<PAGE>
[Logo]
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) LARGE CAP
GROWTH FUND
(formerly MFS(R) Capital Growth Fund)
SEMIANNUAL REPORT O MAY 31, 1998
<PAGE>
IN MEMORIAM
A. KEITH BRODKIN
1935 - 1998
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MFS(R) INVESTMENT MANAGEMENT(SM)
[Graphic Omitted]
- --------------------------- 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.
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 2
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 23
Trustees and Officers ..................................................... 29
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
o FOR THE SIX MONTHS ENDED MAY 31, 1998, CLASS A SHARES OF THE FUND PROVIDED
A TOTAL RETURN AT NET ASSET VALUE OF 15.09%, CLASS B SHARES 14.67%, AND
CLASS I SHARES 15.29%. (SEE PERFORMANCE SUMMARY FOR MORE INFORMATION.)
o WE HAVE GRADUALLY SHIFTED THE FUND'S ASSETS TO WHAT WE SEE AS STRONG GROWTH
INDUSTRIES, THAT IS, INDUSTRIES THAT ARE GROWING FASTER THAN THE AVERAGE
COMPANY IN THE STANDARD & POOR'S 500 COMPOSITE INDEX. THIS SHIFT HAS LED US
TO AN INCREASED EXPOSURE TO TECHNOLOGY, HEALTH CARE, AND SERVICE COMPANIES.
o THE FUND HAS BENEFITED FROM THE CONTINUING DRIVE BY COMPANIES TO INCREASE
PRODUCTIVITY, WHICH HAS BENEFITED THE TECHNOLOGY INDUSTRY, PARTICULARLY THE
PROBLEM-SOLVING SOFTWARE COMPANIES.
o IN RETAILING, THE FUND'S SECOND-LARGEST SECTOR, WE ARE LEVERAGING THE THEME
OF THE STRONG U.S. CONSUMER. UNEMPLOYMENT IS AT A 25-YEAR LOW, INTEREST
RATES ARE DOWN, AND THERE'S A HUGE MORTGAGE REFINANCING BOOM UNDERWAY THAT
IS GIVING PEOPLE MORE MONEY TO SPEND.
o IN SEPTEMBER 1997, THE FUND CHANGED ITS NAME FROM MFS(R) CAPITAL GROWTH
FUND TO MFS() R LARGE CAP GROWTH FUND.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
- -----------------------------
[Photo of Jeffrey L. Shames]
- -----------------------------
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
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
- ------------------------
[Photo of Stephen Pesek]
- ------------------------
Stephen Pesek
For the six months ended May 31, 1998, Class A shares of the Fund provided a
total return of 15.09%, Class B shares 14.67%, and Class I shares 15.29%. These
returns include 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.
Effective September 1, 1997, the name of the Fund was changed to MFS(R) Large
Cap Growth Fund. The Fund will pursue its objective of seeking long-term growth
of capital through investments in stocks of large-capitalization companies.
Q. HOW HAS THE STRATEGY OF THE FUND EVOLVED SINCE IT WAS RENAMED?
A. We have gradually shifted the Fund's assets to what we see as strong growth
industries, that is, industries that are growing faster than the average
company in the S&P 500. This shift to companies with strong unit sales
growth has led us to an increased exposure to technology, health care, and
service companies. The change in emphasis also means that at a time when
earnings are slowing down, as they could possibly be doing now, we can
focus on sustainability of earnings.
Q. CAN YOU GIVE US AN EXAMPLE OF A COMPANY THAT FITS THIS DESCRIPTION?
A. The drug stores are perhaps the best examples. These companies are relatively
inexpensive and have very strong fundamentals. The population is aging and,
as people get older, they use more prescriptions. Also, the penetration of
managed care is very powerful, as is the advent of the co- payment system,
which makes it easier to get prescriptions filled. In this sector, Rite Aid
and CVS are both top-10 holdings. On a valuation basis, their stocks are
cheap relative to those of other consumer nondurable companies. We're also
seeing a whole new wave of very powerful pharmaceuticals that are effective
in treating chronic illnesses. Among pharmaceuticals, our confidence in the
ability of companies such as Bristol-Myers Squibb, Schering Plough, and
Warner-Lambert to sustain their earnings growth patterns continues to be
strong.
Q. ANY OTHER TRENDS IMPACTING YOUR STOCK SELECTIONS?
A. One is the continuing drive by companies to increase productivity. This leads
us to the technology industry, particularly the software companies, which are
the problem solvers. As the rate of technology change has accelerated and the
amount of data has exploded, we're investing in companies that can help
manage this, such as Computer Associates, BMC Software, and Compuware. Those
are all among the Fund's top-20 holdings. Another focus is on suppliers to
the telecommunications industry, which is deregulating and undergoing
consolidation. In this sector, we have Ascend Communications and Alcatel, a
French company. They make data switches and other hardware systems that serve
as the backbone of the telephone companies. Another company we like is EMC,
which is the preeminent data storage company and represents another case of a
company benefiting from the explosion of data and the need to store them
someplace.
Q. RETAILING IS THE FUND'S SECOND-LARGEST SECTOR. WHAT MAKES THIS INDUSTRY
ATTRACTIVE?
A. Here, we're leveraging the theme of the strong U.S. consumer. Unemployment is
at a 25-year low, interest rates are way down, and there's a huge mortgage
refinancing boom underway that is giving people more money to spend. This
helps hard-line retailers like Lowe's, a homebuilding and supply company, and
Sears, which is also benefiting from its credit card and financing business.
Q. WHAT ABOUT FINANCIAL SERVICES?
A. A couple of things are happening there. One is a big consolidation movement.
Probably the best example of this is the Citicorp-Travelers deal. The other
story is low interest rates. Since banks' cost of goods is the cost of money,
they've had a superb environment. Much of our focus is on the asset gatherers
like Morgan Stanley Dean Witter and Equitable, as well as on insurance
companies like Lincoln National and Conseco.
Q. COULD YOU TALK ABOUT ANY STOCKS THAT HAVE PERFORMED BETTER THAN EXPECTED?
A. Tyco, a fire protection, packaging, and electronic equipment conglomerate,
has been a great stock. The company is well run, and its earnings have been
better than expected. It's made a couple of creative acquisitions, including
a planned takeover of U.S. Surgical, which will fit in well with its
medical-supply business.
Q. AND WHAT ABOUT STOCKS THAT HAVE NOT PERFORMED AS WELL AS YOU WOULD HAVE
WISHED?
A. Cendant fell quite a bit when questionable accounting practices were
uncovered at CUC International, which Cendant acquired last year. Fraud
shakes the market's confidence in management and, as a result, it can take a
while for a company to regain credibility. However, we still believe in the
strength of the company's franchise-based business model and like its
long-term growth prospects.
Q. HOW WOULD YOU DESCRIBE THE RECENT BUSINESS AND INVESTMENT ENVIRONMENT?
A. It's becoming a little more challenging, partly because of the slowdown in
corporate earnings in the first quarter of this year. The good news is that
interest rates have remained low, which helps when valuations are at such
high levels.
Q. WHAT WOULD YOU SAY IS THE BIGGEST RISK TO THE MARKETS AND THE FUND IN COMING
MONTHS?
A. It's probably valuation. It's getting harder to find cheap stocks. Technology
companies have been impacted, at least in the short run, by the problems in
Asia and the earnings slowdowns for companies like Intel, which has been
eliminated from the portfolio. That may be the result of advances in
technology getting a little ahead of demand. For example, computer processors
keep getting more and more powerful, but companies don't always find a
compelling need to upgrade their computer systems regularly.
Q. LOOKING AHEAD, WHAT KIND OF MARKET OR ECONOMIC ENVIRONMENT DO YOU EXPECT, AND
HOW MIGHT THIS AFFECT SOME OF YOUR INVESTMENT DECISIONS FOR THE FUND?
A. We're on the tail end of the longest economic expansion since World War II.
Even though interest rates and inflation are low, and corporate earnings are
slowing, we still have pretty high valuations. So we think people have to be
very cautious. Also, after the troubles in Asia started last fall, it seemed
as though things might be getting better earlier this year. Now, it looks
like the problems are worse than people thought, so that's going to be an
issue for quite a while.
/s/ Stephen Pesek
Stephen Pesek
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.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S PROFILE
- --------------------------------------------------------------------------------
STEPHEN PESEK IS A VICE PRESIDENT OF MFS(R) INVESTMENT MANAGEMENT(SM) AND
PORTFOLIO MANAGER OF MFS(R) LARGE CAP GROWTH FUND, MFS(R) WORLD ASSET
ALLOCATION(SM) FUND, AND THE WORLD ASSET ALLOCATION(SM) SERIES OFFERED
THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS.
MR. PESEK JOINED MFS IN 1994 AS AN INDUSTRY SPECIALIST FOLLOWING THE
PHARMACEUTICAL, BIOTECHNOLOGY AND ELECTRONICS INDUSTRIES. PRIOR TO JOINING
MFS, HE HAD WORKED SINCE 1987 FOR A MAJOR INVESTMENT MANAGEMENT FIRM AS AN
EQUITY ANALYST.
HE IS A GRADUATE OF THE UNIVERSITY OF PENNSYLVANIA AND HAS A MASTER OF
BUSINESS ADMINISTRATION DEGREE FROM COLUMBIA UNIVERSITY. HE IS A CHARTERED
FINANCIAL ANALYST.
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.
<PAGE>
- --------------------------------------------------------------------------------
FUND FACTS
- --------------------------------------------------------------------------------
NOTE: THE FUND CHANGED ITS NAME FROM MFS CAPITAL GROWTH FUND TO MFS LARGE CAP
GROWTH FUND AS OF SEPTEMBER 1, 1997.
OBJECTIVE: SEEKS TO PROVIDE GROWTH OF CAPITAL. DIVIDEND INCOME,
IF ANY, IS INCIDENTAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: DECEMBER 29, 1986
CLASS INCEPTION: CLASS A SEPTEMBER 7, 1993
CLASS B DECEMBER 29, 1986
CLASS I JANUARY 2, 1997
SIZE: $715.9 MILLION NET ASSETS AS OF MAY 31, 1998
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>
<CAPTION>
CLASS A
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +15.09% +30.07% +99.37% +142.57% +371.72%
- ------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +30.07% +25.86% + 19.39% + 16.78%
- ------------------------------------------------------------------------------------------------------------------
SEC Results -- +22.59% +23.40% + 17.98% + 16.09%
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +14.67% +29.12% +94.56% +132.58% +352.30%
- ------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +29.12% +24.84% + 18.39% + 16.29%
- ------------------------------------------------------------------------------------------------------------------
SEC Results -- +25.12% +24.19% + 18.19% + 16.29%
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS I
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +15.29% +30.60% +97.38% +136.04% +358.95%
- ------------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +30.60% +25.44% + 18.74% + 16.46%
- ------------------------------------------------------------------------------------------------------------------
</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 I shares
("I") have no sales charge or Rule 12b-1 fees and are only available to
certain institutional investors.
A results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of B for periods prior to the inception of A. Because operating expenses
of B are greater than those of A, A performance generally would have been
higher than B performance. The B performance included within 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.
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.
PORTFOLIO CONCENTRATION AS OF MAY 31, 1998
FIVE LARGEST STOCK SECTORS
TECHNOLOGY 20.3%
- ------------------------------------------------------------------------------
RETAILING 15.8%
- ------------------------------------------------------------------------------
HEALTH CARE 13.8%
- ------------------------------------------------------------------------------
FINANCIAL SERVICES 13.3%
- ------------------------------------------------------------------------------
MISCELLANEOUS 9.7%
- ------------------------------------------------------------------------------
For a more complete breakdown, refer to the Portfolio of Investments.
TOP 10 STOCK HOLDINGS
TYCO INTERNATIONAL LTD. 4.6% BMC SOFTWARE, INC. 1.9%
Fire protection, packaging, and electronic Computer software company
equipment manufacturer
WORLDCOM, INC. 1.7%
RITE AID CORP. 3.6% Long-distance telephone provider
Drug store chain
CVS CORP. 1.6%
COMPUTER ASSOCIATES INTERNATIONAL, INC. 3.2% Drug store chain
Computer software company
BRISTOL-MYERS SQUIBB CO. 1.6%
MICROSOFT CORP. 2.6% Pharmaceutical products company
Computer software and systems company
SAFEWAY, INC. 1.5%
UNITED HEALTHCARE CORP. 2.0% Grocery store chain
Health maintenance organization
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - May 31, 1998
Stocks - 94.2%
- -------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
U.S. Stocks - 90.1%
Advertising
Young & Rubicam, Inc.* 4,500 $ 126,000
- --------------------------------------------------------------------------------
Aerospace - 1.8%
General Dynamics Corp. 41,125 $ 1,827,492
Gulfstream Aerospace Corp.* 128,800 5,474,000
Raytheon Co., "A" 99,800 5,320,588
------------
$ 12,622,080
- --------------------------------------------------------------------------------
Airlines - 0.5%
US Airways Group, Inc.* 48,670 $ 3,406,900
- --------------------------------------------------------------------------------
Banks and Credit Companies - 0.2%
Compass Bancshares, Inc. 22,500 $ 1,068,047
- --------------------------------------------------------------------------------
Building - 0.3%
American Standard Cos., Inc.* 45,900 $ 2,214,675
- --------------------------------------------------------------------------------
Business Machines - 1.1%
Affiliated Computer Services, Inc., "A"* 243,300 $ 8,104,931
- --------------------------------------------------------------------------------
Business Services - 3.7%
AccuStaff, Inc.* 84,600 $ 2,786,513
Answerthink Consulting Group, Inc.* 2,100 32,419
Ceridian Corp.* 151,500 8,181,000
Computer Sciences Corp.* 162,200 8,424,262
Policy Management Systems Corp.* 52,500 4,331,250
Professional Detailing, Inc.* 1,500 31,500
Renaissance Worldwide, Inc.* 126,100 2,372,256
------------
$ 26,159,200
- --------------------------------------------------------------------------------
Computer Hardware - Systems - 1.1%
EMC Corp.* 194,500 $ 8,059,594
- --------------------------------------------------------------------------------
Computer Software - Personal Computers - 2.7%
Compaq Computer Corp. 50,000 $ 1,365,625
Microsoft Corp.* 207,700 17,615,556
------------
$ 18,981,181
- --------------------------------------------------------------------------------
Computer Software - Systems - 9.6%
BMC Software, Inc.* 272,900 $ 12,570,456
Cadence Design Systems, Inc.* 269,000 9,482,250
Computer Associates International, Inc. 408,650 21,454,125
Compuware Corp.* 212,000 9,738,750
Keane, Inc.* 58,200 2,611,725
Network Associates, Inc.* 56,200 3,442,250
Oracle Corp.* 126,088 2,978,829
SunGard Data Systems, Inc.* 81,000 2,764,125
Synopsys, Inc.* 86,600 3,718,388
------------
$ 68,760,898
- --------------------------------------------------------------------------------
Consumer Goods and Services - 8.5%
Black & Decker Corp. 134,500 $ 7,851,437
Dial Corp. 66,300 1,645,069
Gillette Co. 55,400 6,488,725
Revlon, Inc., "A"* 164,200 8,692,337
Service Corp. International 135,700 5,546,738
Tyco International Ltd. 555,182 30,743,203
------------
$ 60,967,509
- --------------------------------------------------------------------------------
Electrical Equipment - 1.3%
General Electric Co. 114,900 $ 9,579,788
- --------------------------------------------------------------------------------
Electronics - 0.2%
AES Corp.* 22,000 $ 1,046,375
- --------------------------------------------------------------------------------
Entertainment - 5.0%
Cox Radio, Inc., "A"* 1,300 $ 54,763
Harrah's Entertainment, Inc.* 222,300 5,557,500
Jacor Communications, Inc.* 54,800 2,897,550
Mirage Resorts, Inc.* 165,400 3,442,387
Time Warner, Inc. 107,400 8,357,062
Univision Communications, Inc., "A"* 171,800 5,970,050
Viacom, Inc., "B"* 173,600 9,548,000
------------
$ 35,827,312
- --------------------------------------------------------------------------------
Financial Institutions - 3.5%
Associates First Capital Corp., "A" 95,000 $ 7,107,187
Federal Home Loan Mortgage Corp. 150,600 6,852,300
Green Tree Financial Corp. 95,000 3,817,813
Morgan Stanley, Dean Witter, Discover & Co. 97,300 7,595,481
------------
$ 25,372,781
- --------------------------------------------------------------------------------
Food and Beverage Products - 1.4%
McCormick & Co., Inc. 45,700 $ 1,530,950
Ralston-Ralston Purina Co. 45,375 5,050,805
Tootsie Roll Industries, Inc. 45,027 3,436,123
------------
$ 10,017,878
- --------------------------------------------------------------------------------
Insurance - 7.8%
Ace Ltd. 160,600 $ 5,721,375
Annuity and Life Re Holdings Ltd.* 107,500 2,452,344
Chubb Corp. 32,500 2,585,781
Conseco, Inc. 74,600 3,478,225
Equitable Cos., Inc. 102,050 7,028,694
Life Re Corp. 44,900 3,305,763
Lincoln National Corp. 82,400 7,405,700
Progressive Corp. 33,300 4,591,237
Reliastar Financial Corp. 151,800 6,565,350
Torchmark Corp. 110,800 4,750,550
Travelers Group, Inc. 128,600 7,844,600
------------
$ 55,729,619
- --------------------------------------------------------------------------------
Medical and Health Products - 4.6%
Bristol-Myers Squibb Co. 99,720 $ 10,719,900
Pfizer, Inc. 37,000 3,878,063
Schering Plough Corp. 110,500 9,247,469
Warner-Lambert Co. 147,000 9,380,437
------------
$ 33,225,869
- --------------------------------------------------------------------------------
Medical and Health Technology and Services - 8.3%
Cardinal Health, Inc. 52,400 $ 4,670,150
Columbia/HCA Healthcare Corp. 219,300 7,168,369
HBO & Co. 127,700 7,370,684
HEALTHSOUTH Corp.* 297,500 8,441,562
Humana, Inc. 48,900 1,518,956
Oxford Health Plans, Inc.* 140,000 2,415,000
Tenet Healthcare Corp.* 15,000 525,000
Total Renal Care Holdings, Inc.* 267,800 8,218,113
United Healthcare Corp. 211,000 13,504,000
Wellpoint Health Networks, Inc.* 86,350 5,612,750
------------
$ 59,444,584
- --------------------------------------------------------------------------------
Oil Services - 1.2%
Cooper Cameron Corp.* 43,000 $ 2,558,500
Diamond Offshore Drilling, Inc. 46,900 2,242,406
EVI Weatherford, Inc. 79,182 4,003,640
------------
$ 8,804,546
- --------------------------------------------------------------------------------
Oils - 1.0%
Occidental Petroleum Corp. 127,900 $ 3,533,238
Texaco, Inc. 59,600 3,441,900
------------
$ 6,975,138
- --------------------------------------------------------------------------------
Printing and Publishing - 0.6%
Scholastic Corp.* 104,100 $ 4,164,000
- --------------------------------------------------------------------------------
Restaurants and Lodging - 2.1%
Cendant Corp.* 448,450 $ 9,725,759
CKE Restaurants, Inc. 101,800 3,232,150
McDonalds Corp. 36,500 2,395,313
------------
$ 15,353,222
- --------------------------------------------------------------------------------
Stores - 11.0%
BJ's Wholesale Club, Inc.* 121,500 $ 4,799,250
CVS Corp. 154,669 10,855,830
Linens ' N Things, Inc.* 48,300 1,551,638
Lowe's Co., Inc. 101,600 8,045,450
Nordstrom, Inc. 64,900 4,676,856
Office Depot, Inc.* 340,400 10,041,800
Rite Aid Corp. 684,700 24,520,819
Sears, Roebuck & Co. 149,700 9,253,331
Wal-Mart Stores, Inc. 92,100 5,082,769
------------
$ 78,827,743
- --------------------------------------------------------------------------------
Supermarkets - 3.9%
Giant Food Inc., "A" 89,900 $ 3,865,700
Kroger Co.* 89,800 3,855,787
Meyer (Fred), Inc.* 227,900 9,799,700
Safeway, Inc.* 277,700 10,118,694
------------
$ 27,639,881
- --------------------------------------------------------------------------------
Telecommunications - 8.4%
ADC Telecommunications, Inc.* 20,000 $ 562,500
Ascend Communications, Inc.* 213,100 9,203,256
Century Telephone Enterprises, Inc. 172,700 7,652,769
Cisco Systems, Inc.* 120,400 9,105,250
Com21, Inc.* 700 10,237
Global TeleSystems Group, Inc.* 93,250 3,572,641
Intermedia Communications, Inc.* 37,340 2,767,827
Lucent Technologies, Inc. 97,700 6,930,594
Sprint Corp. 99,000 7,103,250
Tellabs, Inc.* 32,000 2,199,000
WorldCom, Inc.* 247,200 11,247,600
------------
$ 60,354,924
- --------------------------------------------------------------------------------
Utilities - Gas - 0.3%
KN Energy, Inc. 37,900 $ 2,051,338
- --------------------------------------------------------------------------------
Total U.S. Stocks $644,886,013
- --------------------------------------------------------------------------------
Foreign Stocks - 4.1%
France - 1.2%
Alcatel Alsthom Compagnie, ADR
(Telecommunications) 184,500 $ 7,979,625
Thomson CSF (Electronics) 23,300 942,252
------------
$ 8,921,877
- --------------------------------------------------------------------------------
Ireland - 0.1%
Elan Corp., PLC, ADR (Health Products)* 9,800 $ 599,638
- --------------------------------------------------------------------------------
Netherlands - 1.2%
Akzo Nobel N.V. (Chemicals) 24,100 $ 5,032,961
ING Groep N.V. (Financial Services)* 51,800 3,555,280
------------
$ 8,588,241
- --------------------------------------------------------------------------------
Sweden - 0.5%
Skandia Forsakring AB (Insurance) 252,500 $ 3,687,659
- --------------------------------------------------------------------------------
Switzerland - 0.6%
Clariant AG (Chemicals) 3,100 $ 4,044,933
- --------------------------------------------------------------------------------
United Kingdom - 0.5%
British Petroleum PLC, ADR (Oils) 43,134 $ 3,822,751
- --------------------------------------------------------------------------------
Total Foreign Stocks $ 29,665,099
- --------------------------------------------------------------------------------
Total Stocks (Identified Cost, $557,477,905) $674,551,112
- --------------------------------------------------------------------------------
Short-Term Obligations - 4.5%
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage, due 6/01/98 $ 1,535 $ 1,535,000
Federal Home Loan Mortgage, due 6/08/98 - 6/23/98 14,000 13,963,384
Federal National Mortgage Assn., due 6/18/98 10,000 9,974,264
General Electric Capital Corp., due 6/01/98 6,435 6,435,000
- --------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 31,907,648
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $589,385,553) $706,458,760
Other Assets, Less Liabilities - 1.3% 9,470,477
- --------------------------------------------------------------------------------
Net Assets - 100.0% $715,929,237
- --------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- -------------------------------------------------------------------------------
MAY 31, 1998
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $589,385,553) $706,458,760
Cash 7,123
Receivable for investments sold 20,745,054
Receivable for Fund shares sold 622,566
Dividends receivable 309,992
Other assets 6,088
------------
Total assets $728,149,583
------------
Liabilities:
Payable for investments purchased $ 11,309,099
Payable for Fund shares reacquired 375,133
Net payable for forward currency exchange contracts
closed or subject to master netting agreements 8,965
Payable to affiliates -
Management fee 44,126
Shareholder servicing agent fee 6,620
Distribution and service fee 350,342
Administrative fee 1,041
Accrued expenses and other liabilities 125,020
------------
Total liabilities $ 12,220,346
------------
Net assets $715,929,237
============
Net assets consist of:
Paid-in capital $529,525,042
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 117,062,240
Accumulated undistributed net realized gain on
investments and foreign currency transactions 72,058,717
Accumulated net investment loss (2,716,762)
------------
Total $715,929,237
============
Shares of beneficial interest outstanding 43,367,945
==========
Class A shares:
Net asset value per share
(net assets of $278,625,055 / 16,930,320 shares of
beneficial interest outstanding) $16.46
======
Offering price per share (100 / 94.25) $17.46
======
Class B shares:
Net asset value and offering price per share
(net assets of $437,269,284 / 26,435,509 shares of
beneficial interest outstanding) $16.54
======
Class I shares:
Net asset value, offering price and redemption price per share
(net assets of $34,898 / 2,116 shares of beneficial
interest outstanding) $16.49
======
On sales of $50,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A and
Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED MAY 31, 1998
- -------------------------------------------------------------------------------
Net investment income (loss):
Income -
Dividends $ 2,328,948
Interest 921,651
------------
Total investment income $ 3,250,599
------------
Expenses -
Management fee $ 2,592,423
Trustees' compensation 18,274
Shareholder servicing agent fee 398,051
Distribution and service fee (Class A) 312,156
Distribution and service fee (Class B) 2,207,945
Administrative fee 46,425
Custodian fee 104,909
Printing 78,208
Postage 49,423
Auditing fees 15,253
Legal fees 813
Miscellaneous 124,712
------------
Total expenses $ 5,948,592
Fees paid indirectly (34,435)
------------
Net expenses $ 5,914,157
------------
Net investment loss $ (2,663,558)
------------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) -
Investment transactions $ 73,879,392
Foreign currency transactions 87,776
------------
Net realized gain on investments and foreign currency
transactions $ 73,967,168
------------
Change in unrealized appreciation -
Investments $ 23,311,664
Translation of assets and liabilities in foreign
currencies 93,069
------------
Net unrealized gain on investments and foreign
currency translation $ 23,404,733
------------
Net realized and unrealized gain on investments and
foreign currency $ 97,371,901
------------
Increase in net assets from operations $ 94,708,343
============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment loss $ (2,663,558) $ (1,797,705)
Net realized gain on investments and foreign currency
transactions 73,967,168 107,469,773
Net unrealized gain on investments and foreign currency
translation 23,404,733 25,270,907
------------- -------------
Increase in net assets from operations $ 94,708,343 $ 130,942,975
------------- -------------
Distributions declared to shareholders -
From net realized gain on investments and foreign
currency transactions (Class A) $ (37,987,394) $ (35,176,024)
From net realized gain on investments and foreign
currency transactions (Class B) (69,353,928) (93,850,492)
From net realized gain on investments and foreign
currency transactions (Class I) (434) --
------------- -------------
Total distributions declared to shareholders $(107,341,756) $(129,026,516)
------------- -------------
Net increase in net assets from Fund share transactions $ 76,478,365 $ 68,970,507
------------- -------------
Total increase in net assets $ 63,844,952 $ 70,886,966
Net assets:
At beginning of period 652,084,285 581,197,319
------------- -------------
At end of period (including accumulated net investment
loss of $2,716,762 and $53,204, respectively) $ 715,929,237 $ 652,084,285
============= =============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
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 $17.36 $18.02 $17.67 $13.49 $14.75 $14.58
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.02) $ 0.03 $ 0.08 $ 0.11 $ 0.21 $ 0.03
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions 2.07 3.41 2.96 4.91 (0.25) 0.14
------ ------ ------ ------ ------ ------
Total from investment
operations $ 2.05 $ 3.44 $ 3.04 $ 5.02 $(0.04) $ 0.17
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $(0.16) $(0.22) $(0.06) $ --
From net realized gain on
investments and foreign
currency transactions (2.95) (4.10) (2.53) (0.62) (1.16) --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(2.95) $(4.10) $(2.69) $(0.84) $(1.22) $ --
------ ------ ------ ------ ------ ------
Net asset value - end of period $16.46 $17.36 $18.02 $17.67 $13.49 $14.75
====== ====== ====== ====== ====== ======
Total return(+) 15.09%++ 24.67% 19.76% 39.51% (0.47)% 5.01%+
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.24%+ 1.29% 1.31% 1.27% 1.12% 0.91%+
Net investment income (loss) (0.29)%+ 0.22% 0.47% 0.67% 1.59% 1.67%+
Portfolio turnover 106% 159% 112% 91% 50% 70%
Net assets at end of period
(000 omitted) $278,625 $219,755 $150,261 $88,119 $2,608 $ 196
* For the period from the inception of Class A, September 7, 1993, through November 30, 1993.
+ Annualized.
++ Not annualized.
# Per share data 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.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
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 $17.34 $17.96 $17.56 $13.37 $14.72 $14.83
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.08) $(0.08) $(0.06) $ 0.01 $ 0.04 $ 0.03
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions 2.10 3.40 2.97 4.85 (0.23) 0.50
------ ------ ------ ------ ------ ------
Total from investment
operations $ 2.02 $ 3.32 $ 2.91 $ 4.86 $(0.19) $ 0.53
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $ -- $(0.05) $ -- +++ $(0.02)
From net realized gain on
investments and foreign
currency transactions (2.82) (3.94) (2.51) (0.62) (1.16) (0.62)
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(2.82) $(3.94) $(2.51) $(0.67) $(1.16) $(0.64)
------ ------ ------ ------ ------ ------
Net asset value - end of period $16.54 $17.34 $17.96 $17.56 $13.37 $14.72
====== ====== ====== ====== ====== ======
Total return 14.67%++ 23.66% 18.84% 38.16% (1.52)% 3.70%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.99%+ 2.05% 2.13% 2.14% 2.18% 2.15%
Net investment income (loss) (1.04)%+ (0.51)% (0.38)% 0.08% 0.32% 0.10%
Portfolio turnover 106% 159% 112% 91% 50% 70%
Net assets at end of period
(000 omitted) $437,269 $432,327 $430,936 $428,445 $384,504 $454,089
+ Annualized.
++ Not annualized.
# Per share data 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.
+++ The per share amount was less than $0.01.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
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 $13.27 $11.29 $12.05 $ 9.38 $ 7.59
------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 0.02 $ 0.10 $ 0.18 $ 0.17 $ 0.12
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 2.61 2.15 (0.75) 2.63 1.76
------ ------ ------ ------ ------
Total from investment operations $ 2.63 $ 2.25 $(0.57) $ 2.80 $ 1.88
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.14) $(0.19) $(0.13) $(0.09)
From net realized gain on investments and
foreign currency transactions (1.07) (0.13) -- -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.07) $(0.27) $(0.19) $(0.13) $(0.09)
------ ------ ------ ------ ------
Net asset value - end of period $14.83 $13.27 $11.29 $12.05 $ 9.38
====== ====== ====== ====== ======
Total return 20.61% 20.22% (4.80)% 30.11% 24.79%
Ratios (to average net assets)/Supplemental data:
Expenses 2.24% 2.28% 2.38% 2.46% 2.17%
Net investment income 0.18% 0.75% 1.56% 1.56% 1.34%
Portfolio turnover 65% 86% 68% 58% 93%
Net assets at end of period (000 omitted) $436,561 $317,375 $226,245 $202,861 $130,961
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
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 $17.41 $13.99
------ ------
Income from investment operations# -
Net investment income (loss) $(0.01) $ 0.12
Net realized and unrealized gain on investments and foreign
currency transactions 2.08 3.30
------ ------
Total from investment operations $ 2.07 $ 3.42
------ ------
Less distributions declared to shareholders from net realized gain
on investments and foreign currency transactions $(2.99) $ --
------ ------
Net asset value - end of period $16.49 $17.41
====== ======
Total return 15.29%++ 24.45%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.99%+ 1.07%+
Net investment income (loss) (0.04)%+ 0.90%+
Portfolio turnover 106% 159%
Net assets at end of period (000 omitted) $35 $3
** 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.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Large Cap Growth Fund (the Fund) is a diversified series of MFS Series
Trust II (the Trust). The Trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. 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. Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, forward contracts,
and swap agreements, 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.
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.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The Fund will enter
into forward contracts for hedging purposes as well as for non-hedging
purposes. For hedging purposes, the Fund may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. The Fund may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains
or losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is 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 annual
rates:
First $1 billion of average net assets 0.75%
Average net assets in excess of $1 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 $5,530
for the six months ended May 31, 1998.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$22,619 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 and Class B 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. Payment of the 0.10% per annum
Class A distribution fee will be implemented on such date as the Trustees of
the Fund may determine. MFD retains the service fee for accounts not
attributable to a securities dealer, which amounted to $43,464 for the six
months ended May 31, 1998. 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 shares.
MFD will pay to securities dealers that enter into a sales agreement with MFD
all or a portion of the service fee attributable to Class B shares. The
service fee is intended to be consideration for services rendered by the
dealer with respect to Class B shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $42,408
for Class B shares 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 Class B shares on an annualized
basis.
Certain Class A 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
$501 and $130,007 for Class A and Class B 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 purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
- -------------------------------------------------------------------------------
U.S. government securities $ 8,030,662 $ 11,769,561
------------ ------------
Investments (non-U.S. government securities) $695,187,045 $723,861,774
------------ ------------
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 $589,385,553
------------
Gross unrealized appreciation 121,890,194
Gross unrealized depreciation (4,816,987)
------------
Net unrealized appreciation $117,073,207
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
SIX MONTHS ENDED MAY 31, 1998 YEAR ENDED NOVEMBER 30, 1997
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,659,685 $ 58,757,382 6,566,820 $101,517,226
Shares issued to shareholders in
reinvestment of distributions 2,499,577 34,544,130 2,244,024 31,304,372
Shares transferred to Class I -- -- (14) (202)
Shares reacquired (1,889,987) (30,680,516) (4,486,913) (68,471,593)
---------- ------------ ---------- ------------
Net increase 4,269,275 $ 62,620,996 4,323,917 $ 64,349,803
========== ============ ========== ============
<CAPTION>
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 1,430,530 $ 22,708,959 4,299,888 $ 67,740,816
Shares issued to shareholders in
reinvestment of distributions 4,732,209 65,919,986 6,306,282 88,541,200
Shares reacquired (4,655,357) (74,804,476) (9,673,175) (151,660,715)
---------- ------------ ---------- ------------
Net increase 1,507,382 $ 13,824,469 932,995 $ 4,621,301
========== ============ ========== ============
<CAPTION>
Class I Shares
SIX MONTHS ENDED MAY 31, 1998 PERIOD ENDED NOVEMBER 30, 1997*
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 126 $ 32,466 14,678 $ 217,807
Shares issued to shareholders in
reinvestment of distributions 1,845 434 14 202
Shares reacquired -- -- (14,547) (218,606)
---------- ------------ ---------- ------------
Net increase (decrease) 1,971 $ 32,900 145 $ (597)
========== ============ ========== ============
*For the period from the inception of Class I, January 2, 1997, through November 30, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $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 $1,718.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include forward foreign currency exchange contracts. The
notional or contractual amounts of these instruments represent the investment
the Fund has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
Forward foreign currency purchases and sales under master netting agreements
amounted to a net payable of $8,965 with Deutsche Bank at May 31, 1998.
At May 31, 1998, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
(8) Name Change
Effective September 1, 1997, MFS(R) Capital Growth Fund changed its name to
MFS(R) Large Cap Growth Fund.
<PAGE>
MFS(R) Large Cap Growth Fund
<TABLE>
<S> <C>
Trustees Secretary
Richard B. Bailey* - Private Investor; Former Stephen E. Cavan*
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
Walter E. Robb, III - President and Treasurer, day from 9 a.m. to 5 p.m. Eastern time (or
Benchmark Advisors, Inc. (corporate financial leave a message anytime).
consultants); President, Benchmark Consulting
Group, Inc. (office services) Investor Service
MFS Service Center, Inc.
Arnold D. Scott* - Senior Executive P.O. Box 2281
Vice President, Director, and Secretary, Boston, MA 02107-9906
MFS Investment Management
For general information, call toll free:
Jeffrey L. Shames* - Chairman, Chief 1-800-225-2606 any business day from
Executive Officer, and Director, 8 a.m. to 8 p.m. Eastern time.
MFS Investment Management
For service to speech- or hearing-impaired,
J. Dale Sherratt - President, Insight call toll free: 1-800-637-6576 any business
Resources, Inc. (acquisition planning day from 9 a.m. to 5 p.m. Eastern time. (To
specialists) use this service, your phone must be equipped
with a Telecommunications Device for the
Ward Smith - Former Chairman (until 1994), Deaf.) For share prices, account balances, and
NACCO Industries (holding company) exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone
Investment Adviser telephone.
Massachusetts Financial Services Company
500 Boylston Street World Wide Web
Boston, MA 02116-3741 www.mfs.com
Distributor For the fourth year in a row,
MFS Fund Distributors, Inc. MFS earned a #1 ranking in the
500 Boylston Street [Dalbar Logo] DALBAR, Inc. Broker/Dealer
Boston, MA 02116-3741 Survey, Main Office Operation
Service Quality Category. The
Portfolio Manager firm achieved a 3.42 overall score on a
Stephen Pesek* scale of 1 to 4 in the 1997 survey. A total
of 111 firms responded, offering input on
Treasurer the quality of service they received from 29
W. Thomas London* mutual fund companies nationwide. The survey
contained questions about service quality in
Assistant Treasurers 11 categories, including "knowledge of
Mark E. Bradley* operations contact," "keeping you informed,"
Ellen Moynihan* and "ease of doing business" with the firm.
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
-----------------
MFS(R) LARGE CAP GROWTH FUND Bulk Rate
U.S. Postage
Paid
[Logo] M F S(SM) MFS
INVESTMENT MANAGEMENT -----------------
We invented the mutual fund(SM)
500 Boylston Street
Boston, MA 02116-3741
[DALBAR LOGO]
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MLC-3 7/98 62M 03/203/803
