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[Logo]
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) EMERGING
GROWTH FUND
SEMIANNUAL REPORT o MAY 31, 1998
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Now two MFS(R) IRA choices (see page 43)
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IN MEMORIAM
A. KEITH BRODKIN
1935 - 1998
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MFS(R) INVESTMENT MANAGEMENT(SM)
- --------------------------- On February 2, 1998, Keith Brodkin, a friend
and leader to everyone at MFS, died
unexpectedly at age 62. His thoughtful
[Photo of A. Keith Brodkin] letters to shareholders on the markets and
economy have been an integral part of
MFS shareholder reports like this one for
- --------------------------- many years.
Keith joined MFS in 1970 as the firm's first fixed-income manager, managing
the bond portion of MFS(R) Total Return Fund. He went on to manage our first
pure bond fund, MFS(R) Bond Fund, when it was introduced in 1974, and he was
considered a pioneer in the art of active bond management.
Keith was named President and Chief Investment Officer of MFS
in 1987 and four years later became Chairman and Chief Executive
Officer. During his stewardship, MFS has achieved significant growth in
total assets under management, rising from some $25 billion in 1991 to
the over $80 billion today entrusted to us by three million individual
and institutional investors worldwide. Under Keith's leadership, MFS has
carefully but steadily built its domestic and international investment
capabilities through the introduction of a range of new products and a
still-growing staff that now numbers over 100 equity and fixed-income
professionals.
Throughout his career, Keith was very active in a wide range of
charitable endeavors. He is survived by his wife and three children.
His leadership, friendship, and wise counsel will be sorely missed.
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TABLE OF CONTENTS
Letter from the Chairman .................................................. 2
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 28
Notes to Financial Statements ............................................. 36
Trustees and Officers ..................................................... 45
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HIGHLIGHTS
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o FOR THE SIX MONTHS ENDED MAY 31, 1998, CLASS A SHARES OF THE FUND PROVIDED
A TOTAL RETURN AT NET ASSET VALUE OF 9.96%, CLASS B SHARES 9.56%, CLASS C
SHARES 9.56%, AND CLASS I SHARES 10.15%. (SEE PERFORMANCE SUMMARY FOR MORE
INFORMATION.)
o WE FEEL THAT THE STOCK MARKET IS FAIRLY VALUED TODAY, BASED ON STRONG
EARNINGS GROWTH AND THE GREATER EFFICIENCY RESULTING FROM THE FUNDAMENTAL
RESTRUCTURING OF AMERICAN COMPANIES.
o AS LARGER COMPANIES WORLDWIDE HONE THEIR ABILITY TO COMPETE THROUGH COST
REDUCTION EFFORTS, SMALL- AND MID-CAP STOCKS WILL BENEFIT BY TAKING UP THE
SLACK AND PROVIDING CRITICAL OUTSOURCED FUNCTIONS.
o WE EXPECT CONTINUED GROWTH IN TECHNOLOGY AS A RESULT OF ASIAN AND EUROPEAN
COMPANIES' NEEDS TO CATCH UP FROM UNDERINVESTMENT IN THE EARLY PART OF THE
DECADE.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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LETTER FROM THE CHAIRMAN
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[Photo of Jeffrey L. Shames]
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Jeffrey L. Shames
Dear Shareholders:
With the U.S. stock market well into its fourth year of record-breaking
advances, it is necessary to take a cautious outlook. By most commonly accepted
measures, equity valuations appear to have risen to a point at which the stock
market has become more vulnerable to changes in the investment environment such
as rising inflation and interest rates or a slowing economy. As a result, while
we continue to hold a favorable long-term outlook for the equity markets, we
also believe that a market correction is possible in the near term. In such a
correction, equity prices would remain relatively flat or decline, possibly for
an extended period.
Currently, equity investors seem to be primarily focused on interest rates,
which have been relatively stable for several months as inflation has remained
low. In an environment of low interest rates, stocks become more attractive
than most fixed-income investments, while low inflation helps control
companies' costs, such as for raw materials, wages, and benefits. The near-
term outlook for a continuation of this environment appears relatively
favorable. However, this year has seen a marked slowdown in corporate
earnings. This means that as equity prices continue to rise, price-to-earnings
(P/E) ratios, or the amount an investor pays for a stock in relation to the
company's earnings per share, also go up. A year ago, the average P/E ratio
for stocks in the unmanaged Standard & Poor's 500 Composite Index stood at
approximately 21; this spring, the average P/E was 33% higher, at about 28. In
some cases, such as with some of the newer companies associated with the
Internet, P/Es have soared to levels that are unlikely to be sustained.
As long as interest rates remain low and the economy continues to grow,
it is possible that some of these valuations can be supported. We expect
corporate earnings to grow 8% to 10% this year. However, just as no one can
predict market cycles, so too no one can predict economic cycles -- except to
say that these cycles do exist and that an economic slowdown at some point is
inevitable.
Given this reality, we believe it is prudent to remind investors of the need
to take a long-term view and to diversify their investments across a range of
asset classes, including mutual funds that focus on bonds and international
investments as well as on the U.S. stock market. The likelihood of an eventual
market correction also makes it important for us to use original, bottom-up
research to find companies that we think can keep growing or gain market share
in the face of the occasional downturn. To help achieve this, and to provide
the broadest possible coverage of industry sectors and individual companies,
MFS continues to increase its number of full-time research analysts. These
analysts thoroughly investigate each company's earnings potential and position
in its industry as well as the overall prospects for that industry.
MFS also uses active portfolio management on the fixed-income side, taking
advantage of our extensive research and credit analysis to help reduce the
potential for price declines and enhance the opportunity for appreciation.
Every year, both fixed-income and equity managers meet with thousands of
credit issuers and companies. They also attend many presentations, closely
follow sources of industry research, and keep track of competitors.
We believe that applying this discipline of thorough, bottom-up research to
both the equity and fixed-income markets is the best way to provide favorable
long-term performance for our shareholders -- regardless of changes in the
overall market environment.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management
June 12, 1998
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JEFFREY L. SHAMES, A GRADUATE OF WESLEYAN UNIVERSITY AND THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT, JOINED
MFS IN 1983. AFTER FOUR YEARS AS AN INDUSTRY ANALYST AND PORTFOLIO
MANAGER, HE WAS NAMED CHIEF EQUITY OFFICER IN 1987 AND PRESIDENT AND A
MEMBER OF THE BOARD OF DIRECTORS IN 1993. MR. SHAMES WAS APPOINTED
CHAIRMAN AND CHIEF EXECUTIVE OFFICER IN FEBRUARY 1998.
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MANAGEMENT REVIEW AND OUTLOOK
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[Photo of John W. Ballen]
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John W. Ballen
For the six months ended May 31, 1998, Class A shares of the Fund provided a
total return of 9.96%, Class B shares 9.56%, Class C shares 9.56%, and Class I
shares 10.15%. These returns assume the reinvestment of distributions but
exclude the effects of any sales charges and compare to a 15.06% 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 11.78% return for
the Russell 2000 Total Return Index (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).
Q. IS THE U.S. STOCK MARKET FAIRLY VALUED TODAY?
A. We generally feel the market is fairly valued. People who look at stock
price appreciation over the past five years and conclude that it's
overvalued are ignoring the growth of corporate earnings during that time.
We believe earnings drive the market and, while the overall economy has
been weak as measured by gross domestic product (GDP) growth, earnings
growth has been exceptionally strong. Factors such as restructuring,
outsourcing, and price and cost competitiveness have strengthened balance
sheets. Also, U.S. corporate managements have begun to measure performance
through investment return, earnings growth, and profit margin expansion. In
addition, the trend toward consolidation and stock buy-backs has reduced
the supply of equities available to investors. These factors have produced
a strong yet fairly valued U.S. stock market. We expect the market to
continue to grow in line with earnings appreciation.
Q. WHAT'S YOUR VIEW ON THE RELATIVE PERFORMANCE OF SMALL-, MID-, AND LARGE-CAP
STOCKS?
A. There are strong reasons for the growth of interest in small- and medium-
cap investing. Market valuations based on the price-to-earning ratios of
smaller companies are very attractive now and, recently, small-cap stocks
provided returns higher than that of the S&P 500. As earnings growth of the
larger companies in the S&P 500 moderates, smaller companies will continue
to be attractive. Also, as big companies continue to seek cost reductions
through downsizing and outsourcing, the beneficiaries of this trend will be
the smaller companies that are providing the outsourced services. Many
smaller companies are well positioned to take advantage of this trend.
Q. CAN YOU DISCUSS SOME OF THE FACTORS THAT HAVE CONTRIBUTED TO THE FUND'S
PERFORMANCE OVER THE PAST SIX MONTHS?
A. We started out strong in 1998, especially in the first quarter, which
was buoyed by strong gains in the technology sector. As the year has
progressed, we've lost some of those early gains due to softness in
earnings growth resulting from renewed worries over the difficult state
of the Asian economies. In general, however, the market is responding
to companies' fundamentals.
Q. TO WHAT EXTENT HAS THE ASIAN ECONOMIC TURMOIL AFFECTED THE FUND?
A. Not tremendously. We saw some softening in the early part of the year among
certain technology offerings, but we take a four- to five-year horizon on
the stocks in our portfolio, so the jury's out on Asia for another two to
three years. This is a stock-picker's market, and the companies in which we
have invested, regardless of their geographic or business proximity to
Asia, have given us reason to believe that they can sustain the earnings
growth rate that is a crucial component of the Fund's investment strategy.
Q. TELL US ABOUT YOUR TOP INDUSTRY SECTORS IN THE FUND.
A. Technology is our largest sector, and we expect strong growth there,
especially from overseas markets. U.S. technology companies generate
approximately 50% of their sales from international markets, and we expect
to see growth in Asia and Europe as those regions seek to recover from a
historical underinvestment in technology and begin the restructuring
process that U.S. companies endured at the beginning of this decade. The
demand for technology in those markets will only increase, and we expect
companies that provide critical software and services for running and
managing global enterprises to be the largest beneficiaries. In consumer
goods and retailing, we are seeing strong demand and expect that to carry
forward due to high consumer confidence. Another factor strengthening the
consumer area is consolidation and a slowdown in the building of new
outlets, which has concentrated performance in a smaller number of high-
quality companies. There hasn't been much new construction in the hotel and
restaurant category, for example, but the existing players are doing well.
Another sector, health care, is an area in which the biggest health
maintenance organizations are performing well thanks to favorable
demographics and the ability to raise prices. The business services sector
is benefiting from global business trends. For example, as companies seek
increased efficiency, many business functions such as information
technology support and service, payroll, and staff recruitment are
outsourced to smaller companies. The business services companies will
benefit from this trend.
Q. THE GOVERNMENT IS PROCEEDING WITH ITS ANTITRUST CASE AGAINST MICROSOFT. HOW
DOES THIS AFFECT YOUR OPINION OF THE COMPANY?
A. We don't see anything in the Department of Justice plan that crimps
Microsoft's ability to maintain its position as the dominant player in the
software market. Even if the government requires Microsoft to break up into
multiple entities, the individual companies will still be formidable
competitive forces in their respective markets.
Q. TYCO, YOUR THIRD-LARGEST HOLDING, RECENTLY ACQUIRED U.S. SURGICAL. WHAT ARE
YOUR THOUGHTS ON THIS NEWS?
A. Tyco, a new conglomerate with interests in a number of industries, has
historically done a great job of integrating acquired companies into its
lines of business. The U.S. Surgical acquisition is no different, and we
expect the same type of success for Tyco.
Q. LOOKING AHEAD, WHAT KIND OF MARKET OR ECONOMIC ENVIRONMENT DO YOU SEE FOR THE
COMING YEAR, AND HOW MIGHT THIS AFFECT YOUR MANAGEMENT OF THE FUND?
A. We expect to see more restructuring and outsourcing in the United States and
abroad, and we're carefully researching companies that can capitalize on
that. Because of the Fund's bottom-up, stock-oriented approach, we are more
focused on the performance of specific companies than on the broader economic
environment. However, we expect to see the overall trend of corporate
earnings growth continue, though perhaps at a slightly slower pace. Corporate
earnings in general have been growing at a 10% to 20% annual rate, and we
anticipate earnings growth in the 8% to 10% range for the remainder of 1998.
Again, much of this is a direct result of restructuring and cost reduction,
aided by the increased application of technology, which is making companies
more competitive in global markets.
/s/ John W. Ballen
John W. Ballen
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
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PORTFOLIO MANAGER'S PROFILE
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JOHN W. BALLEN IS AN EXECUTIVE VICE PRESIDENT, CHIEF EQUITY OFFICER, AND
A MEMBER OF THE BOARD OF DIRECTORS OF MFS(R) INVESTMENT MANAGEMENT(SM).
HE ALSO IS PORTFOLIO MANAGER OF MFS(R) EMERGING GROWTH FUND, MFS(R)
WORLD GROWTH FUND, MFS(R) WORLD ASSET ALLOCATION(SM) FUND, MFS(R)
INSTITUTIONAL MID CAP GROWTH FUND, MFS(R) INSTITUTIONAL EMERGING
EQUITIES FUND, MFS(R) EMERGING GROWTH SERIES, PART OF MFS(R) VARIABLE
INSURANCE TRUST(SM), AND THE EMERGING GROWTH SERIES, WORLD ASSET
ALLOCATION(SM) SERIES AND WORLD GROWTH SERIES OFFERED THROUGH MFS(R)/SUN
LIFE ANNUITY PRODUCTS.
MR. BALLEN JOINED THE MFS RESEARCH DEPARTMENT IN 1984 AS AN INDUSTRY
SPECIALIST. HE WAS NAMED INVESTMENT OFFICER IN 1986, VICE PRESIDENT --
INVESTMENTS IN 1987, DIRECTOR OF RESEARCH IN 1988, SENIOR VICE PRESIDENT IN
1990, DIRECTOR OF EQUITY PORTFOLIO MANAGEMENT IN 1993, CHIEF EQUITY OFFICER
IN 1995, EXECUTIVE VICE PRESIDENT IN 1997, AND A MEMBER OF THE BOARD IN 1998.
MR. BALLEN IS A GRADUATE OF HARVARD COLLEGE AND EARNED A MASTER OF
COMMERCE DEGREE FROM THE UNIVERSITY OF NEW SOUTH WALES IN AUSTRALIA AND
A MASTER OF BUSINESS ADMINISTRATION DEGREE FROM STANFORD UNIVERSITY.
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This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
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FUND FACTS
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OBJECTIVE: SEEKS LONG-TERM GROWTH OF CAPITAL. DIVIDEND AND
INTEREST INCOME, IF ANY, IS INCIDENTAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: DECEMBER 29, 1986
CLASS INCEPTION: CLASS A SEPTEMBER 13, 1993
CLASS B DECEMBER 29, 1986
CLASS C APRIL 1, 1996
CLASS I JANUARY 2, 1997
SIZE: $11.0 BILLION AS OF MAY 31, 1998
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PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Investment results reflect the percentage change
in net asset value, including reinvestment of dividends.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH MAY 31, 1998
<TABLE>
CLASS A
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return + 9.96% +25.08% +100.37% +170.83% +632.86%
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Average Annual Total Return -- +25.08% + 26.07% + 22.05% + 22.04%
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SEC Results -- +17.89% + 23.61% + 20.61% + 21.32%
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</TABLE>
<TABLE>
CLASS B
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return + 9.56% +24.15% + 95.88% +162.71% +610.94%
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Average Annual Total Return -- +24.15% + 25.12% + 21.31% + 21.67%
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SEC Results -- +20.15% + 24.47% + 21.13% + 21.67%
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</TABLE>
<TABLE>
CLASS C
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return + 9.56% +24.15% + 95.83% +162.71% +610.94%
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Average Annual Total Return -- +24.15% + 25.11% + 21.31% + 21.67%
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SEC Results -- +23.15% + 25.11% + 21.31% + 21.67%
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</TABLE>
<TABLE>
CLASS I
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +10.15% +25.42% + 98.71% +166.53% +621.53%
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Average Annual Total Return -- +25.42% + 25.72% + 21.66% + 21.85%
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</TABLE>
Class A share ("A") SEC results include the maximum 5.75% sales charge. Class
B share ("B") SEC results reflect the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C shares
("C") have no initial sales charge but, like B, have higher annual fees and
expenses than A. C SEC results reflect the 1% CDSC applicable to shares
redeemed within 12 months. Class I shares ("I") have no sales charge or Rule
12b-1 fees and are only available to certain institutional investors.
A and C results include the performance and the operating expenses
(e.g., Rule 12b-1 fees) of B for periods prior to the inception of A and C.
Because operating expenses of A are lower than those of B, A performance
generally would have been higher than B performance. Operating expenses
of C are not significantly different from those of B. The B performance
included in the A SEC performance has been adjusted to reflect the maximum
initial sales charge generally applicable to A rather than the CDSC generally
applicable to B. The C SEC performance has been adjusted to reflect the lower
CDSC generally applicable to C rather than the CDSC generally applicable to B.
I results include the performance and the operating expenses (e.g., Rule
12b-1 fees) of B for periods prior to the inception of I. Because operating
expenses of B are greater than those of I, I performance generally would have
been higher than B performance. The B performance included in the I
performance has been adjusted to reflect the fact that I has no CDSC.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details.
All results are historical and assume the reinvestment of 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.
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PORTFOLIO CONCENTRATION AS OF MAY 31, 1998
FIVE LARGEST STOCK SECTORS
TECHNOLOGY 40.3%
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LEISURE 14.6%
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CONGLOMERATES, SPECIAL PRODUCTS/SERVICES 14.1%
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HEALTH CARE 10.4%
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RETAILING 8.5%
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For a more complete breakdown, refer to the Portfolio of Investments.
TOP 10 STOCK HOLDINGS
CENDANT CORP. 5.5% BMC SOFTWARE, INC. 3.7%
Hotel, real estate, and consumer Computer software company
services company franchiser
UNITED HEALTHCARE CORP. 3.6%
COMPUTER ASSOCIATES INTERNATIONAL, Health maintenance organization
INC. 5.4%
Computer software company CADENCE DESIGN SYSTEMS, INC. 3.4%
Computer software and systems
TYCO INTERNATIONAL, LTD. 5.1% company
Fire protection, packaging, and
electronic equipment manufacturer COMPUWARE CORP. 3.4%
Computer software company
CISCO SYSTEMS, INC. 5.1%
Computer network developer MICROSOFT CORP. 3.0%
Computer software and systems
ORACLE CORP. 4.5% company
Database software developer and
manufacturer
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- May 31, 1998
Stocks - 99.6%
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ISSUER SHARES VALUE
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U.S. Stocks - 94.8%
Advertising - 0.4%
Doubleclick, Inc.* 10,000 $ 346,250
Lamar Advertising Co., "A"* 142,500 4,524,375
Leap Group, Inc.* 150,000 412,500
Outdoor Systems, Inc.* 788,455 23,653,650
Snyder Communications, Inc.* 192,100 7,744,031
Young & Rubicam, Inc.* 75,200 2,105,600
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$ 38,786,406
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Aerospace - 0.2%
Gulfstream Aerospace Corp.* 453,700 $ 19,282,250
Howmet International, Inc.* 365,000 5,520,625
Ladish Co., Inc.* 82,100 1,210,975
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$ 26,013,850
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Airlines - 0.1%
Airnet Systems, Inc.* 141,000 $ 3,313,500
Atlas Air, Inc.* 315,000 11,143,125
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$ 14,456,625
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Apparel and Textiles - 0.1%
Nine West Group, Inc.* 417,316 $ 11,763,095
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Automotive
Dura Automotive Systems, Inc.* 53,400 $ 1,935,750
Hayes Lemmerz International, Inc.* 30,000 1,175,625
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$ 3,111,375
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Biotechnology - 0.2%
IDEXX Laboratories, Inc.* 10,000 $ 222,500
Waters Corp.* 350,000 20,387,500
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$ 20,610,000
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Building Materials - 0.1%
Comfort Systems USA, Inc.* 49,000 $ 1,078,000
Dayton Superior Corp., "A"* 78,000 1,404,000
Group Maintenance America Corp.* 145,000 2,718,750
White Cap Industries Corp.* 21,100 443,100
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$ 5,643,850
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Business Machines - 0.7%
Affiliated Computer Services, Inc., "A"* 1,089,600 $ 36,297,300
Sun Microsystems, Inc.* 931,900 37,334,244
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$ 73,631,544
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Business Services - 6.8%
A Consulting Team, Inc.* 25,000 $ 296,875
AccuStaff, Inc.++* 5,528,850 182,106,497
ACSYS, Inc.* 40,400 606,000
Administaff, Inc.* 31,600 1,295,600
Affiliated Managers Group, Inc.* 34,300 1,228,369
Answerthink Consulting Group, Inc.* 31,100 480,106
BISYS Group, Inc.* 460,000 17,077,500
Bridgestreet Accomodations, Inc.* 37,600 371,300
Bright Horizons, Inc.* 19,600 490,000
C.H. Robinson Worldwide, Inc. 10,000 231,250
Caribiner International, Inc.* 56,400 1,247,850
Ceridian Corp.* 246,300 13,300,200
Charles River Associates, Inc.* 9,300 235,988
Claremont Technology Group, Inc.* 53,400 1,068,000
Command Systems, Inc.* 42,900 214,500
Compass International Services Corp.* 212,600 2,498,050
Computer Learning Centers, Inc.* 55,200 945,300
Computer Sciences Corp.* 634,800 32,969,925
Cornell Corrections, Inc.* 239,300 5,264,600
CorporateFamily Solutions, Inc.* 21,200 484,950
Cotelligent Group, Inc.* 398,800 8,025,850
Cunningham Graphics International, Inc.* 13,700 243,175
DA Consulting Group, Inc.* 9,300 133,688
Data Processing Corp.* 229,000 6,669,625
Dendrite International, Inc.* 100,000 3,075,000
Diamond Technology Partners, Inc., "A"* 35,000 813,750
Donnelley Enterprise Solutions, Inc.* 57,400 1,191,050
DST Systems, Inc.* 297,850 15,748,819
Employee Solutions, Inc.* 813,200 3,303,625
F.Y.I., Inc.* 333,400 8,626,725
Fine Host Corp.* 226,500 792,750
First Consulting Group, Inc.* 19,700 437,709
First Data Corp. 2,594,304 86,260,608
Fiserv, Inc.* 331,143 19,527,089
Forrester Research, Inc.* 21,000 740,250
Franklin Covey Co.* 418,000 8,360,000
Galileo International, Inc. 192,000 7,560,000
Global Directmail Corp.* 348,300 7,183,687
Hagler Bailly, Inc.* 72,000 1,980,000
Hall Kinion & Associates, Inc.* 15,600 220,350
ICT Group, Inc.* 300,000 1,462,500
Ikon Office Solutions, Inc. 2,490,300 52,763,231
Innova Corp.* 12,500 107,813
Innovative Valve Technologies, Inc.* 60,000 810,000
Insight Enterprises, Inc.* 287,000 8,968,750
IntelliQuest Information Group, Inc.* 53,800 524,550
Interim Services, Inc.* 1,141,600 33,177,750
International Network Services* 90,000 2,820,938
ITT Educational Services, Inc.* 123,000 3,505,500
Labor Ready, Inc.* 65,000 2,197,813
Lamalie Associates, Inc.* 5,700 106,163
Learning Tree International, Inc.* 86,850 1,389,600
Maximus, Inc.* 26,000 692,250
May & Speh, Inc.* 80,000 1,330,000
Mecon, Inc.* 33,600 327,600
MedQuist, Inc.* 168,750 7,403,906
Meta Group, Inc.* 12,500 423,438
Metamor Worldwide, Inc.* 1,203,600 36,145,612
Mettler Toledo International, Inc.* 160,000 3,040,000
National Data Corp. 87,273 3,272,738
National Processing, Inc.* 215,900 2,132,013
NCO Group, Inc.* 55,950 1,248,384
NOVA Corp.* 326,500 10,754,094
Outsource International, Inc.* 151,900 2,772,175
Paymentech, Inc.* 281,900 4,792,300
Pegasus Systems, Inc.* 24,400 616,100
Personnel Group of America, Inc.* 388,700 7,871,175
Pierce Leahy Corp.* 15,000 390,000
PMT Services, Inc.* 60,000 1,170,000
Precision Response Corp.* 100,000 696,875
Professional Detailing, Inc.* 20,900 438,900
Provant, Inc.* 12,400 246,450
PRT Group, Inc.* 361,500 3,592,406
Radiant Systems, Inc.* 151,500 2,490,281
RCM Technologies, Inc.* 235,300 4,882,475
RemedyTemp, Inc., "A"* 80,000 2,330,000
Renaissance Worldwide, Inc.* 986,200 18,552,887
Romac International, Inc.* 120,200 3,388,137
Rural/Metro Corp.* 262,700 6,206,287
Sabre Group Holding, Inc., "A"* 17,300 606,581
Schawk, Inc., "A" 78,000 1,170,000
Service Experts, Inc.* 182,100 5,713,387
Sitel Corp.* 276,400 1,727,500
SPR, Inc.* 17,000 480,250
SPS Transaction Services, Inc.* 558,245 17,305,595
Staff Leasing, Inc.* 69,800 1,989,300
Staffmark, Inc.* 400,500 14,718,375
Superior Services, Inc.* 110,700 3,390,187
Syntel, Inc.* 127,500 3,020,156
Technology Solutions Co.* 86,000 2,596,125
TeleSpectrum Worldwide, Inc.* 895,000 7,607,500
Teletech Holdings, Inc.* 194,500 2,625,750
UBICS, Inc.* 110,000 1,471,250
Vestcom International, Inc.* 142,100 1,394,356
Walsh International, Inc.* 47,500 718,438
Waterlink, Inc.* 225,000 2,812,500
---------------
$ 747,694,951
- -------------------------------------------------------------------------------
Chemicals
Polymer Group, Inc.* 177,700 $ 2,121,294
Sigma-Aldrich Corp. 18,500 675,250
---------------
$ 2,796,544
- -------------------------------------------------------------------------------
Computer Hardware - Systems - 0.4%
Compaq Computer Corp. 884,000 $ 24,144,250
Dell Computer Corp.* 220,000 18,129,375
PC Connection, Inc.* 17,300 248,688
---------------
$ 42,522,313
- -------------------------------------------------------------------------------
Computer Software - Personal Computers - 3.6%
Autodesk, Inc. 1,405,437 $ 59,731,072
Electronic Arts, Inc.* 168,200 7,316,700
HNC Software, Inc.* 15,600 539,175
InterSolv, Inc.* 125,000 1,796,875
MicroProse, Inc. 9,820 52,783
Microsoft Corp.* 3,881,500 329,199,719
Verio, Inc.* 40,800 933,300
---------------
$ 399,569,624
- -------------------------------------------------------------------------------
Computer Software - Services - 0.1%
Box Hill Systems Corp.* 61,400 $ 529,575
Concord Communications, Inc.* 10,000 231,250
DSET Corp.* 9,300 140,953
Evolving Systems, Inc.* 10,000 185,000
Ingram Micro, Inc.* 162,900 7,177,781
Manhattan Associates, Inc.* 16,700 334,000
Micromuse,Inc.* 20,000 430,000
Mobius Management Systems, Inc.* 22,100 312,163
Omega Research, Inc.* 25,200 122,850
---------------
$ 9,463,572
- -------------------------------------------------------------------------------
Computer Software - Systems - 22.9%
Adobe Systems, Inc. 133,500 $ 5,331,656
Aehr Test Systems* 57,500 348,594
Alphanet Solutions, Inc.* 160,000 1,920,000
Aris Corp.* 26,900 756,563
Aspec Technology* 19,600 238,875
Aspen Technology, Inc.* 227,600 10,135,312
BMC Software, Inc.* 8,831,060 406,780,701
BrightStar Information Technology
Group, Inc.* 13,900 177,225
Cadence Design Systems, Inc.++* 10,742,170 378,661,492
Carnegie Group, Inc.* 150,000 562,500
CCC Information Services Group, Inc.* 190,000 4,310,625
CHS Electronics, Inc.* 406,450 8,078,194
Clarify, Inc.* 25,000 306,250
Computer Associates International, Inc. 11,393,500 598,158,750
Compuware Corp.* 8,186,896 376,085,535
CSG Systems International, Inc.* 15,000 640,781
Edify Corp.* 14,900 156,450
Edwards (J.D.) & Co.* 25,000 919,531
Exodus Communications, Inc.* 18,900 645,553
Factset Research Systems, Inc.* 27,000 875,813
Great Plains Software, Inc.* 12,800 467,200
HMT Technology Corp.* 25,000 290,625
Information Management Resources, Inc.* 240,300 5,414,259
Intelligroup, Inc.* 25,000 478,125
ISS Group, Inc.* 17,700 668,175
Keane, Inc.* 400,000 17,950,000
Larscom, Inc., "A"* 95,000 872,813
Learning Co., Inc.* 384,500 10,958,250
Network Associates, Inc.* 26,271 1,609,099
Objective Systems Integrators, Inc.* 33,000 245,438
Oracle Corp.* 20,992,050 495,937,181
Peoplesoft, Inc.* 27,900 1,218,881
Peritus Software Services, Inc.* 14,000 59,500
Programmers Paradise, Inc.* 18,500 180,375
PSW Technologies, Inc.* 5,000 30,313
Radisys Corp.* 55,000 1,460,937
Rational Software Corp.* 185,200 2,824,300
Remedy Corp.* 41,400 668,869
Security Dynamics Technologies, Inc.* 133,800 2,826,525
Siebel Systems, Inc.* 1,003,831 22,837,155
SLI International Software Ltd.* 28,000 616,000
Synopsys, Inc.* 2,894,694 124,290,924
System Software Associates, Inc.++* 2,367,251 17,310,523
Transaction System Architects, Inc., "A"* 222,800 9,023,400
Ultradata Corp.* 7,000 35,000
USCS International, Inc.* 525,000 9,876,562
Veritas Software Co.* 19,694 794,510
Versatility, Inc.* 37,000 46,250
Whittman-Hart, Inc.* 180,000 7,357,500
Xionics Document Technologies, Inc.* 114,500 536,719
---------------
$ 2,531,975,808
- -------------------------------------------------------------------------------
Conglomerates
Sodexho Marriott Services, Inc.* 25,000 $ 710,938
- -------------------------------------------------------------------------------
Construction Services
American Residential Services, Inc.* 78,000 $ 901,875
Shaw Group, Inc.* 139,400 3,415,300
---------------
$ 4,317,175
- -------------------------------------------------------------------------------
Consumer Goods and Services - 5.5%
1-800 CONTACTS, Inc.* 10,000 $ 150,000
Avis Rent A Car, Inc.* 110,400 2,677,200
Blyth Industries, Inc.* 310,000 9,513,125
Carson, Inc., "A"* 132,100 809,112
Cole National Corp., "A"* 47,100 1,828,069
Dollar Thrifty Automotive Group, Inc.* 506,600 7,282,375
Hertz Corp., "A" 30,000 1,376,250
Industrial Distribution Group, Inc.* 15,150 257,550
Mac-Gray Corp.* 32,000 460,000
Pameco Corp.* 42,500 780,938
Swisher International Group, Inc., "A"* 210,000 1,863,750
Ticketmaster Group, Inc.* 105,000 2,887,500
Tyco International Ltd. 10,189,448 564,240,683
U.S. Rentals, Inc.* 145,000 4,703,437
United Rentals, Inc.* 75,800 2,615,100
---------------
$ 601,445,089
- -------------------------------------------------------------------------------
Containers
Ivex Packaging Corp.* 62,800 $ 1,456,175
Silgan Holdings, Inc.* 85,200 2,832,900
---------------
$ 4,289,075
- -------------------------------------------------------------------------------
Electrical Equipment - 0.3%
AFC Cable Systems, Inc.* 109,000 $ 3,678,750
AVX Corp. 55,000 1,038,125
Barnett, Inc.* 100,000 1,812,500
Cable Design Technologies Corp.* 985,100 23,211,419
JPM Co.* 160,000 1,640,000
Kuhlman Corp. 52,300 2,209,675
Micrel, Inc.* 59,600 1,864,362
---------------
$ 35,454,831
- -------------------------------------------------------------------------------
Electronics - 2.9%
Actel Corp.* 40,000 $ 510,000
ADE Corp.* 65,300 979,500
Altera Corp.* 2,736,500 92,014,812
Amkor Technology, Inc.* 453,900 4,709,213
Analog Devices, Inc.* 1,080,000 26,662,500
Artisan Components, Inc.* 15,000 260,625
Atmel Corp.* 861,000 12,753,562
Berg Electronics Corp.* 411,000 8,476,875
Blonder Tongue Laboratories, Inc.* 25,000 240,625
Burr-Brown Corp.* 896,175 22,992,490
CP Clare Corp.* 130,000 1,592,500
Hadco Corp. 10,000 321,250
Hawk Corp., "A"* 47,700 870,525
Intel Corp. 520,000 37,147,500
International Manufacturing Services,
Inc., "A" 25,000 200,000
Lattice Semiconductor Corp.* 50,000 1,931,250
Linear Technology Corp. 376,900 26,359,444
LSI Logic Corp.* 602,000 12,830,125
Maxim Integrated Products, Inc.* 271,800 9,071,325
Micro Linear Corp.* 198,000 915,750
Novellus Systems, Inc.* 187,470 7,088,709
Oak Technology, Inc.* 165,000 907,500
OSI Systems, Inc.* 25,500 255,000
Peak International Ltd.* 77,100 1,238,419
Sawtek, Inc.* 15,000 384,844
Speedfam International, Inc.* 20,000 390,000
Stoneridge, Inc.* 39,000 867,750
Teradyne, Inc.* 118,800 3,653,100
Xilinx, Inc.* 1,124,782 42,776,865
---------------
$ 318,402,058
- -------------------------------------------------------------------------------
Entertainment - 4.1%
American Radio Systems Corp., "A"* 100,000 $ 6,612,500
CBS Corp. 658,721 20,914,392
Chancellor Media Corp.* 302,500 12,648,281
Clear Channel Communications, Inc.* 939,932 90,115,980
Cox Radio, Inc., "A"* 319,900 13,475,787
Gametech International, Inc.++* 515,000 1,866,875
Gemstar International Group Ltd.* 100,000 4,350,000
Grand Casinos, Inc.* 35,000 614,688
Harrah's Entertainment, Inc.* 1,674,900 41,872,500
Hearst-Argyle Television, Inc.* 459,800 16,552,800
Heftel Broadcasting Corp., "A"* 282,220 10,689,083
Jacor Communications, Inc.* 684,200 36,177,075
Macromedia, Inc.* 76,000 1,204,125
Premier Parks, Inc.* 745,700 39,615,312
Silverleaf Resorts, Inc.* 54,000 941,625
Sinclair Broadcast Group, Inc., "A"* 77,800 1,979,038
Time Warner, Inc. 1,313,000 102,167,812
Univision Communications, Inc., "A"* 1,301,800 45,237,550
Vistana, Inc.* 282,500 6,003,125
West Coast Entertainment Corp.* 605,000 1,210,000
---------------
$ 454,248,548
- -------------------------------------------------------------------------------
Financial Institutions - 2.0%
ARM Financial Group, Inc., "A" 367,100 $ 7,502,606
Associates First Capital Corp., "A" 387,520 28,991,340
BA Merchants Services, Inc., "A"* 219,900 3,971,944
CIT Group, Inc., "A"* 230,000 7,245,000
Conning Corp. 21,800 446,900
Consolidated Capital Corp.++* 2,004,700 44,228,694
Emergent Group, Inc.* 75,000 375,000
Federated Investors, Inc., "A"* 105,500 1,892,406
Franklin Resources, Inc. 1,819,500 88,928,062
Freedom Securities Corp.* 12,000 207,000
Friedman, Billings, Ramsey & Co.* 68,800 1,079,300
Green Tree Financial Corp. 131,200 5,272,600
Harrington Financial Group, Inc. 20,000 220,000
Healthcare Financial Partners, Inc.* 226,500 11,126,812
Heller Financial, Inc., "A"* 196,100 5,466,288
Liberty Financial Cos., Inc. 157,000 5,485,187
Schwab (Charles) Corp. 67,500 2,227,500
Waddell & Reed Financial, Inc., "A" 74,700 1,727,438
WMF Group Ltd.* 141,333 2,967,993
---------------
$ 219,362,070
- -------------------------------------------------------------------------------
Food and Beverage Products - 0.2%
International Home Foods, Inc.* 127,200 $ 3,450,300
Keebler Foods Co.* 63,000 1,830,937
Omega Protein Corp.* 35,900 587,863
Rocky Mountain International Ltd.* 17,000 116,875
Suiza Foods Corp.* 258,700 15,117,781
---------------
$ 21,103,756
- -------------------------------------------------------------------------------
Insurance - 0.8%
Ace Ltd. 1,000,000 $ 35,625,000
Annuity and Life Re Holdings Ltd.* 55,300 1,261,531
Compdent Corp.* 288,800 4,259,800
Conseco, Inc. 480,000 22,380,000
ESG Re Ltd.* 20,000 420,000
Frontier Insurance Group, Inc. 90,000 2,205,000
Hartford Life, Inc., "A" 70,500 3,630,750
Inspire Insurance Solutions, Inc.* 50,400 1,647,450
Life Re Corp. 150,600 11,087,925
Nationwide Financial Services, Inc., "A" 108,400 4,708,625
---------------
$ 87,226,081
- -------------------------------------------------------------------------------
Machinery
ITEQ, Inc.* 250,000 $ 2,968,750
JLK Direct Distribution, Inc., "A"* 17,000 399,500
---------------
$ 3,368,250
- -------------------------------------------------------------------------------
Medical and Health Products - 0.6%
AmeriSource Health Corp., "A"* 20,000 $ 1,087,500
Arterial Vascular Engineering, Inc.* 49,600 1,532,950
Boston Scientific Corp.* 658,300 41,966,625
Coast Dental Services, Inc.* 50,000 1,125,000
Kendle International, Inc.* 85,000 2,252,500
Matria Healthcare, Inc.* 578,500 2,350,156
Orthofix International N.V.* 473,749 6,277,174
PSS World Medical, Inc.* 577,500 7,218,750
Renex Corp.* 262,200 1,769,850
UroMed Corp.* 9,753 77,415
Wesley Jessen Visioncare, Inc. 190,000 5,130,000
Young Innovations, Inc.* 22,900 360,675
---------------
$ 71,148,595
- -------------------------------------------------------------------------------
Medical and Health Technology and Services - 9.7%
Access Health, Inc.* 37,500 $ 960,938
Advanced Health Corp.* 17,000 212,500
American Dental Partners, Inc.* 22,500 382,500
American Homepatient, Inc.* 410,750 6,931,406
American Oncology Resources, Inc.* 100,000 1,275,000
Ameripath, Inc.* 26,000 373,750
Applied Analytical Industries, Inc.* 10,000 103,750
Balanced Care Corp.* 361,700 2,893,600
BioReliance Corp.* 24,100 349,450
Capital Senior Living Corp.* 458,000 5,925,375
Cardinal Health, Inc. 329,490 29,365,796
Carematrix Corp.* 367,000 8,486,875
Castle Dental Centers, Inc.* 20,100 218,588
ClinTrials Research, Inc.* 45,000 244,688
Cohr, Inc.* 7,500 53,906
Columbia/HCA Healthcare Corp. 728,184 23,802,514
Dental Care Alliance, Inc.* 60,000 825,000
Equimed, Inc.* 33,333 387,496
Foundation Health Systems, Inc.* 880,409 26,797,449
FPA Medical Management, Inc.* 379,075 1,658,453
Genesis Health Ventures, Inc.* 266,150 6,736,922
Guidant Corp. 620,000 39,951,250
HBO & Co. 96,600 5,575,631
HCIA, Inc.* 565,000 4,661,250
Health Management Associates, Inc., "A"* 307,750 9,174,797
HealthSouth Corp.* 3,459,187 98,154,431
ICU Medical, Inc.* 50,000 731,250
Integrated Health Services, Inc. 1,166,200 43,368,062
Lincare Holdings, Inc.* 146,900 11,017,500
Mariner Health Group, Inc.++* 1,654,200 24,606,225
MedPartners, Inc.* 185,765 1,660,275
Medtronic, Inc. 210,000 11,681,250
Mid Atlantic Medical Services, Inc.* 2,299,888 29,754,801
Monarch Dental Corp.* 16,800 296,100
National Surgery Centers, Inc.* 42,300 1,179,113
NCS Healthcare, Inc., "A"* 36,200 1,045,275
Ocular Sciences, Inc.* 143,100 4,203,562
Option Care, Inc.* 69,000 224,250
Orthalliance, Inc., "A"* 38,500 555,844
Orthodontic Centers of America, Inc.* 2,190,000 46,400,625
Oxford Health Plans, Inc.* 450,000 7,762,500
PacifiCare Health Systems, Inc., "A"* 364,900 29,420,062
PacifiCare Health Systems, Inc., "B"* 672,546 55,569,113
Parexel International Corp.* 39,000 1,170,000
Pediatrix Medical Group, Inc.* 37,400 1,353,413
Pharmaceutical Product Development, Inc.* 16,200 344,250
Phymatrix Corp.* 98,200 920,625
Physician Reliance Network, Inc.* 510,000 5,641,875
Physicians Resource Group, Inc.* 160,000 820,000
Physio-Control International Corp.* 5,000 105,000
Premier Research Worldwide Ltd.* 16,500 82,500
Priority Healthcare Corp., "B"* 21,000 378,000
Province Healthcare Co.* 24,800 638,600
Quorum Health Group, Inc.* 75,000 2,254,687
Renal Care Group, Inc.* 43,650 1,582,313
Schein (Henry), Inc.* 14,350 552,475
St. Jude Medical, Inc.* 227,933 8,148,605
Total Renal Care Holdings, Inc.* 1,760,528 54,026,203
Transition Systems, Inc.* 46,000 911,375
Trigon Healthcare, Inc.* 125,000 4,250,000
United Healthcare Corp. 6,183,054 395,715,456
United Payors & United Providers, Inc.* 202,500 4,201,875
WellCare Management Group, Inc.* 77,700 199,106
Wellpoint Health Networks, Inc., "A"* 697,500 45,337,500
---------------
$ 1,073,612,980
- -------------------------------------------------------------------------------
Metals and Minerals - 0.1%
NS Group, Inc.* 450,000 $ 5,737,500
- -------------------------------------------------------------------------------
Office Equipment
CompX International, Inc., "A"* 46,200 $ 1,074,150
Steelcase, Inc. 53,100 1,583,044
---------------
$ 2,657,194
- -------------------------------------------------------------------------------
Oil Services - 0.1%
Bayard Drilling Technologies, Inc.* 20,000 $ 221,250
Dril-Quip, Inc.* 43,300 1,350,419
Friede Goldman International, Inc.* 61,000 2,030,156
IRI International Corp.* 100,600 1,301,512
Transcoastal Marine Services, Inc.* 70,000 691,250
---------------
$ 5,594,587
- -------------------------------------------------------------------------------
Oils
Santa Fe International Corp. 80,000 $ 2,790,000
- -------------------------------------------------------------------------------
Pharmaceuticals
Schein Pharmaceutical, Inc.* 20,800 $ 548,600
- -------------------------------------------------------------------------------
Pollution Control - 1.8%
Allied Waste Industries, Inc.* 208,000 $ 5,512,000
American Disposal Services, Inc.* 81,100 3,175,572
Casella Waste Systems, Inc., "A"* 61,200 1,629,450
Philip Services Corp.* 201,300 780,037
Republic Industries, Inc.+(+)* 6,505,000 160,185,625
U.S.A. Waste Services, Inc.* 599,300 28,279,469
Waste Industries, Inc.* 16,400 362,850
Waste Management, Inc. 32,500 1,056,250
---------------
$ 200,981,253
- -------------------------------------------------------------------------------
Printing and Publishing - 0.4%
Applied Graphics Technologies, Inc.* 148,000 $ 7,141,000
CMP Media, Inc., "A"* 26,000 546,000
Journal Register Co.* 10,000 200,000
Mail-Well, Inc.* 722,500 33,235,000
Petersen Cos., Inc., "A"* 66,200 1,630,175
---------------
$ 42,752,175
- -------------------------------------------------------------------------------
Railroads - 0.1%
Wisconsin Central Transportation Corp.* 232,500 $ 5,449,219
- -------------------------------------------------------------------------------
Real Estate
Trammell Crow Co.* 44,000 $ 1,232,000
- -------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.2%
Apartment Investment & Management Co., "A" 229,300 $ 8,942,700
Capital Automotive REIT 247,000 3,550,625
CCA Prison Realty Trust 29,600 926,850
Correctional Properties Trust* 27,400 573,688
Patriot American Hospitality, Inc. 55,634 1,331,739
Starwood Lodging Trust 9,185 433,417
---------------
$ 15,759,019
- -------------------------------------------------------------------------------
Restaurants and Lodging - 9.7%
Amerihost Properties, Inc.++* 527,000 $ 2,503,250
Apple South, Inc. 370,000 4,856,250
Applebee's International, Inc. 3,139,500 76,525,312
Back Bay Restaurant Group, Inc.* 2,000 15,625
Brinker International, Inc.* 370,000 8,047,500
Bristol Hotel Co.* 15,000 397,500
Buffets, Inc.++* 2,970,350 48,453,834
Candlewood Hotel Co., Inc.* 210,000 1,732,500
Capstar Hotel Co.* 884,000 25,857,000
Cavanaughs Hospitality Corp.* 41,000 561,188
Cendant Corp.* 27,993,748 607,114,410
Choice Hotels, Inc.* 78,600 1,183,913
CKE Restaurants, Inc. 70,000 2,222,500
Execustay Corp.* 130,000 1,706,250
Extended Stay America, Inc.##(+)* 1,000,000 11,000,000
Extended Stay America, Inc.* 302,704 3,329,744
Four Seasons Hotels, Inc. 152,400 4,762,500
Friendly Ice Cream Corp.* 340,000 8,542,500
Hammons (John Q) Hotels, Inc., "A"* 268,500 2,030,531
IHOP, Inc.* 455,700 18,455,850
Interstate Hotels Co.* 240,000 7,785,000
Lone Star Steakhouse & Saloon, Inc.* 370,500 6,252,187
Marriott International, Inc., "A" 200,000 6,950,000
MGM Grand, Inc.* 227,000 7,533,562
Mortons Restaurant Group, Inc.++* 500,000 12,031,250
Outback Steakhouse, Inc.* 90,000 3,318,750
Papa John's International, Inc.* 132,300 5,506,988
PJ America, Inc.* 69,600 1,383,300
Promus Hotel Corp.* 2,665,013 115,261,812
Rainforest Cafe, Inc.* 172,500 2,398,828
Schlotzskys, Inc.* 192,200 3,123,250
ShoLodge, Inc.++* 375,600 3,474,300
Showbiz Pizza Time, Inc.++* 1,017,000 36,103,500
Signature Resorts, Inc.* 140,000 2,170,000
Sonic Corp.* 660,000 13,653,750
Star Buffet, Inc.* 35,000 520,625
Sun International Hotels Ltd.* 15,000 685,313
Sunburst Hospitality Corp.* 23,000 159,563
Taco Cabana, Inc.++* 870,000 5,546,250
Total Entertainment Restaurant Corp.* 66,500 399,000
Trendwest Resorts, Inc.* 32,000 568,000
U.S. Franchise Systems, Inc., "A"* 591,900 5,290,106
---------------
$ 1,069,413,491
- -------------------------------------------------------------------------------
Special Products and Services - 0.6%
Ballantyne of Omaha, Inc.* 87,000 $ 1,593,187
Career Education Corp.* 35,200 871,200
Carriage Services, Inc., "A"* 80,000 1,720,000
Central Parking Corp. 218,900 9,946,269
Championship Auto Racing Teams, Inc.* 28,900 563,550
Columbus McKinnon Corp. 135,000 3,931,875
Equity Corp. International* 395,000 9,381,250
Flanders Corp.* 117,000 606,938
Pentacon, Inc.* 25,700 301,975
ResortQuest International, Inc.* 68,400 1,038,825
Ritchie Brothers Auctioneers, Inc.* 45,800 1,242,325
Rock of Ages Corp., "A"* 13,500 216,000
Royal Caribbean Cruises Ltd. 167,000 11,637,812
Security Capital Group, Inc., "B"* 14,000 392,000
Stewart Enterprises, Inc., "A" 675,000 18,225,000
Stratesec, Inc.* 85,900 150,325
Wackenhut Corp. 200,000 4,012,500
Wilmar Industries, Inc.* 66,600 1,631,700
---------------
$ 67,462,731
- -------------------------------------------------------------------------------
Steel - 0.1%
Citation Corp.* 575,000 $ 10,996,875
- -------------------------------------------------------------------------------
Stores - 8.0%
A.C. Moore Arts & Crafts, Inc.* 15,000 $ 255,938
Alrenco, Inc.* 200,000 3,525,000
American Pad & Paper Co.* 840,000 5,565,000
Bed Bath & Beyond, Inc.* 40,000 2,007,500
Boise Cascade Office Products Corp.* 341,400 5,846,475
Borders Group, Inc.* 400,000 12,400,000
CompUSA, Inc. 445,000 7,008,750
Consolidated Stores Corp.* 1,193,125 45,562,461
Corporate Express, Inc.* 3,734,100 43,292,222
Creative Computers, Inc.* 60,000 480,000
CSK Auto Corp.* 66,100 1,776,438
CVS Corp. 202,300 14,198,931
Duane Reade, Inc.* 25,000 632,813
Friedmans, Inc., "A"* 125,000 2,468,750
General Nutrition Cos., Inc.* 1,528,288 48,236,590
Globe Business Resources, Inc.* 25,000 356,250
Gymboree Corp.* 131,200 2,074,600
Home Depot, Inc. 606,150 47,620,659
Micro Warehouse, Inc.++* 2,908,500 50,898,750
Mothers Work, Inc.++* 211,500 2,009,250
Movie Gallery, Inc.* 363,000 2,586,375
MSC Industrial Direct, Inc., "A"* 301,600 8,048,950
Office Depot, Inc.* 7,334,800 216,376,600
OfficeMax, Inc.* 893,000 14,678,687
Rental Service Corp.* 112,800 2,925,750
Renters Choice, Inc.* 316,000 8,413,500
Republic Industries, Inc.* 2,630,500 64,776,062
Rite Aid Corp. 3,960,200 141,824,662
Shoe Carnival, Inc.* 275,000 3,850,000
Sports Club, Inc.* 174,000 1,239,750
Staples, Inc.* 649,152 16,309,944
Sunglass Hut International, Inc.* 475,000 5,789,063
TJX Cos., Inc. 80,000 3,740,000
U.S. Office Products Co.* 5,909,116 100,085,652
Viking Office Products, Inc.* 30,000 857,813
---------------
$ 887,719,185
- -------------------------------------------------------------------------------
Supermarkets - 0.1%
Meyer (Fred), Inc.* 325,000 $ 13,975,000
- -------------------------------------------------------------------------------
Telecommunications - 11.5%
APAC Teleservices, Inc.* 450,000 $ 4,092,188
Ascend Communications, Inc.* 823,300 35,556,269
Aspect Telecommunications Corp.* 351,100 9,062,769
Boston Communications Group, Inc.* 201,757 1,727,544
Cisco Systems, Inc.* 7,403,925 559,921,828
Com21, Inc.* 10,200 149,175
DSP Communications, Inc.* 186,000 3,417,750
Equalnet Holding Corp.* 80,000 205,000
Excel Communications, Inc.* 235,000 5,170,000
Glenayre Technologies, Inc.* 1,430,000 21,896,875
Global TeleSystems Group, Inc.* 63,400 2,429,013
Hypercom Corp.* 321,200 3,874,475
Hyperion Telecommunications, Inc., "A"* 96,800 1,518,550
L-3 Communications Holding, Inc.* 12,000 336,000
LCC International, Inc.* 20,000 322,500
Lucent Technologies, Inc. 490,000 34,759,375
MCI Communications Corp. 3,590,000 191,952,812
McLeodUSA, Inc., "A"* 81,200 3,369,800
Metromedia Fiber Network, Inc., "A"* 71,700 2,930,738
Nextlink Communications, Inc., "A"* 45,000 1,403,438
Premisys Communications, Inc.* 24,800 617,675
RELTEC Corp.* 3,700 135,975
RMH Teleservices, Inc.* 238,000 862,750
SmarTalk TeleServices, Inc.* 20,000 367,500
Startec Global Communications Corp.* 25,000 409,375
Sterling Commerce, Inc.* 59,826 2,374,344
Tel-Save Holdings, Inc.##++(+)* 2,588,700 51,126,825
Tel-Save Holdings, Inc.++* 3,724,700 73,562,825
Teleport Communications Group, Inc., "A"* 351,818 19,679,819
Tellabs, Inc.* 90,000 6,184,687
Transaction Network Services, Inc.* 245,700 5,006,137
US LEC Corp., "A"* 53,100 1,214,663
VDI Media* 300,000 4,500,000
WorldCom, Inc.* 4,794,122 218,132,551
---------------
$ 1,268,271,225
- -------------------------------------------------------------------------------
Transportation - 0.3%
Budget Group, Inc., "A"* 302,700 $ 8,929,650
Carey International, Inc.* 170,000 3,761,250
Coach USA, Inc.* 239,100 10,296,244
Dispatch Management Services Corp.* 225,600 5,400,300
Dynamex, Inc.* 89,600 1,120,000
Hub Group, Inc., "A"* 30,000 641,250
United Road Services, Inc.* 32,000 512,000
---------------
$ 30,660,694
- -------------------------------------------------------------------------------
Utilities - Electric - 0.1%
CalEnergy Co., Inc.* 290,000 $ 8,772,500
Power One, Inc.* 25,700 253,787
---------------
$ 9,026,287
- -------------------------------------------------------------------------------
Utilities - Telephone
LCI International, Inc.* 33,600 $ 1,257,900
- -------------------------------------------------------------------------------
Venture Capital
Copley Partners 1+(+)* 3,000,000 $ 450,891
Copley Partners 2+(+)* 3,000,000 1,333,200
Highland Capital Partners+(+)* 7,500,000 1,006,650
---------------
$ 2,790,741
- -------------------------------------------------------------------------------
Total U.S. Stocks $10,467,804,679
- -------------------------------------------------------------------------------
Foreign Stocks - 4.8%
Canada - 0.6%
Laidlaw, Inc. (Pollution Control) 480,000 $ 5,940,000
Legacy Hotel Real Estate Investment Trust
(Real Estate Investment Trust)##* 773,000 4,777,140
Loewen Group, Inc. (Business Services) 1,263,100 34,735,250
Loewen Group, Inc. (Business Services)## 857,200 23,431,703
Microcell Telecommunications, "B"
(Telecommunications)* 45,000 360,000
---------------
$ 69,244,093
- -------------------------------------------------------------------------------
France - 0.2%
Dassault Systemes S.A. (Computer Software -
Systems) 265,000 $ 12,354,416
Dassault Systemes S.A., ADR (Computer Software -
Systems) 80,000 3,740,000
---------------
$ 16,094,416
- -------------------------------------------------------------------------------
Germany - 2.9%
SAP AG, ADR (Computer Software - Systems) 174,300 $ 90,020,502
SAP AG, ADR (Computer Software - Systems)## 312,200 57,600,900
SAP AG, Preferred (Computer Software - Systems) 311,625 172,814,671
---------------
$ 320,436,073
- -------------------------------------------------------------------------------
Hong Kong
Asia Electronics Holding Co. (Electronics)* 148,600 $ 835,875
- -------------------------------------------------------------------------------
Ireland - 0.1%
CBT Group PLC, ADR (Publishing)* 248,000 $ 12,338,000
- -------------------------------------------------------------------------------
Israel
NICE Systems Ltd., ADR (Telecommunications)* 60,000 $ 2,190,000
- -------------------------------------------------------------------------------
Italy - 0.2%
Gucci Group N.V. (Apparel and Textiles) 580,000 $ 26,317,500
- -------------------------------------------------------------------------------
Mexico
TV Azteca, S.A. de C.V., ADR (Broadcasting)* 56,000 $ 808,500
- -------------------------------------------------------------------------------
Netherlands - 0.1%
Benckiser N.V. (Consumer Goods and Services)* 137,000 $ 7,775,657
- -------------------------------------------------------------------------------
Sweden
Munters AB (Consumer Goods and Services) 42,200 $ 495,204
- -------------------------------------------------------------------------------
United Kingdom - 0.7%
ARM Holdings PLC
(Computer Software - Systems)* 49,310 $ 614,280
Danka Business Systems, ADR
(Business Services)++ 4,210,300 71,048,812
Dr. Solomon's Group PLC, ADR
(Computer Software - Personal Computers)* 100,000 2,950,000
ICON PLC, ADR (Biotechnology)* 10,240 261,120
Insignia Solutions PLC, ADR
(Computer Software - Personal Computers)* 407,700 471,403
Jarvis Hotels PLC (Restaurants and Lodging)+ 98,300 272,841
SELECT Software Tools, ADR
(Computer Software - Systems)* 31,500 141,750
Thomson Travel Group PLC (Travel Services)* 967,300 2,842,761
---------------
$ 78,602,967
- -------------------------------------------------------------------------------
Total Foreign Stocks $ 535,138,285
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $6,815,287,628) $11,002,942,964
- -------------------------------------------------------------------------------
Convertible Preferred Stocks - 0.1%
- -------------------------------------------------------------------------------
Entertainment - 0.1%
American Radio Systems Corp., 7%## 91,100 $ 6,878,050
- -------------------------------------------------------------------------------
Restaurants and Lodging
Apple South, Inc.## 100,000 $ 5,462,500
- -------------------------------------------------------------------------------
Total Convertible Preferred Stocks
(Identified Cost, $9,555,000) $ 12,340,550
- -------------------------------------------------------------------------------
Convertible Bonds - 0.1%
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- -------------------------------------------------------------------------------
U.S. Bonds - 0.1%
Construction Services - 0.1%
American Residential Services, Inc.,
7.25s, 2004 $ 4,000 $ 3,070,000
- -------------------------------------------------------------------------------
Medical and Health Products
Ventritex, Inc., 5.75s, 2001 $ 1,230 $ 1,514,437
- -------------------------------------------------------------------------------
Restaurants and Lodging
ShoLodge, Inc., 7.5s, 2004 $ 2,000 $ 1,690,000
- -------------------------------------------------------------------------------
Telecommunications
Midcom Communications, Inc., 8.25s, 2003 $ 4,600 $ 1,104,000
- -------------------------------------------------------------------------------
Total Convertible Bonds
(Identified Cost, $11,830,00 $ 7,378,437
- -------------------------------------------------------------------------------
Short-Term Obligations - 2.5%
- -------------------------------------------------------------------------------
Associates Corp. of North America,
due 6/01/98 $135,000 $ 135,000,000
General Electric Capital Corp., due 6/01/98 139,700 139,700,000
- -------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 274,700,000
- -------------------------------------------------------------------------------
Total Investments (Identified Cost,
$7,111,372,628) $11,297,361,951
Other Assets, Less Liabilities - (2.3)% (253,174,276)
- -------------------------------------------------------------------------------
Net Assets - 100.0% $11,044,187,675
- -------------------------------------------------------------------------------
*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.
(+)Security valued by or at the direction of the Trustees.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- -------------------------------------------------------------------------------
MAY 31, 1998
- -------------------------------------------------------------------------------
Assets:
Investments, at value -
Unaffiliated issuers (identified cost, $6,507,833,885) $10,291,822,799
Affiliated issuer (identified cost, $603,538,743) 1,005,539,152
---------------
Total investments, at value
(identified cost $7,111,372,628) $11,297,361,951
Cash 3,776,631
Receivable for investments sold 21,539,216
Receivable for Fund shares sold 46,121,555
Interest and dividends receivable 1,273,037
Other assets 73,858
---------------
Total assets $11,370,146,248
---------------
Liabilities:
Payable for investments purchased $ 51,133,497
Payable for Fund shares reacquired 266,742,179
Payable to affiliates -
Management fee 637,136
Administrative fee 3,074
Shareholder servicing agent fee 103,535
Distribution and service fee 6,019,223
Accrued expenses and other liabilities 1,319,929
---------------
Total liabilities $ 325,958,573
---------------
Net assets $11,044,187,675
===============
Net assets consist of:
Paid-in capital $ 6,885,616,154
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 4,185,988,053
Accumulated undistributed net realized gain on
investments
and foreign currency transactions 41,263,739
Accumulated net investment loss (68,680,271)
---------------
Total $11,044,187,675
===============
Shares of beneficial interest outstanding 273,500,870
===========
Class A shares:
Net asset value per share
(net assets of $4,523,650,319 / 110,687,458 shares
of beneficial interest outstanding) $40.87
======
Offering price per share (100 / 94.25) $43.36
======
Class B shares:
Net asset value and offering price per share
(net assets of $5,983,429,939 / 149,369,790 shares
of beneficial interest outstanding) $40.06
======
Class C shares:
Net asset value and offering price per share
(net assets of $485,109,293 / 12,173,372 shares of
beneficial interest outstanding) $39.85
======
Class I shares:
Net asset value, offering price, and redemption price
per share
(net assets of $51,998,124 / 1,270,250
shares of beneficial interest outstanding) $40.94
======
On sales of $50,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED MAY 31, 1998
- -------------------------------------------------------------------------------
Net investment income (loss):
Income -
Dividends (including $342,118 received from
affiliated issuers) $ 8,070,824
Interest (including income on securities loaned
of $1,864,400) 6,253,138
Foreign taxes withheld (202,588)
--------------
Total investment income $ 14,121,374
--------------
Expenses -
Management fee $ 36,153,375
Trustees' compensation 20,866
Shareholder servicing agent fee 5,978,331
Distribution and service fee (Class A) 5,362,731
Distribution and service fee (Class B) 28,193,024
Distribution and service fee (Class C) 2,089,524
Administrative fee 164,324
Custodian fee 997,080
Postage 553,684
Printing 260,166
Auditing fees 20,502
Legal fees 739
Miscellaneous 3,281,378
--------------
Total expenses $ 83,075,724
Fees paid indirectly (361,482)
--------------
Net expenses $ 82,714,242
--------------
Net investment loss $ (68,592,868)
--------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions (including $499,057 net
loss from transactions with affiliated issuers) $ 40,261,051
Foreign currency transactions (444)
--------------
Net realized gain on investments and foreign
currency transactions $ 40,260,607
--------------
Change in unrealized appreciation (depreciation) -
Investments $ 962,081,628
Translation of assets and liabilities in foreign
currencies (1,270)
--------------
Net unrealized gain on investments and foreign
currency translation $ 962,080,358
--------------
Net realized and unrealized gain on investments
and foreign currency $1,002,340,965
--------------
Increase in net assets from operations $ 933,748,097
==============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (68,592,868) $ (109,902,167)
Net realized gain on investments and foreign
currency transactions 40,260,607 191,992,033
Net unrealized gain on investments and foreign
currency translation 962,080,358 1,252,998,931
--------------- --------------
Increase in net assets from operations $ 933,748,097 $1,335,088,797
--------------- --------------
Distributions declared to shareholders -
From net realized gain on investments and foreign
currency transactions (Class A) $ (35,451,715) $ (28,565,649)
From net realized gain on investments and foreign
currency transactions (Class B) (37,089,138) (21,625,602)
From net realized gain on investments and foreign
currency transactions (Class C) (2,529,759) (1,402,958)
From net realized gain on investments and foreign
currency transactions (Class I) (526,650) --
--------------- --------------
Total distributions declared to shareholders $ (75,597,262) $ (51,594,209)
--------------- --------------
Net increase in net assets from Fund share
transactions $ 776,168,015 $1,825,218,681
--------------- --------------
Total increase in net assets $ 1,634,318,850 $3,108,713,269
Net assets:
At beginning of period 9,409,868,825 6,301,155,556
--------------- --------------
At end of period (including accumulated net
investment loss of $68,680,271 and $87,403,
respectively) $11,044,187,675 $9,409,868,825
=============== ==============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED -------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994 1993*
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $37.54 $32.01 $26.79 $18.73 $17.68 $16.43
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.17) $(0.34) $(0.29) $(0.23) $(0.20) $(0.03)
Net realized and unrealized gain on
investments and foreign currency
transactions 3.84 6.24 5.51 8.68 1.78 1.28
------ ------ ------ ------ ------ ------
Total from investment operations $ 3.67 $ 5.90 $ 5.22 $ 8.45 $ 1.58 $ 1.25
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net realized gain on
investments and foreign currency
transactions $(0.34) $(0.37) $ -- $(0.38) $(0.53) $ --
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- 0.00*** -- --
From paid-in capital -- -- -- (0.01) -- --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.34) $(0.37) $ -- $(0.39) $(0.53) $ --
------ ------ ------ ------ ------ ------
Net asset value - end of period $40.87 $37.54 $32.01 $26.79 $18.73 $17.68
====== ====== ====== ====== ====== ======
Total return(+) 9.96%++ 18.66% 19.52% 45.98% 9.06% 38.98%+
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.16%+ 1.21% 1.20% 1.28% 1.33% 1.19%+
Net investment loss (0.88)%+ (0.99)% (1.01)% (1.04)% (1.09)% (0.98)%+
Portfolio turnover 5% 21% 22% 20% 39% 58%
Net assets at end of period
(000,000 omitted) $4,524 $3,875 $2,524 $1,312 $470 $371
+Annualized.
++Not annualized.
*For the period from the inception of Class A, September 13, 1993, through November 30, 1993.
***The per share amount was less than $0.01.
#Per share data for the periods subsequent to December 31, 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.
(+)Total returns for Class A shares do not include the applicable sales charge. If the charge
had been included, the results would have been lower.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED -------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994 1993
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $36.85 $31.48 $26.56 $18.57 $17.64 $14.93
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment loss $(0.32) $(0.59) $(0.52) $(0.41) $(0.35) $(0.33)
Net realized and unrealized gain on
investments and foreign currency
transactions 3.79 6.14 5.44 8.65 1.78 3.19
------ ------ ------ ------ ------ ------
Total from investment operations $ 3.47 $ 5.55 $ 4.92 $ 8.24 $ 1.43 $ 2.86
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders From net realized gain on
investments and foreign currency
transactions $(0.26) $(0.18) $ -- $(0.24) $(0.50) $(0.15)
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- 0.00*** -- --
From paid-in capital -- -- -- (0.01) -- --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.26) $(0.18) $ -- $(0.25) $(0.50) $(0.15)
------ ------ ------ ------ ------ ------
Net asset value - end of period $40.06 $36.85 $31.48 $26.56 $18.57 $17.64
====== ====== ====== ====== ====== ======
Total return 9.56%++ 17.78% 18.52% 44.89% 8.21% 19.36%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.91%+ 1.97% 2.00% 2.08% 2.14% 2.19%
Net investment loss (1.63)%+ (1.75)% (1.80)% (1.83)% (1.90)% (1.61)%
Portfolio turnover 5% 21% 22% 20% 39% 58%
Net assets at end of period
(000,000 omitted) $5,983 $5,143 $3,659 $2,001 $769 $602
+Annualized.
++Not annualized.
***The per share amount was less than $0.01.
#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.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $12.07 $ 6.89 $ 7.69 $ 5.91 $ 4.97
------ ------ ------ ------ ------
Income from investment operations
Net investment loss $(0.07) $(0.13) $(0.14) $(0.13) $(0.11)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 3.52 5.31 (0.66) 1.91 1.05
------ ------ ------ ------ ------
Total from investment operations $ 3.45 $ 5.18 $(0.80) $ 1.78 $ 0.94
------ ------ ------ ------ ------
Less distributions declared to shareholders
from net realized gain on investments and
foreign currency transactions $(0.59) $ -- $ -- $ -- $ --
------ ------ ------ ------ ------
Net asset value - end of period $14.93 $12.07 $ 6.89 $ 7.69 $ 5.91
====== ====== ====== ====== ======
Total return 29.25% 75.18% (10.40)% 30.12% 18.91%
Ratios (to average net assets)/Supplemental data:
Expenses 2.33% 2.50% 2.75% 2.81% 2.30%
Net investment loss (2.00)% (1.98)% (1.86)% (1.91)% (1.65)%
Portfolio turnover 59% 112% 86% 95% 57%
Net assets at end of period (000,000 omitted) $357 $145 $73 $82 $61
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
MAY 31, 1998 NOVEMBER 30, 1997 NOVEMBER 30, 1996**
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $36.66 $31.48 $28.37
------ ------ ------
Income from investment operations# -
Net investment loss $(0.32) $(0.59) $(0.38)
Net realized and unrealized gain on investments and
foreign currency transactions 3.77 6.12 3.49
------ ------ ------
Total from investment operations $ 3.45 $ 5.53 $ 3.11
------ ------ ------
Less distributions declared to shareholders from net
realized gain on investments and foreign currency
transactions $(0.26) $(0.35) $ --
------ ------ ------
Net asset value - end of period $39.85 $36.66 $31.48
------ ------ ------
Total return 9.56%++ 17.81% 10.96%++
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.91%+ 1.97% 1.35%+
Net investment loss (1.64)%+ (1.75)% (1.25)%+
Portfolio turnover 5% 21% 22%
Net assets at end of period
(000,000 omitted) $485 $344 $119
**For the period from the inception of Class C, April 1, 1996, through November 30, 1996.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
MAY 31, 1998 NOVEMBER 30, 1997***
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $37.62 $29.98
------ ------
Income from investment operations# -
Net investment loss $(0.13) $(0.23)
Net realized and unrealized gain on investments and foreign
currency transactions 3.87 7.87
------ ------
Total from investment operations $ 3.74 $ 7.64
------ ------
Less distributions declared to shareholders from net realized gain
on investments and foreign currency transactions $(0.42) $ --
------ ------
Net asset value - end of period $40.94 $37.62
====== ======
Total return 10.15%++ 25.48%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.91%+ 0.97%+
Net investment loss (0.64)%+ (0.74)%+
Portfolio turnover 5% 21%
Net assets at end of period (000,000 omitted) $52 $47
***For the period from the inception of Class I, January 2, 1997, through November 30, 1997.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid indirectly.
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Emerging Growth Fund (the Fund) is a diversified series of MFS Series
Trust II (the Trust). The Trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. 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.
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 and also continues to earn income on the securities
loaned. At May 31, 1998, the value of securities loaned was $119,576,388.
These loans are collateralized by U.S. Treasury securities in the amount of
$123,165,464.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is 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
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. 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 tax return
of capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits, which result in
temporary over-distributions for financial statement purposes are classified
as distributions in excess of net investment income or net realized gains.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on 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. Class B shares will convert to Class A
shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at the following rates:
First $2.5 billion 0.75%
Next $4.5 billion 0.70%
In excess of 7 billion 0.65%
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee
at the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain officers and
Trustees of the Fund are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Fund has an unfunded
defined benefit plan for all of its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of $8,530
for the six months ended May 31, 1998.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$1,302,961 for the six months ended May 31, 1998, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class
C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee paid to each
securities dealer that enters into a sales agreement with MFD of up to 0.25% per
annum of the Fund's average daily net assets attributable to Class A shares
which are attributable to that securities dealer and a distribution fee to MFD
of up to 0.10% per annum of the Fund's average daily net assets attributable to
Class A shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $546,494 for the six months ended May 31,
1998. 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 during the six months ended May 31, 1998, were 0.25% of
average daily net assets attributable to Class A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be consideration for services
rendered by the dealer with respect to Class B and Class C shares. MFD retains
the service fee for accounts not attributable to a securities dealer, which
amounted to $1,376,561 and $289,610 for Class B and Class C shares,
respectively, for the six months ended May 31, 1998. Fees incurred under the
distribution plan during the six months ended May 31, 1998, were 1.00% of
average daily net assets attributable to both Class B and Class C shares on an
annualized basis.
Certain Class A shares and Class C shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months
following purchase. A contingent deferred sales charge is imposed on
shareholder redemptions of Class B shares in the event of a shareholder
redemption within six years of purchase. MFD receives all contingent deferred
sales charges. Contingent deferred sales charges imposed during the six months
ended May 31, 1998, were $90,958, $3,812,448, and $91,194 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
0.1125%. Prior to January 1, 1998, the fee was calculated as a percentage of the
average daily net assets at an effective annual rate of 0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$1,286,430,977 and $543,188,757, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $7,111,372,628
--------------
Gross unrealized appreciation $4,562,342,073
Gross unrealized depreciation (376,352,750)
--------------
Net unrealized appreciation $4,185,989,323
==============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
Class A Shares
<CAPTION>
SIX MONTHS ENDED MAY 31, 1998 YEAR ENDED NOVEMBER 30, 1997
-------------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 145,503,051 $ 5,846,514,510 186,156,395 $ 6,322,350,066
Shares from merger of
USA Growth Fund -- -- 5,056,383 166,860,649
Shares issued to
shareholders in
reinvestment of
distributions 931,925 32,056,768 879,714 26,601,710
Transfer to Class I -- -- (888,406) (26,634,425)
Shares reacquired (138,975,432) (5,596,024,230) (166,809,329) (5,698,965,342)
------------ --------------- ------------ ---------------
Net increase 7,459,544 $ 282,547,048 24,394,757 $ 790,212,658
============ ============== ============ ==============
</TABLE>
<TABLE>
Class B Shares
SIX MONTHS ENDED MAY 31, 1998 YEAR ENDED NOVEMBER 30, 1997
-------------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 36,237,895 $ 1,424,632,450 75,823,687 $ 2,516,584,452
Shares issued to
shareholders in
reinvestment of
distributions 860,334 29,095,920 567,281 16,942,530
Shares reacquired (27,304,013) (1,070,383,285) (53,046,942) (1,739,291,055)
------------ --------------- ------------ ---------------
Net increase 9,794,216 $ 383,345,085 23,344,026 $ 794,235,927
============ ============== ============ ==============
</TABLE>
<TABLE>
Class C Shares
<CAPTION>
SIX MONTHS ENDED MAY 31, 1998 YEAR ENDED NOVEMBER 30, 1997
-------------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 14,201,446 $ 566,335,328 9,194,500 $ 307,318,296
Shares issued to
shareholders in
reinvestment of
distributions 40,317 1,356,119 22,963 684,782
Shares reacquired (11,459,845) (457,835,279) (3,605,048) (120,103,252)
------------ --------------- ------------ ---------------
Net increase 2,781,918 $ 109,856,168 5,612,415 $ 187,899,826
============ ============== ============ ==============
</TABLE>
<TABLE>
Class I Shares
<CAPTION>
SIX MONTHS ENDED MAY 31, 1998 PERIOD ENDED NOVEMBER 30, 1997*
-------------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 96,615 $ 3,857,634 530,365 $ 16,396,903
Transfer from Class A -- -- 888,406 26,634,425
Shares issued to
shareholders in
reinvestment of
distributions 15,275 525,298 -- --
Shares reacquired (97,257) (3,963,218) (163,154) (5,454,303)
------------ --------------- ------------ ---------------
Net increase 14,633 $ 419,714 1,255,617 $ 37,577,025
============ =============== ============ ===============
</TABLE>
*For the period from the inception of Class I, January 2, 1997, through
November 30, 1997.
(6) Line of Credit
The Fund and other affiliated funds participate in an $805 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, 1998, was $26,673.
(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, 1998, is set forth below:
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
BEGINNING ------------------------------ ------------------------------
AFFILIATE SHARES SHARES COST SHARES COST
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AccuStaff, Inc. 4,728,300 800,550 $18,975,717 -- $ --
Amerihost Properties, Inc. 517,000 10,000 47,188 -- --
Buffets, Inc. 2,953,050 17,300 218,444 -- --
Cadence Design Systems, Inc. 10,575,070 167,100 3,889,864 -- --
Consolidated Capital Corp. 1,924,700 80,000 1,616,250 -- --
Danka Business Systems, ADR 2,710,300 1,500,000 21,599,624 -- --
Gametech International, Inc. 175,000 340,000 2,047,974 -- --
Mariner Health Group, Inc. 1,664,200 -- -- (10,000) (224,377)
Micro Warehouse, Inc. 2,878,500 30,000 478,750 -- --
Mortons Restaurant Group, Inc. 500,000 -- -- -- --
Mothers Work, Inc. 211,500 -- -- -- --
ShoLodge, Inc. 375,600 -- -- -- --
Showbiz Pizza Time, Inc. 1,017,000 -- -- -- --
System Software Associates, Inc. 2,367,251 -- -- -- --
Taco Cabana, Inc. 962,395 -- -- (92,395) (1,616,913)
Tel-Save Holdings, Inc. 6,213,400 160,000 3,465,256 (60,000) (705,000)
----------- -----------
$52,339,066 $(2,546,289)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
ENDING REALIZED DIVIDEND ENDING
AFFILIATE SHARES GAIN (LOSS) INCOME VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AccuStaff, Inc. 5,528,850 $ -- $ -- $ 182,106,497
Amerihost Properties, Inc. 527,000 -- -- 2,503,250
Buffets, Inc. 2,970,350 -- -- 48,453,834
Cadence Design Systems, Inc. 10,742,170 -- -- 378,661,492
Consolidated Capital Corp. 2,004,700 -- -- 44,228,694
Danka Business Systems, ADR 4,210,300 -- 342,118 71,048,812
Gametech International, Inc. 515,000 -- -- 1,866,875
Mariner Health Group, Inc. 1,654,200 (59,382) -- 24,606,225
Micro Warehouse, Inc. 2,908,500 -- -- 50,898,750
Mortons Restaurant Group, Inc. 500,000 -- -- 12,031,250
Mothers Work, Inc. 211,500 -- -- 2,009,250
ShoLodge, Inc. 375,600 -- -- 3,474,300
Showbiz Pizza Time, Inc. 1,017,000 -- -- 36,103,500
System Software Associates, Inc. 2,367,251 -- -- 17,310,523
Taco Cabana, Inc. 870,000 (1,129,004) -- 5,546,250
Tel-Save Holdings, Inc. 6,313,400 689,329 -- 124,689,650
----------- -------- --------------
$ (499,057) $342,118 $1,005,539,152
=========== ======== ==============
</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, 1998,
the Fund owned the following restricted securities (constituting 1.48% 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 furnished by dealers or by a pricing service, or if not available,
are valued at fair value as determined in good faith by or at the direction of
the Trustees.
<TABLE>
<CAPTION>
DESCRIPTION DATE OF ACQUISITION SHARE AMOUNT COST VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jarvis Hotels PLC 6/21/96 98,300 $ 264,282 $ 272,841
Copley Partners 1 12/06/86 3,000,000 1,787,509 450,891
Copley Partners 2 12/02/86 - 8/09/91 3,000,000 2,054,422 1,333,200
Highland Capital Partners 6/28/88 - 6/28/93 7,500,000 5,482,059 1,006,650
Republic Industries, Inc. 5/15/96 6,505,000 227,897,500 160,185,625
------------
$163,249,207
============
</TABLE>
<PAGE>
<TABLE>
MFS(R) Emerging Growth Fund
<S> <C>
Trustees Secretary
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991), MFS
Investment Management Assistant Secretary
James R. Bordewick, Jr.*
Marshall N. Cohan - Private Investor
Custodian
Lawrence H. Cohn, M.D. - Chief of Cardiac State Street Bank and Trust Company
Surgery, Brigham and Women's Hospital;
Professor of Surgery, Harvard Medical School Investor Information
For MFS stock and bond market outlooks, call
The Hon. Sir J. David Gibbons, KBE - Chief toll free: 1-800-637-4458 anytime from a
Executive Officer, Edmund Gibbons Ltd.; touch-tone telephone.
Chairman, Colonial Insurance Company, Ltd.
For information on MFS mutual funds, call your
Abby M. O'Neill - Private Investor financial adviser or, for an information kit,
call toll free: 1-800-637-2929 any business day
Walter E. Robb, III - President and Treasurer, from 9 a.m. to 5 p.m. Eastern time (or leave a
Benchmark Advisors, Inc. (corporate financial message anytime).
consultants); President, Benchmark Consulting
Group, Inc. (office services) Investor Service
MFS Service Center, Inc.
Arnold D. Scott* - Senior Executive Vice P.O. Box 2281
President, Director, and Secretary, MFS Boston, MA 02107-9906
Investment Management
For general information, call toll free:
Jeffrey L. Shames* - Chairman, Chief Executive 1-800-225-2606 any business day from 8 a.m. to
Officer, and Director, MFS Investment 8 p.m. Eastern time.
Management
For service to speech- or hearing-impaired,
J. Dale Sherratt - President, Insight call toll free: 1-800-637-6576 any business day
Resources, Inc. (acquisition planning from 9 a.m. to 5 p.m. Eastern time. (To use
specialists) this service, your phone must be equipped with
a Telecommunications Device for the Deaf.)
Ward Smith - Former Chairman (until 1994),
NACCO Industries (holding company) For share prices, account balances, and
exchanges, call toll free: 1-800-MFS-TALK
Investment Adviser (1-800-637-8255) anytime from a touch-tone
Massachusetts Financial Services Company telephone.
500 Boylston Street
Boston, MA 02116-3741 World Wide Web
www.mfs.com
Distributor
MFS Fund Distributors, Inc. For the fourth year in a row,
500 Boylston Street MFS earned a #1 ranking in the
Boston, MA 02116-3741 [Dalbar Logo] DALBAR, Inc. Broker/Dealer
Survey, Main Office Operation
Portfolio Manager Service Quality Category. The
John W. Ballen* firm achieved a 3.42 overall score on a
scale of 1 to 4 in the 1997 survey. A total
Treasurer of 111 firms responded, offering input on
W. Thomas London* the quality of service they received from 29
mutual fund companies nationwide. The survey
Assistant Treasurers contained questions about service quality in
Mark E. Bradley* 11 categories, including "knowledge of
Ellen Moynihan* operations contact," "keeping you informed,"
James O. Yost* and "ease of doing business" with the firm.
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
-----------------
MFS(R) EMERGING GROWTH FUND Bulk Rate
U.S. Postage
Paid
[Logo] M F S(SM) MFS
INVESTMENT MANAGEMENT -----------------
We invented the mutual fund(SM)
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(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
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