------------------------------------------------------
New Zealand
Sky City Ltd. (Entertainment) 204,000 $ 927,938
- --------------------------------------------------------------------------------------------------
Turkey
Turkiye Garanti Bankasi, ADR (Banks and Credit Cos.)## 78,375 $ 286,069
- --------------------------------------------------------------------------------------------------
United Kingdom - 1.4%
Danka Business Systems, ADR (Business Services) 2,425,300 $ 97,315,162
Dr. Solomon's Group PLC, ADR
(Computer Software - Personal Computers)* 125,000 2,531,250
Insignia Solutions, Inc., PLC, ADR
(Computer Software - Personal Computers)* 457,700 1,458,919
Jarvis Hotels PLC (Resturants and Lodgings)+ 98,300 240,089
SELECT Software Tools, ADR (Computer Software - Systems)* 31,500 433,125
--------------
$ 101,978,545
- --------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 325,863,240
- --------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $5,098,533,890) $7,281,691,993
- --------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 0.1%
- --------------------------------------------------------------------------------------------------
Entertainment
American Radio Systems Corp., 7s ## 91,100 $ 4,919,400
- --------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
Apple South, Inc, 3.5s*## 100,000 $ 6,012,500
- --------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $9,555,000) $ 10,931,900
- --------------------------------------------------------------------------------------------------
Rights
- --------------------------------------------------------------------------------------------------
Turkey
Turkiye Garanti Bankasi (Identified Cost $0) 56,624 $ --
- --------------------------------------------------------------------------------------------------
Convertible Bonds - 0.3%
- --------------------------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- --------------------------------------------------------------------------------------------------
Construction Services - 0.1%
American Residential Services, Inc., 7.25s, 2004## $ 4,000 $ 4,115,000
- --------------------------------------------------------------------------------------------------
Medical and Health Technology and Services
Ventritex, Inc., 5.75s, 2001 $ 1,810 $ 2,185,575
- --------------------------------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
Boston Chicken, Inc., 7.75s, 2004 $ 6,985 $ 6,941,342
ShoLodge, Inc., 7.5s, 2004 2,000 1,747,500
--------------
$ 8,688,842
- --------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Portfolio of Investments (Unaudited) - continued
Convertible Bonds - continued
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
(000 Omitted) Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Telecommunications - 0.1%
Midcom Communications Inc., 8.25s, 2003## $ 4,600 $ 3,933,000
- --------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $19,395,000) $ 18,922,417
- --------------------------------------------------------------------------------------------------
Short-Term Obligations - 1.0%
- --------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 06/02/97 $ 4,170 $ 4,169,357
Federal Home Loan Mortgage Corp., due 06/12/97 8,765 8,750,486
Federal Home Loan Mortgage Corp., due 06/24/97 4,900 4,883,126
Federal National Mortgage Assn., due 06/26/97 6,100 6,077,252
Ford Motor Credit Corp., due 06/02/97 47,045 47,037,682
- --------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 70,917,903
- --------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $5,198,401,793) $7,382,464,213
- --------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.6)% (42,560,738)
- --------------------------------------------------------------------------------------------------
Net Assets - 100.0% $7,339,903,475
- --------------------------------------------------------------------------------------------------
</TABLE>
*Non-income producing security.
##SEC Rule 144A restriction.
+Restricted security.
++Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting shares of the issuer.
[dbldag]Security valued by or at the direction of the Trustees.
See notes to financial statements
20
<PAGE>
Financial Statements
Statement of Assets and Liabilities (Unaudited)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 31, 1997
- -----------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value -
Unaffiliated issuers (identified cost, $4,452,583,084) $6,139,025,977
Affiliated issuer (identified cost, $745,818,709) 1,243,438,236
--------------
Total investments, at value (identified cost, $5,198,401,793) $7,382,464,213
Cash 27,978
Receivable for investments sold 26,483,647
Receivable for Fund shares sold 77,940,184
Receivable for collateral on securities loaned 83,362,667
Interest and dividends receivable 838,345
Other assets 73,973
--------------
Total assets $7,571,191,007
--------------
Liabilities:
Payable for investments purchased $ 119,190,097
Payable for Fund shares reacquired 23,835,721
Deposits for securities loaned 83,362,667
Payable to affiliates -
Management fee 286,982
Administrative fee 2,060
Shareholder servicing agent fee 52,021
Distribution fee 3,346,410
Accrued expenses and other liabilities 1,211,574
--------------
Total liabilities $ 231,287,532
--------------
Net assets $7,339,903,475
==============
Net assets consist of:
Paid-in capital $5,081,577,270
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 2,184,061,334
Accumulated undistributed net realized gain on investments and foreign
currency transactions 121,773,587
Accumulated net investment loss (47,508,716)
--------------
Total $7,339,903,475
==============
Shares of beneficial interest outstanding 224,372,712
===========
Class A shares:
Net asset value per share
(net assets of $2,960,693,420 [divided by] 89,704,935 shares of $33.00
beneficial interest outstanding) ======
Offering price per share (100/94.25) $35.01
======
Class B shares:
Net asset value and offering price per share
(net assets $4,125,341,228 [divided by] 126,848,016 shares of $32.52
beneficial interest outstanding) ======
Class C shares:
Net asset value and offering price per share
(net assets of $211,740,567 [divided by] 6,544,732 shares of beneficial $32.35
interest outstanding) ======
Class I shares:
Net asset value, offering price and redemption price per share
(net assets of $42,128,260 [divided by] 1,275,029 shares of beneficial $33.04
interest outstanding) ======
</TABLE>
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
21
<PAGE>
Financial Statements - continued
Statement of Operations (Unaudited)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended May 31, 1997
- -----------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Interest (including income on securities loaned of $1,802,479) $ 4,058,543
Dividends (including $219,205 received from affiliated issuers) 3,529,982
------------
Total investment income $ 7,588,525
------------
Expenses -
Management fee $ 23,447,945
Trustees' compensation 26,596
Administrative fee 95,810
Shareholder servicing agent fee 3,557,196
Shareholder servicing agent fee (Class A) 222,997
Shareholder servicing agent fee (Class B) 450,561
Shareholder servicing agent fee (Class C) 15,487
Distribution and service fee (Class A) 3,237,874
Distribution and service fee (Class B) 18,666,272
Distribution and service fee (Class C) 795,183
Custodian fee 703,139
Postage 605,116
Printing 176,171
Legal fees 45,625
Auditing fees 19,749
Miscellaneous 3,134,203
------------
Total expenses $ 55,199,924
Fees paid indirectly (177,881)
------------
Net expenses $ 55,022,043
------------
Net investment loss $(47,433,518)
============
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions (including $2,068,870 net loss from
transactions in securities of affiliated issuers) $127,283,096
Foreign currency transactions (7,832)
------------
Net realized gain on investments and foreign currency transactions $127,275,264
------------
Change in unrealized appreciation (depreciation) -
Investments $228,446,406
Translation of assets and liabilities in foreign currencies (591)
------------
Net unrealized gain on investments and foreign currency translation $228,445,815
------------
Net realized and unrealized gain on investments and foreign
currency $355,721,079
------------
Increase in net assets from operations $308,287,561
============
</TABLE>
See notes to financial statements
22
<PAGE>
Financial Statements - continued
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
May 31, 1997 Year Ended
(Unaudited) November 30, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (47,433,518) $ (69,790,020)
Net realized gain on investments and foreign
currency transactions 127,275,264 116,124,161
Net unrealized gain on investments and
foreign currency translation 228,445,815 775,003,905
--------------- ---------------
Increase in net assets from operations $ 308,287,561 $ 821,338,046
--------------- ---------------
Distributions declared to shareholders -
From net realized gain on investments and
foreign currency transactions (Class A) $ (28,565,649) $ --
From net realized gain on investments and
foreign currency transactions (Class B) (21,625,602) --
From net realized gain on investments and
foreign currency transactions (Class C) (1,402,958) --
--------------- ---------------
Total distributions declared to shareholders $ (51,594,209) $ --
--------------- ---------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 4,105,470,935 $ 6,317,337,270
Net asset value of shares issued to shareholders
in reinvestment of distributions 44,057,076 --
Cost of shares reacquired (3,367,473,444) (4,150,039,758)
--------------- ---------------
Increase in net assets from Fund share
transactions $ 782,054,567 $ 2,167,297,512
--------------- ---------------
Total increase in net assets $ 1,038,747,919 $ 2,988,635,558
Net assets:
At beginning of period 6,301,155,556 3,312,519,998
--------------- ---------------
At end of period (including accumulated net
investment loss of $47,508,716 and
$75,198, respectively) $ 7,339,903,475 $ 6,301,155,556
=============== ===============
</TABLE>
See notes to financial statements
23
<PAGE>
Financial Statements - continued
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
May 31, Year Ended November 30,
1997 -----------------------------------
(Unaudited) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $ 32.01 $ 26.79 $18.73 $17.68
------- ------- ------ ------
Income from investment
operations# -
Net investment loss $ (0.15) $ (0.29) $(0.23) $(0.20)
Net realized and unrealized
gain on investments and
foreign currency transactions 1.51 5.51 8.68 1.78
------- ------- ------ ------
Total from investment
operations $ 1.36 $ 5.22 $ 8.45 $ 1.58
------- ------- ------ ------
Less distributions declared
to shareholders -
From net realized gain on
investments and foreign
currency transactions $ (0.37) $ -- $(0.38) $(0.53)
In excess of net realized gain
on investments -- -- -- *** --
From capital -- -- (0.01) --
------- ------- ------ ------
Total distributions declared
to shareholders $ (0.37) -- $(0.39) $(0.53)
------- ------- ------ ------
Net asset value - end of period $ 33.00 $ 32.01 $26.79 $18.73
======= ======= ====== ======
Total return[dbldag] 4.31%++ 19.52% 45.98% 9.06%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.23%+ 1.20% 1.28% 1.33%
Net investment loss (0.99)%+ (1.01)% (1.04)% (1.09)%
Portfolio turnover 15% 22% 20% 39%
Average commission rate### $0.0494 $0.0498 $ -- $ --
Net assets at end of period
(000,000 omitted) $ 2,961 $ 2,524 $1,312 $ 470
<CAPTION>
Period ended
November 30,
1993**
- ------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $16.43
------
Income from investment
operations# -
Net investment loss $(0.03)
Net realized and unrealized
gain on investments and
foreign currency transactions 1.28
------
Total from investment
operations $ 1.25
------
Less distributions declared
to shareholders -
From net realized gain on
investments and foreign
currency transactions $--
In excess of net realized gain
on investments --
From capital --
------
Total distributions declared
to shareholders --
------
Net asset value - end of period $17.68
======
Total return[dbldag] 38.98%+
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.19%+
Net investment loss (0.98)%+
Portfolio turnover 58%
Average commission rate### $--
Net assets at end of period
(000,000 omitted) $ 371
</TABLE>
**For the period from the date of issue 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.
+Annualized.
++Not annualized.
[dbldag]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.
#Per share data for the periods subsequent to December 1, 1993, are
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.
See notes to financial statements
24
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
May 31, Year Ended November 30,
1997 ---------------------------------------------------------
(Unaudited) 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of
period $ 31.48 $ 26.56 $ 18.57 $ 17.64 $ 14.93
---------- ---------- ---------- ----------- -----------
Income from investment
operations# -
Net investment loss $ (0.27) $ (0.52) $ (0.41) $ (0.35) $ (0.33)
Net realized and
unrealized gain on
investments and foreign
currency transactions 1.49 5.44 8.65 1.78 3.19
---------- ---------- ---------- ----------- -----------
Total from investment
operations $ 1.22 $ 4.92 $ 8.24 $ 1.43 $ 2.86
---------- ---------- ---------- ----------- -----------
Less distributions declared to
shareholders -
From net realized gain on
investments and foreign
currency transactions $ (0.18) $ -- $ (0.24) $ (0.50) $ (0.15)
In excess of net realized gain
on investments -- -- 0.00*** -- --
From capital -- -- (0.01) -- --
---------- ---------- ---------- ----------- -----------
Total distributions declared
to shareholders $ (0.18) -- $ (0.25) $ (0.50) $ (0.15)
---------- ---------- ---------- ----------- -----------
Net asset value -
end of period $ 32.52 $ 31.48 $ 26.56 $ 18.57 $ 17.64
========= ========== ========== =========== ===========
Total return 3.94%++ 18.52% 44.89% 8.21% 19.36%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.97%+ 2.00% 2.08% 2.14% 2.19%
Net investment loss (1.74)%+ (1.80)% (1.83)% (1.90)% (1.61)%
Portfolio turnover 15% 22% 20% 39% 58%
Average commission rate### $ 0.0494 $ 0.0498 $ -- $ -- $ --
Net assets at end of period
(000,000 omitted) $ 4,125 $ 3,659 $ 2,001 $ 769 $ 602
</TABLE>
***The per share distribution in excess of net realized gain on investments was
$0.0031.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to December 1, 1993, are 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.
See notes to financial statements
25
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended November 30, Period Ended
---------------------------------------------------------------- November 30,
1992 1991 1990 1989 1988 1987*
- -----------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C>
Net asset value -
beginning of period $ 12.07 $ 6.89 $ 7.69 $ 5.91 $ 4.97 $ 5.50
----------- ----------- ----------- ----------- ----------- -----------
Income from investment
operations -
Net investment loss $ (0.07) $ (0.13) $ (0.14) $ (0.13) $ (0.11) $ (0.06)
Net realized and
unrealized gain
(loss) on
investments 3.52 5.31 (0.66) 1.91 1.05 (0.47)
----------- ----------- ----------- ----------- ----------- -----------
Total from
investment
operations $ 3.45 $ 5.18 $ (0.80) $ 1.78 $ 0.94 $ (0.53)
----------- ----------- ----------- ----------- ----------- -----------
Less distributions
declared to
shareholders from net
realized gain on
investments $ (0.59) $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- ----------- -----------
Net asset value - end
of period $ 14.93 $ 12.07 $ 6.89 $ 7.69 $ 5.91 $ 4.97
========== =========== =========== =========== =========== ===========
Total return 29.25% 75.18% (10.40)% 30.12% 18.91% (10.44)%+
Ratios (to average net assets)/
Supplemental data:
Expenses 2.33% 2.50% 2.75% 2.81% 2.30% 2.40%+
Net investment loss (2.00)% (1.98)% (1.86)% (1.91)% (1.65)% (1.50)%+
Portfolio turnover 59% 112% 86% 95% 57% 81%
Net assets at end of period
(000,000 omitted) $ 357 $ 145 $ 73 $ 82 $ 61 $ 50
*For the period from the commencement of investment operations, December 29, 1986, to
November 30, 1987.
+Annualized.
</TABLE>
See notes to financial statements
26
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
May 31, 1997 Period Ended
(Unaudited) November 30, 1996**
- --------------------------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $ 31.48 $ 28.37
---------- ----------
Income from investment operations# -
Net investment loss $ (0.27) $ (0.38)
Net realized and unrealized gain on investments
and foreign currency transactions 1.49 3.49
---------- ----------
Total from investment operations $ 1.22 $ 3.11
---------- ----------
Less distributions declared to shareholders from net
realized gain on investments $ (0.35) $ --
---------- ----------
Net asset value - end of period $ 32.35 $ 31.48
========== ==========
Total return 3.96%++ 10.96%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.99%+ 1.35%+
Net investment loss (1.76)%+ (1.25)%+
Portfolio turnover 15% 22%
Average commission rate $ 0.0494 $ 0.0498
Net assets at end of period (000,000 omitted) $ 212 $ 119
</TABLE>
**For the period from the date of issue of Class C shares April 1, 1996, to
November 30, 1996.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid
indirectly.
See notes to financial statements
27
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class I
Period Ended May 31, 1997**** (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 29.98
----------
Income from investment operations# -
Net investment loss $ (0.11)
Net realized and unrealized gain on investments and foreign currency transactions 3.17
----------
Total from investment operations $ 3.06
----------
Net asset value - end of period $ 33.04
==========
Total return 10.21%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.04%+
Net investment loss (0.78)%+
Portfolio turnover 15%
Average commission rate $ 0.0494
Net assets at end of period (000,000 omitted) $ 42
</TABLE>
****For the period from the date of issue of Class I shares, January 2, 1997,
to May 31, 1997.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid
indirectly.
See notes to financial statements
28
<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.
Investment Valuations -- Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using last quoted
bid prices. Debt securities (other than short-term obligations which mature in
60 days or less), including listed issues, 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 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, 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.
Dividends received in cash are recorded on the ex-dividend date. Dividend and
interest
29
<PAGE>
Notes to Financial Statements (Unaudited) - continued
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
Fees Paid Indirectly -- The Fund's custody fee is calculated as a percentage of
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which measures 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.
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 statement 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, Class C, and Class I shares. The classes of shares differ in their
respective distribution and service fees. All shareholders bear the common
expenses of the Fund pro rata based on 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.
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 bears 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 a fee for lending its
securities, which is included in interest income, and also continues to earn
income on the securities loaned. At May 31, 1997, the value of securities
loaned was
30
<PAGE>
Notes to Financial Statements (Unaudited) - continued
$83,683,190. These loans are collateralized by U.S. Treasury securities in the
amount of $86,362,667.
(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 0.71% of average daily net assets.
Administrator -- Effective March 1, 1997, the Fund has an administrative
services agreement with MFS to provide the Fund with certain financial, legal,
compliance, shareholder communications, and other administrative services. As a
partial reimbursement for the cost of providing these services, the Fund pays
MFS an administrative fee up to 0.015% per annum of the Fund's average daily
net assets, provided that the administrative fee is not assessed on Fund assets
that exceed $3 billion.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain of the officers
and Trustees of the Fund are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Fund has an
unfunded defined benefit plan for all its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of $8,771
for the six months ended May 31, 1997.
Distributor -- MFD, a wholly owned subsidiary of MFS, as distributor, received
$890,353 for the six months ended May 31, 1997, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class C
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
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 $333,361 for the six months ended May 31, 1997. Payment of the 0.10% per
annum Class A distribution fee will commence on such date as the Trustees of
the Trust may determine. Fees incurred under the distribution plan
31
<PAGE>
Notes to Financial Statements (Unaudited) - continued
during the six months ended May 31, 1997, were 0.25% of average daily net
assets attributable to Class A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all
or a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be 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 $533,587 and $33 for Class B and Class C shares,
respectively, for the six months ended May 31, 1997.
Purchases over $1 million of 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 12 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.
MFD receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the six months ended May 31, 1997, were $72,912,
$3,336,104, and $81,384 for Class A, Class B, and Class C shares, respectively.
Shareholder Servicing Agent -- MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate
of 0.13%. Prior to January 1, 1997, the fee was 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
$1,766,060,249 and $980,898,752, 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:
<TABLE>
<S> <C>
Aggregate cost $ 5,198,401,793
===============
Gross unrealized appreciation $ 2,480,454,086
Gross unrealized depreciation (296,391,666)
---------------
Net unrealized appreciation $ 2,184,062,420
===============
</TABLE>
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
32
<PAGE>
Notes to Financial Statements (Unaudited) - continued
Class A Shares
<TABLE>
<CAPTION>
Six Months Ended May 31, 1997 Year Ended November 30, 1996
----------------------------------- --------------------------------------
Shares Amount Shares Amount
--------------- ------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Shares sold 87,441,021 $ 2,698,654,273 125,633,192 $ 3,667,675,756
Shares issued to
shareholders in
reinvestment of
distributions 875,897 26,460,709 -- --
Transfer to Class I (888,406) (26,634,425) -- --
Shares reacquired (76,556,734) (2,367,297,073) (95,760,044) (2,803,650,694)
------------ ---------------- ------------- -----------------
Net increase 10,871,778 $ 331,183,484 29,873,148 $ 864,025,062
============ ================ ============= =================
</TABLE>
Class B Shares
<TABLE>
<CAPTION>
Six Months Ended May 31, 1997 Year Ended November 30, 1996
------------------------------------- --------------------------------------
Shares Amount Shares Amount
----------------- ------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Shares sold 40,394,956 $ 1,231,092,862 86,922,156 $ 2,514,573,078
Shares issued to
shareholders in
reinvestment of
distributions 566,757 16,923,503 -- --
Shares reaquired (30,345,245) (919,912,089) (46,040,180) (1,324,527,599)
------------- --------------- ------------- -----------------
Net increase 10,616,468 $ 328,104,276 40,881,976 $ 1,190,045,479
============== ================ ============= =================
</TABLE>
Class C Shares
<TABLE>
<CAPTION>
Six Months Ended May 31, 1997 Year Ended November 30, 1996*
----------------------------------- ---------------------------------
Shares Amount Shares Amount
---------------- ------------------ ------------- -------------------
<S> <C> <C> <C> <C>
Shares sold 4,424,969 $ 134,872,155 4,515,421 $ 135,088,436
Shares issued to
shareholders in
reinvestment of
distributions 22,648 672,864 -- --
Shares reaquired (1,681,924) (51,073,428) (736,382) (21,861,465)
------------ -------------- ----------- ---------------
Net increase 2,765,693 $ 84,471,591 3,779,039 $ 113,226,971
============ ============== =========== ===============
</TABLE>
Class I Shares
<TABLE>
<CAPTION>
Six Months Ended May 31,
1997**
------------------------------
Shares Amount
------------- ----------------
<S> <C> <C>
Shares sold 471,169 $ 14,217,220
Shares issued to
shareholders in
reinvestment of
distributions -- --
Transfer from Class A 888,406 26,634,425
Shares reaquired (84,546) (2,556,429)
--------- -------------
Net increase 1,275,029 $ 38,295,216
========= =============
</TABLE>
*For the period from the commencement of offering of Class C shares, April 1,
1996, to May 31, 1997.
**For the period from the commencement of offering of Class I shares, January
2, 1997, to May 31, 1997.
33
<PAGE>
Notes to Financial Statements (Unaudited) - continued
(6) Line of Credit
The Fund and other affiliated funds participate in a $400 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of Fund
shares. Interest is charged to each fund, based on its borrowings, at a rate
equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Fund for the six months ended May 31, 1997, was $37,324.
(7) Transactions in Securities of Affiliated Issuers
Affiliated issuers, as defined under the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the six months ended May
31, 1997, is set forth below.
<TABLE>
<CAPTION>
Acquisitions Dispositions
-------------------------- ------------------------------
Beginning
Affiliate Shares Shares Cost Shares Cost
- ----------------------------------- ----------- ----------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Amerihost Properties, Inc. 522,000 -- $ -- -- $ --
Applebee's International, Inc. 3,126,500 47,000 1,057,810 (42,000) (1,012,732)
Buffetts, Inc. 2,953,050 -- -- -- --
Cadence Design Systems, Inc. 4,267,525 921,610 31,335,294 (9,600) (258,556)
Dayton Superior Corp. 265,000 -- -- -- --
Equalnet Holding Corp. 520,400 -- -- (120,400) (1,572,126)
Hammons (John Q) Hotels, Inc. 549,300 -- -- -- --
HealthSource, Inc. 5,070,210 -- -- (50,000) (1,016,294)
HFS, Inc. 6,441,610 1,655,280 91,746,040 -- --
Hollywood Entertainment Corp. 3,436,500 234,800 4,343,800 (504,857) (10,281,378)
IHOP, Inc. 612,200 -- -- (66,400) (1,651,178)
Micro Warehouse, Inc. 2,565,200 313,300 4,247,357 -- --
Mortons Restaurant Group, Inc. 553,200 -- -- (13,200) (202,950)
Mothers Work, Inc. 211,500 -- -- -- --
Orthodontic Centers America, Inc. 1,990,000 200,000 2,425,000 -- --
ShoLodge, Inc. 375,600 -- -- -- --
Showbiz Pizza Time, Inc. 1,030,000 100,000 1,650,000 (113,000) (1,966,125)
System Software Associates, Inc. 2,519,350 -- -- (90,000) (2,160,621)
Taco Cabana, Inc. 962,395 -- -- -- --
Tel-Save Holdings, Inc. 1,827,350 4,406,050 42,713,550 (20,000) (195,212)
U.S. Office Products Co. 453,200 2,851,800 82,658,510 -- --
------------- -------------
$262,177,361 $ (20,317,172)
------------- -------------
</TABLE>
34
<PAGE>
Notes to Financial Statements (Unaudited) - continued
<TABLE>
<CAPTION>
Ending Realized Dividend Ending
Affiliate Shares Gain (Loss) Income Value
- ----------------------------------- ----------- ---------------- ---------- ---------------
<S> <C> <C> <C> <C>
Amerihost Properties, Inc. 522,000 $ -- $ -- $ 3,784,500
Applebee's International, Inc. 3,131,500 35,458 219,205 77,896,062
Buffetts, Inc. 2,953,050 -- -- 26,208,319
Cadence Design Systems, Inc. 5,179,535 82,264 -- 172,219,539
Dayton Superior Corp. 265,000 -- -- 3,312,500
Equalnet Holding Corp. 400,000 (1,337,016) -- 362,500
Hammons (John Q) Hotels, Inc. 549,300 -- -- 4,943,700
HealthSource, Inc. 5,020,210 (18,171) -- 107,934,515
HFS, Inc. 8,096,890 -- -- 436,219,949
Hollywood Entertainment Corp. 3,166,443 42,155 -- 63,724,665
IHOP, Inc. 545,800 (29,427) -- 15,282,400
Micro Warehouse, Inc. 2,878,500 -- -- 49,654,125
Mortons Restaurant Group, Inc. 540,000 21,808 -- 8,977,500
Mothers Work, Inc. 211,500 -- -- 1,692,000
Orthodontic Centers America, Inc. 2,190,000 -- -- 36,682,500
ShoLodge, Inc. 375,600 -- -- 4,976,700
Showbiz Pizza Time, Inc. 1,017,000 141,811 -- 22,882,500
System Software Associates, Inc. 2,429,350 (1,266,275) -- 22,471,487
Taco Cabana, Inc. 962,395 -- -- 4,811,975
Tel-Save Holdings, Inc. 6,213,400 258,523 -- 97,602,050
U.S. Office Products Co. 3,305,000 -- -- 81,798,750
------------ --------- ---------------
$ (2,068,870) $219,205 $1,243,438,236
------------ --------- ===============
</TABLE>
(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, 1997, the
Fund owned the following restricted securities (constituting 2.21% of net
assets) which may not be publicly sold without registration under the
Securities Act of 1933. The Fund does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations supplied by a pricing service or brokers or, if not available, in
good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
Date of Share
Description Acquisition Amount Cost Value
- --------------------------- ------------------ ----------- -------------- -------------
<S> <C> <C> <C> <C>
Jarvis Hotels PLC 6/21/96 98,300 $ 264,282 $ 240,089
Copley Partners 1 12/06/86 3,000,000 1,437,794 587,340
Copley Partners 2 12/02/86-8/09/91 3,000,000 2,451,234 1,287,570
Highland Capital Partners 6/28/88-6/28/93 7,500,000 4,636,048 3,205,800
Republic Industries, Inc. 5/15/96 6,505,000 227,897,500 156,526,562
-------------
$161,847,361
=============
</TABLE>
35
<PAGE>
Notes to Financial Statements (Unaudited) - continued
(9) Subsequent Event
On June 2, 1997, the Fund acquired all of the assets and liabilities of the New
USA Growth Fund, a series of New USA Mutual Funds, Inc. The acquisition was
accomplished by a tax-free exchange of 5,056,383 Class A shares of the Fund
(valued at $166,860,649) for 13,631,450 shares of the New USA Growth Fund's net
assets on that date ($166,860,649), including $15,293,245 of unrealized
appreciation, which were combined with those of the Fund. The aggregate net
assets for Class A shares after the acquisition were $2,359,349,019.
------------------------------------
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.
36
<PAGE>
MFS[R] Emerging Growth Fund
Trustees
A. Keith Brodkin* -- Chairman and President
Richard B. Bailey* -- Private Investor; Former Chairman and Director (until
1991), Massachusetts Financial Services Company; Director, Cambridge Bancorp;
Director, Cambridge Trust Company
Marshall N. Cohan -- Private Investor
Lawrence H. Cohn, M.D. -- Chief of Cardiac Surgery, Brigham and Women's
Hospital; Professor of Surgery, Harvard Medical School
The Hon. Sir J. David Gibbons, KBE -- Chief Executive Officer, Edmund Gibbons
Ltd.; Chairman, Bank of N.T. Butterfield & Son Ltd.
Abby M. O'Neill -- Private Investor; Director, Rockefeller Financial
Services, Inc. (investment advisers)
Walter E. Robb, III -- President and Treasurer, Benchmark Advisors, Inc.
(corporate financial consultants); President, Benchmark Consulting Group, Inc.
(office services); Trustee, Landmark Funds (mutual funds)
Arnold D. Scott * -- Senior Executive Vice President, Director and Secretary,
Massachusetts Financial Services Company
Jeffrey L. Shames* -- President and Director, Massachusetts Financial Services
Company
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
Portfolio Manager
John W. Ballen*
Treasurer
W. Thomas London*
Assistant Treasurer
James O. Yost*
Secretary
Stephen E. Cavan*
*Affiliated with the Investment Adviser
Assistant Secretary
James R. Bordewick, Jr.*
Custodian
State Street Bank and
Trust Company
Investor Information
For MFS stock and bond market outlooks, call
toll free: 1-800-637-4458 anytime from a
touch-tone telephone.
For information on MFS mutual funds, call
your financial adviser or, for an information
kit, call toll free: 1-800-637-2929 any
business day from 9 a.m. to 5 p.m. Eastern
time (or leave a message anytime)
Investor Service
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For general information, call toll free
1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
For service to speech- or hearing-impared,
call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time. (To
use this service, your phone must be equipped
with a Telecommunications Device for the Deaf.)
For share prices, account balances, and
exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone
telephone.
World Wide Web
www.mfs.com
- -----------------------------------------------------------------
[DALBAR TOP-RATED For the third year in a row, MFS
SERVICE LOGO] earned a #1 ranking in the DALBAR, Inc.
Broker/Dealer Survey, Main Office Operations
Service Quality Category. The firm achieved a 3.48 overall
score on a scale of 1 to 4 in the 1996 survey. A total of 110
firms responded, offering input on the quality of service they
received from 29 mutual fund companies nationwide. The survey
contained questions about service quality in 15 categories, including
"knowledge of phone service contacts," "accuracy of transaction
processing," and "overall ease of doing business with the firm."
- ------------------------------------------------------------------
37
<PAGE>
---------------------
MFS[R] Emerging Bulk Rate
Growth Fund [DALBAR TOP-RATED U.S. Postage
SERVICE LOGO] Paid
500 Boylston Street MFS
Boston, MA 02116-3741 --------------------
[MFS MANAGEMENT LOGO]
[copywrite] 1997 MFS Fund Distributors, Inc., 500 Boylston Street,
Boston, MA 02116-3741 MEG-3 7/97 900M 07/207/307/807
