<PAGE>
[LOGO] M F S(SM) Annual Report
INVESTMENT MANAGEMENT November 30, 1997
MFS(R) LARGE CAP GROWTH FUND
(FORMERLY MFS(R) CAPITAL GROWTH FUND)
[Graphic Omitted]
LEARNING FINANCIAL BASICS THE EASY WAY (see page 32)
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
A Discussion with the Portfolio Manager ................................... 2
Portfolio Manager's Profile ............................................... 5
Fund Facts ................................................................ 6
Performance Summary ....................................................... 6
Portfolio Concentration ................................................... 9
Tax Form Summary .......................................................... 9
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 23
Independent Auditors' Report .............................................. 29
MFS Investment Opportunities .............................................. 30
The MFS Family of Funds(R) ................................................ 31
The ABCs of Investing ..................................................... 32
Trustees and Officers ..................................................... 33
HIGHLIGHTS
o FOR THE 12 MONTHS ENDED NOVEMBER 30, 1997, CLASS A SHARES OF THE FUND
PROVIDED A TOTAL RETURN AT NET ASSET VALUE OF 24.67%, CLASS B SHARES 23.66%,
AND CLASS I SHARES 24.09%. (SEE PERFORMANCE SUMMARY FOR MORE INFORMATION.)
o THE FUND HAS BENEFITED FROM AN ENVIRONMENT IN WHICH INTEREST RATES HAVE BEEN
FALLING WHILE ECONOMIC GROWTH AND CORPORATE PROFITS HAVE BEEN STRONG,
ALTHOUGH WE ANTICIPATE SOME SLOWDOWN IN GROWTH GOING FORWARD.
o THE FUND SEEKS TO INVEST IN COMPANIES WITH ABOVE-AVERAGE REVENUE AND
EARNINGS GROWTH, AS WELL AS IN COMPANIES THAT WE BELIEVE CAN CONTROL THEIR
OWN DESTINIES THROUGH INTERNAL CHANGE, SUCH AS THROUGH COST CUTTING OR
CONSOLIDATION.
o EFFECTIVE SEPTEMBER 1, 1997, THE NAME OF THE FUND WAS CHANGED TO MFS(R)
LARGE CAP GROWTH FUND. WHILE THE FUND'S INVESTMENT OBJECTIVE -- LONG-TERM
GROWTH OF CAPITAL -- IS THE SAME, THE FUND WILL PURSUE THIS OBJECTIVE BY
INVESTING IN STOCKS OF LARGE-CAPITALIZATION COMPANIES.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of A. Keith Brodkin]
Dear Shareholders:
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still uncomfortably
high. The rapid pace of growth seen in the first quarter slowed to an annual
rate of 3.3% in the second quarter and 3.5% in the third. We believe economic
momentum will carry well into the first quarter of 1998, as the money supply is
increasing at a rapid rate. Because economic growth continues to be impressive,
markets are likely to continue to focus on the Federal Reserve Board's
willingness to raise interest rates.
The extreme volatility seen in the U.S. equity market in October was, we
believe, the consequence of overvaluations that had been evident for some
months. As a result, the stock market has been vulnerable to some type of
correction and has been impacted in the near term by chaotic market conditions
in the Pacific Rim. In the face of all this, however, the equity market
continues to exhibit surprising strength, much of it the result of continued
gains in corporate earnings, a trend that could be an important indicator of the
market's future direction. Certainly the situation throughout Asia bears close
scrutiny because it appears to be clearly deflationary and raises the prospect
of trade wars developing throughout the area. We are not convinced that U.S.
markets have escaped totally from October's volatility. Thus, while the
near-term outlook for profits is generally favorable, we believe equity
valuations have risen to a point where a cautious investment approach seems
warranted, with a need for particular attention to be paid to the effect of
Pacific Rim volatility on the earnings of U.S. companies.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
December 15, 1997
<PAGE>
A DISCUSSION WITH THE PORTFOLIO MANAGER
[Photo of Stephen Pesek]
Stephen Pesek
For the 12 months ended November 30, 1997, Class A shares of the Fund provided
a total return of 24.67%, Class B shares 23.66%, and Class I shares 24.09%.
These returns assume the reinvestment of distributions but exclude the effects
of any sales charges and compare to a 28.60% 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 Large Cap
Growth Fund. While the Fund's investment objective -- long-term growth of
capital -- is the same, the Fund will pursue this objective by investing in
stocks of large-capitalization companies.
Q. HOW HAS THE FUND'S STRATEGY CHANGED SINCE IT WAS RENAMED?
A. There is somewhat more emphasis on companies with strong current
fundamentals and less on turnaround situations or potential growth
possibilities. We cite four major characteristics to describe companies in
the portfolio. First, we look for companies with high unit sales growth that
supports above-average revenue growth. Second, we look for companies with
accelerated earnings growth driven by expanding profit margins, new product
cycles, and/or acquisitions that contribute to growth. Third, we want
companies that are able to control their own destinies through internal
change, such as through cost cutting, consolidation, and relatively high
levels of internal investment. Finally, we look for companies that we think
can benefit from a fundamental mismatch in the balance between supply and
demand.
Q. CAN YOU GIVE US AN EXAMPLE OF A COMPANY THAT FITS THIS DESCRIPTION?
A. One would be Rite Aid, a drug store company. The company has good same-
store sales driven by current health care trends, including the fact that
more people are enrolling in managed-care plans, or health maintenance
organizations (HMOs). Because HMOs stress lower-cost medical care, people
using them tend to order more prescription drugs, rather than go into
hospitals. This creates a good, underlying growth trend in drug usage. On
top of that, the advent of the co-payment system has made it easier and
cheaper for patients to get the drugs they need. Also, as the population
ages, the number of prescriptions goes up. The average person gets about 13
prescriptions per year, but when people reach age 65 they get about 21
prescriptions per year. Rite Aid recently made a big acquisition on the West
Coast, so for the next couple of years it's well positioned to improve
operating profits.
Q. HOW WOULD YOU DESCRIBE THE BUSINESS AND INVESTMENT ENVIRONMENT OF THE PAST
YEAR?
A. It's been very favorable. Interest rates have fallen, while economic growth
and corporate profits have been strong. In fact, the United States is having
its longest economic expansion since the Civil War. While the current
environment is good, we do anticipate some slowdown in growth going forward.
Q. FINANCIAL SERVICES IS ONE OF THE LARGEST SECTORS IN THE FUND. COULD YOU TALK
ABOUT THE KIND OF COMPANIES YOU LIKE HERE?
A. Fannie Mae (Federal Home Loan Mortgage Corporation) has been a good holding
for the Fund. Housing dynamics are spectacular, with home ownership at
record levels and the birth rate increasing for the first time in 50 years.
Also, with the strong economy, the near-term trends for discretionary income
are good. One of those trends is the large number of mortgage refinancings,
reducing homeowners' monthly mortgage payments. The banking area has also
done well and, there, we're looking for good regional banks, not necessarily
large money-center banks. We like banks that have good underlying
demographic growth in their regions and that are benefiting from
consolidation. A third area is auto insurers, a sector in which companies
are benefiting from improvements in loss ratios. Two reasons for these
improvements are tort reform and favorable litigation trends. For example,
insurance companies have done a better job of intervention and of arranging
settlements as quickly as possible. Also, air bags and the increased use of
seat belts have reduced the severity of many injuries.
Q. WHAT ABOUT TECHNOLOGY?
A. That's actually come down a bit in the portfolio. At the end of August, the
technology weighting was almost 24% and, by the end of November, it was
17.7%. A lot of that was due to the Asian crisis, as we've sold some
holdings in that region. We're now shifting from infrastructure companies
that make components and hardware toward solution-oriented companies,
software and service companies that we think have a more defensible business
model. Here, holdings include Computer Sciences, Computer Associates, BMC
Software, and Compuware. The Asian slowdown probably impacts technology more
than any other industry, and I think that situation is going to continue for
a while.
Q. AND WHAT ABOUT HEALTH CARE?
A. In addition to the drug stores, the better-valued pharmaceutical companies
such as Bristol-Myers Squibb and Schering Plough are still big holdings.
These companies have new drugs under development that should be coming to
market in the next couple of years.
Q. WOULD YOU SAY THE FUND IS POSITIONED DEFENSIVELY OR AGGRESSIVELY THESE DAYS?
A. I'd say we're more defensive, for a couple of reasons. First, we think
valuations are high, meaning that stocks are selling at high multiples
relative to their earnings and book values. This makes them more vulnerable
when there are market swings in places like Asia or Latin America. Second,
if you look at the two components of stock price performance, earnings and
interest rates, we're more optimistic about the trend of interest rates and
less optimistic about the trend of corporate earnings. For example, more
than one-third of the 30 companies in the Dow Jones Industrial Average have
missed their earnings projections in the past couple of quarters. One reason
for this is that we're late in this economic expansion, and it seems like
the economy is slowing down.
Q. COULD YOU TALK ABOUT ANY STOCKS THAT HAVE PERFORMED BETTER THAN EXPECTED?
A. Compuware is a good example. Half of the company's business is systems
integration, and half is software, by which the company provides client-
server software systems for corporate customers. These systems tie the
different computer systems together, and the company has done very well in
terms of revenue and earnings growth.
Q. AND WHAT ABOUT STOCKS THAT HAVE NOT PERFORMED AS WELL AS YOU WOULD HAVE
WISHED?
A. One would be United Healthcare, which may be getting caught up in what we
believe is an emerging HMO crisis. While HMOs have started raising prices
modestly, cost trends have been surprisingly poor for the industry; that is,
their costs have been going up, but they haven't been able to raise prices
sufficiently to make up for it. We think this situation will improve, but it
might take another year or two.
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. The slowdown in growth we're anticipating points us toward industries like
consumer nondurables, health care, and financial services, sectors that we
believe can manage better in a slow-growth environment. This recovery has
gone on so long that we think corporate earnings have to slow eventually, so
we're looking for companies with more-predictable growth capabilities, such
as some of the financial services companies.
/s/ Stephen Pesek
Stephen Pesek
Portfolio Manager
PORTFOLIO MANAGER'S PROFILE
STEPHEN PESEK JOINED MFS IN 1994 AS AN INDUSTRY SPECIALIST AND WAS PROMOTED TO
VICE PRESIDENT IN 1995. A GRADUATE OF THE UNIVERSITY OF PENNSYLVANIA, HE HOLDS A
MASTER OF BUSINESS ADMINISTRATION DEGREE FROM COLUMBIA UNIVERSITY. HE IS A
CHARTERED FINANCIAL ANALYST AND HAS MANAGED MFS LARGE CAP GROWTH FUND SINCE JUNE
1997.
<PAGE>
FUND FACTS
NOTE: THE FUND CHANGED ITS NAME FROM MFS(R) CAPITAL GROWTH FUND TO MFS LARGE CAP
GROWTH FUND AS OF SEPTEMBER 1, 1997.
OBJECTIVE: THE FUND SEEKS TO PROVIDE GROWTH OF CAPITAL.
DIVIDEND INCOME, IF ANY, IS A CONSIDERATION
INCIDENTAL TO THE FUND'S OBJECTIVE.
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: $652.1 MILLION NET ASSETS AS OF NOVEMBER 30, 1997
PERFORMANCE SUMMARY
The information below and on the following page illustrates the historical
performance of MFS Large Cap Growth Fund -- Class B shares in comparison to
various market indicators. Class B share performance results do not reflect the
deduction of any contingent deferred sales charge (CDSC); benchmark comparisons
are unmanaged and do not reflect any fees or expenses. The performance of other
share classes will be greater than or less than the line shown, based on
differences in charges and fees paid by shareholders investing in different
classes. It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-year period ended November 30, 1997)
MFS LARGE CAP S&P 500 CONSUMER
GROWTH FUND COMPOSITE PRICE INDEX
-- CLASS B INDEX -- U.S.
- --------------------------------------------------------------
11/92 $10,000 $10,000 $10,000
11/93 10,370 11,010 10,268
11/94 10,212 11,125 10,542
11/95 14,109 15,239 10,813
11/96 16,768 19,485 11,169
11/97 20,735 25,041 11,409
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended November 30, 1997)
MFS LARGE CAP S&P 500 CONSUMER
GROWTH FUND COMPOSITE PRICE INDEX
-- CLASS B INDEX -- U.S.
- --------------------------------------------------------------
11/87 $10,000 $10,000 $10,000
11/89 16,237 16,136 10,904
11/91 18,584 18,745 11,934
11/93 23,244 24,450 12,627
11/96 31,626 33,843 13,298
11/97 46,478 55,611 14,030
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF NOVEMBER 30, 1997
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Large Cap Growth Fund (Class A)
including 5.75% sales charge (SEC results) +17.50% +25.22% +15.22% +16.36%
- ----------------------------------------------------------------------------------------------------------------------
MFS Large Cap Growth Fund (Class A) at net asset value +24.67% +27.71% +16.59% +17.05%
- ----------------------------------------------------------------------------------------------------------------------
MFS Large Cap Growth Fund (Class B) with CDSC (SEC results) +19.80% +26.00% +15.48% +16.61%
- ----------------------------------------------------------------------------------------------------------------------
MFS Large Cap Growth Fund (Class B) at net asset value +23.66% +26.63% +15.70% +16.61%
- ----------------------------------------------------------------------------------------------------------------------
MFS Large Cap Growth Fund (Class I) at net asset value +24.09% +26.77% +15.78% +16.65%
- ----------------------------------------------------------------------------------------------------------------------
Average growth fund* +22.00% +24.80% +16.55% +16.76%
- ----------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index+ +28.60% +31.05% +20.15% +18.72%
- ----------------------------------------------------------------------------------------------------------------------
Consumer Price Index+# + 2.15% + 2.67% + 2.67% + 3.44%
- ----------------------------------------------------------------------------------------------------------------------
* Source: Lipper Analytical Services, Inc.
+ Source: CDA/Wiesenberger.
# The Consumer Price Index is published by the U.S. Bureau of Labor Statistics and measures the cost of living
(inflation).
</TABLE>
All results are historical and assume the reinvestment of dividends and
capital gains. Investment return and principal value will fluctuate, and
shares, when redeemed, may be worth more or less than their original cost.
Past performance is no guarantee of future results.
Class A share SEC results include the maximum 5.75% sales charge. Class B
share SEC results reflect the applicable contingent deferred sales charge
(CDSC), which declines over six years as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%.
Class I shares have no sales charge or Rule 12b-1 fees and are only available
to certain institutional investors.
Class A share results include the performance and the operating expenses
(e.g., Rule 12b-1 fees) of the Fund's Class B shares for periods prior to the
inception of Class A shares. Because operating expenses attributable to Class
B shares are greater than those of Class A shares, Class A share performance
generally would have been higher than Class B share performance. The Class B
share performance included within the Class A share SEC performance has been
adjusted to reflect the initial sales charge generally applicable to Class A
shares rather than the CDSC generally applicable to Class B shares.
Class I share results include the performance and the operating expenses
(e.g., Rule 12b-1 fees) of the Fund's Class B shares for periods prior to the
inception of Class I shares. Because operating expenses attributable to Class
B shares are greater than those of Class I shares, Class I share performance
generally would have been higher than Class B share performance. The Class B
share performance included within the Class I share performance has been
adjusted to reflect the fact that Class I shares have no CDSC.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details.
<PAGE>
PORTFOLIO CONCENTRATION AS OF NOVEMBER 30, 1997
TOP 10 HOLDINGS (BEGINNING WITH THE LARGEST POSITION IN THE PORTFOLIO)
TYCO INTERNATIONAL LTD. CUC INTERNATIONAL
Manufacturer of fire protection, Home shopping company
packaging, and electronic equipment
UNITED HEALTHCARE CORP.
RITE AID CORP. Health maintenance organization
U.S. drug store chain
BMC SOFTWARE
BRISTOL-MYERS SQUIBB CO. Computer software company
Pharmaceutical products company
MICROSOFT CORP.
COMPUTER ASSOCIATES INTERNATIONAL, INC. Computer software and systems company
Computer software company
FRED MEYER, INC.
CVS CORP. Northwestern U.S. supermarket chain
U.S. drug store chain
LARGEST SECTORS
Other Sectors 29.2%
Technology 17.7%
Miscellaneous
(Conglomerates, special products/services) 13.4%
Financial Services 13.3%
Health Care 13.3%
Retailing 13.1%
For a more complete breakdown, refer to the Portfolio of Investments.
TAX FORM SUMMARY
IN JANUARY 1998, SHAREHOLDERS WILL BE MAILED A TAX FORM SUMMARY
REPORTING THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE
CALENDAR YEAR 1997.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
THE FUND HAS DESIGNATED $99,422,535 AS A LONG-TERM CAPITAL GAIN.
DIVIDENDS-RECEIVED DEDUCTION
FOR THE YEAR ENDED NOVEMBER 30, 1997, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS-RECEIVED DEDUCTION FOR
CORPORATIONS WAS 10.80%.
PORTFOLIO OF INVESTMENTS - November 30, 1997
Stocks - 93.5%
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ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
U.S. Stocks - 88.8%
Aerospace - 0.3%
Allied Signal, Inc. 59,600 $ 2,212,650
Boeing Co. 130 6,906
------------
$ 2,219,556
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Automotive
Avis Rent A Car, Inc.* 8,200 $ 275,213
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Banks and Credit Companies - 1.6%
Bank of New York, Inc. 61,100 $ 3,284,125
Compass Bancshares, Inc. 84,300 3,372,000
Wells Fargo & Co. 11,500 3,533,375
------------
$ 10,189,500
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Business Machines - 0.3%
Affiliated Computer Services, Inc., "A"* 86,200 $ 2,014,925
- -------------------------------------------------------------------------------
Business Services - 4.6%
At Home Corp.* 1,700 $ 35,062
BDM International, Inc.* 71,100 2,079,675
Bright Horizons, Inc.* 1,400 22,225
Computer Sciences Corp.* 92,900 7,356,519
CUC International, Inc.* 435,200 12,512,000
First Data Corp. 109,400 3,097,387
Ikon Office Solutions, Inc. 146,500 4,459,094
Pierce Leahy Corp.* 4,400 107,250
SPR, Inc.* 1,600 25,400
------------
$ 29,694,612
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Cellular Telephones - 0.6%
Telephone & Data Systems, Inc. 85,200 $ 3,743,475
- -------------------------------------------------------------------------------
Chemicals - 0.7%
Air Products & Chemicals, Inc. 59,600 $ 4,570,575
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Computer Software - Personal Computers - 1.5%
Microsoft Corp.* 70,400 $ 9,961,600
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Computer Software - Systems - 7.8%
BMC Software, Inc.* 157,700 $ 10,230,787
Cadence Design Systems, Inc.* 66,600 1,681,650
Compaq Computer Corp.* 102,400 6,393,600
Computer Associates International, Inc. 250,650 13,049,466
Compuware Corp.* 245,400 8,573,662
Edwards (J.D.) & Co.* 4,200 143,850
Keane, Inc.* 37,200 1,178,775
Oracle Systems Corp.* 166,700 5,553,194
Scopus Technology Inc.* 75,800 909,600
Synopsys, Inc.* 78,700 3,236,538
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$ 50,951,122
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Consumer Goods and Services - 10.8%
Clorox Co. 42,200 $ 3,275,775
Colgate-Palmolive Co. 71,200 4,757,050
Gillette Co. 26,700 2,464,744
Newell Co. 112,500 4,591,406
Philip Morris Cos., Inc. 194,100 8,443,350
RJR Nabisco Holdings Corp. 141,900 5,170,481
Service Corp. International 128,600 4,701,938
Tyco International Ltd. 943,682 37,039,518
------------
$ 70,444,262
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Containers - 1.2%
Corning, Inc. 68,936 $ 2,925,472
Jefferson Smurfit Corp.* 22,000 363,000
Stone Container Corp. 358,600 4,482,500
------------
$ 7,770,972
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Electrical Equipment - 0.4%
Westinghouse Electric Corp. 75,900 $ 2,277,000
- -------------------------------------------------------------------------------
Electronics - 2.5%
Altera Corp.* 62,100 $ 2,907,056
Analog Devices, Inc.* 183,400 5,754,175
Applied Materials, Inc.* 41,100 1,356,300
Atmel Corp.* 43,900 985,006
Intel Corp. 43,400 3,368,925
Teradyne, Inc.* 51,900 1,702,969
------------
$ 16,074,431
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Entertainment - 4.7%
American Radio Systems Corp., "A"* 141,500 $ 7,039,625
Clear Channel Communications, Inc.* 103,300 6,998,575
Harrah's Entertainment, Inc.* 194,200 3,896,138
Hearst-Argyle Television, Inc.* 33,800 988,650
LIN Television Corp.* 73,100 3,919,987
Mirage Resorts, Inc.* 136,700 3,246,625
Univision Communications, Inc., "A"* 16,500 1,098,281
Viacom, Inc., "B"* 107,100 3,748,500
------------
$ 30,936,381
- -------------------------------------------------------------------------------
Financial Institutions - 4.5%
American Express Co. 65,100 $ 5,134,762
ARM Financial Group, Inc., "A" 3,000 60,938
Associates First Capital Corp., "A" 64,000 4,112,000
CIT Group, Inc.* 17,900 543,712
Federal National Mortgage Assn. 175,500 9,268,594
Merrill Lynch & Co., Inc. 56,500 3,965,594
Morgan Stanley, Dean Witter, Discover & Co. 43,600 2,368,025
Union Planters Corp. 57,500 3,550,625
------------
$ 29,004,250
- -------------------------------------------------------------------------------
Food and Beverage Products - 2.7%
Beringer Wine Estates Holdings, "B"* 2,900 $ 94,250
McCormick & Co., Inc. 147,500 3,908,750
Mondavi Robert Corp.* 41,700 1,975,538
Pepsi Co., Inc. 129,300 4,767,937
Ralston-Ralston Purina Co. 29,000 2,697,000
Tootsie Roll Industries, Inc. 60,900 3,912,825
------------
$ 17,356,300
- -------------------------------------------------------------------------------
Forest and Paper Products - 1.1%
Kimberly-Clark Corp. 135,300 $ 7,044,056
- -------------------------------------------------------------------------------
Insurance - 6.2%
Allstate Corp. 84,200 $ 7,230,675
Chubb Corp. 79,000 5,604,062
CIGNA Corp. 42,200 7,057,950
Executive Risk, Inc. 22,800 1,482,000
Frontier Insurance Group, Inc. 3,000 72,188
Lincoln National Corp. 38,300 2,733,662
Paula Financial* 1,300 28,925
PennCorp Financial Group, Inc. 18,300 618,769
Progressive Corp. 77,500 7,905,000
Torchmark Corp. 83,600 3,411,925
Travelers Group, Inc. 87,600 4,423,800
------------
$ 40,568,956
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Machinery
JLK Direct Distribution, Inc., "A"* 1,300 $ 36,969
- -------------------------------------------------------------------------------
Medical and Health Products - 6.8%
Boston Scientific Corp.* 67,300 $ 3,041,119
Bristol-Myers Squibb Co. 175,520 16,433,060
McKesson Corp. 25,100 2,808,062
Mentor Corp. 131,700 4,477,800
Pfizer, Inc. 87,700 6,380,175
Schering Plough Corp. 134,100 8,406,394
Warner-Lambert Co. 20,000 2,797,500
------------
$ 44,344,110
- -------------------------------------------------------------------------------
Medical and Health Technology and Services - 5.8%
AmeriSource Health Corp., "A"* 93,900 $ 6,080,025
Cardinal Health, Inc. 48,100 3,643,575
Columbia/HCA Healthcare Corp. 97,900 2,888,050
Guidant Corp. 50,800 3,263,900
HBO & Co. 31,000 1,391,125
HEALTHSOUTH Corp.* 184,700 4,848,375
Pacificare Health Systems, Inc., "B"* 19,000 1,021,250
Shared Medical System Corp. 58,500 3,744,000
United Healthcare Corp. 208,200 10,839,412
------------
$ 37,719,712
- -------------------------------------------------------------------------------
Oil Services - 2.2%
Baker Hughes, Inc. 54,700 $ 2,290,563
Camco International, Inc. 35,400 2,221,350
Cooper Cameron Corp. 42,500 2,589,844
IRI International Corp.* 7,200 116,100
Noble Drilling Corp.* 161,000 4,840,062
Weatherford Enterra, Inc.* 57,200 2,577,575
------------
$ 14,635,494
- -------------------------------------------------------------------------------
Oils - 1.8%
Occidental Petroleum Corp. 229,600 $ 6,816,250
Texaco, Inc. 85,000 4,802,500
------------
$ 11,618,750
- -------------------------------------------------------------------------------
Railroads - 1.0%
Burlington Northern Santa Fe Corp. 27,300 $ 2,497,950
Wisconsin Central Transportation Corp.* 136,500 4,112,063
------------
$ 6,610,013
- -------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.3%
Equity Office Properties Trust 49,800 $ 1,615,388
- -------------------------------------------------------------------------------
Restaurants and Lodging - 1.5%
Friendly Ice Cream Corp.* 19,300 $ 308,800
Hilton Hotels Corp. 51,500 1,602,938
ITT Corp.* 44,100 3,346,087
Promus Hotel Corp.* 104,750 4,347,125
Tricon Global Restaurants, Inc.* 10,000 338,125
------------
$ 9,943,075
- -------------------------------------------------------------------------------
Special Products and Services - 0.4%
Royal Caribbean Cruises Ltd. 59,200 $ 2,841,600
- -------------------------------------------------------------------------------
Stores - 9.5%
Arbor Drugs, Inc. 70,100 $ 1,901,463
CVS Corp. 194,400 12,903,300
Home Depot, Inc. 114,300 6,393,656
Office Depot, Inc.* 401,100 9,475,988
Republic Industries, Inc.* 90,900 2,369,081
Rite Aid Corp. 390,400 25,668,800
Wal-Mart Stores, Inc. 87,100 3,478,556
------------
$ 62,190,844
- -------------------------------------------------------------------------------
Supermarkets - 2.7%
Fred Meyer, Inc.* 283,100 $ 9,590,012
Kroger Co.* 114,400 3,939,650
Safeway, Inc.* 69,500 4,222,125
------------
$ 17,751,787
- -------------------------------------------------------------------------------
Telecommunications - 2.9%
Bay Networks, Inc.* 195,900 $ 5,889,244
Cisco Systems, Inc.* 96,700 8,340,375
Lucent Technologies, Inc. 56,600 4,535,075
Teligent, Inc.* 2,300 58,937
------------
$ 18,823,631
- -------------------------------------------------------------------------------
Transportation - 0.3%
CNF Transportation, Inc. 48,000 $ 2,088,000
- -------------------------------------------------------------------------------
Utilities - Telephone - 2.1%
AT&T Corp. 116,400 $ 6,503,850
MCI Communications Corp. 156,800 6,889,400
------------
$ 13,393,250
- -------------------------------------------------------------------------------
Total U.S. Stocks $578,709,809
- -------------------------------------------------------------------------------
Foreign Stocks - 4.7%
Canada - 0.5%
Canadian National Railway Co. (Railroads) 62,400 $ 3,225,300
Microcell Telecommunications, "B"
(Telecommunications)* 9,100 58,012
------------
$ 3,283,312
- -------------------------------------------------------------------------------
France - 0.8%
Alcatel Alsthom, ADR (Telecommunications) 213,400 $ 5,281,650
- -------------------------------------------------------------------------------
Ireland - 0.6%
Elan Corp., PLC, ADR (Health Products)* 76,500 $ 4,035,375
- -------------------------------------------------------------------------------
Netherlands - 1.1%
Akzo Nobel N.V. (Chemicals) 40,600 $ 7,141,874
- -------------------------------------------------------------------------------
United Kingdom - 1.7%
British Petroleum PLC, ADR (Oils) 76,035 $ 6,310,905
Danka Business Systems, ADR (Business Services) 134,200 4,931,850
PowerGen PLC (Utilities - Electric)* 6,844 88,111
------------
$ 11,330,866
- -------------------------------------------------------------------------------
Total Foreign Stocks $ 31,073,077
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $516,021,343) $609,782,886
- -------------------------------------------------------------------------------
Short-Term Obligations - 7.2%
- -------------------------------------------------------------------------------
Federal Home Loan Bank, due 12/10/97 $ 3,920 $ 3,914,669
Federal Home Loan Mortgage Corp.,
due 12/04/97 - 12/31/97 38,790 38,716,456
General Electric Capital Corp., due 12/01/97 4,140 4,140,000
- -------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 46,771,125
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $562,792,468) $656,554,011
Other Assets, Less Liabilities - (0.7)% (4,469,726)
- -------------------------------------------------------------------------------
Net Assets - 100.0% $652,084,285
- -------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
NOVEMBER 30, 1997
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $562,792,468) $656,554,011
Cash 49,617
Receivable for investments sold 9,968,393
Receivable for Fund shares sold 135,447
Dividends receivable 308,326
Other assets 6,128
------------
Total assets $667,021,922
------------
Liabilities:
Payable for investments purchased $ 14,003,126
Payable for Fund shares reacquired 214,351
Net payable for forward currency exchange contracts sold 103,742
Payable to affiliates -
Management fee 53,225
Administrative fee 1,064
Shareholder servicing agent fee 9,225
Distribution and service fee 323,829
Accrued expenses and other liabilities 229,075
------------
Total liabilities $ 14,937,637
------------
Net assets $652,084,285
============
Net assets consist of:
Paid-in capital $453,046,677
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 93,657,507
Accumulated undistributed net realized gain on
investments and foreign currency transactions 105,433,305
Accumulated net investment loss (53,204)
------------
Total $652,084,285
============
Shares of beneficial interest outstanding 37,589,317
==========
Class A shares:
Net asset value per share
(net assets of $219,754,735 / 12,661,045 shares of
beneficial interest outstanding) $17.36
======
Offering price per share (100 / 94.25) $18.42
======
Class B shares:
Net asset value and offering price per share
(net assets of $432,327,026 / 24,928,127 shares of
beneficial interest outstanding) $17.34
======
Class I shares:
Net asset value, offering price, and redemption price
per share (net assets of $2,524 / 145 shares of
beneficial interest outstanding) $17.41
-----
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
- -------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997
- -------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 5,799,543
Interest 3,629,315
Foreign taxes withheld (102,752)
------------
Total investment income $ 9,326,106
------------
Expenses -
Management fee $ 4,624,555
Trustees' compensation 47,762
Shareholder servicing agent fee 737,886
Shareholder servicing agent fee (Class A) 19,079
Shareholder servicing agent fee (Class B) 79,824
Distribution and service fee (Class A) 464,076
Distribution and service fee (Class B) 4,309,223
Administrative fee 70,970
Custodian fee 238,018
Postage 118,043
Printing 54,264
Audit fees 34,866
Legal fees 6,497
Miscellaneous 398,776
------------
Total expenses $ 11,203,839
Fees paid indirectly (80,028)
------------
Net expenses $ 11,123,811
------------
Net investment loss $ (1,797,705)
------------
Realized and unrealized gain on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $107,742,739
Foreign currency transactions (272,966)
------------
Net realized gain on investments and foreign currency
transactions $107,469,773
------------
Change in unrealized appreciation (depreciation) -
Investments $ 25,377,364
Translation of assets and liabilities in foreign
currencies (106,457)
------------
Net unrealized gain on investments and foreign currency
translation $ 25,270,907
------------
Net realized and unrealized gain on investments and
foreign currency $132,740,680
------------
Increase in net assets from operations $130,942,975
------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
- ------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment loss $ (1,797,705) $ (1,034,280)
Net realized gain on investments and foreign currency
transactions 107,469,773 129,835,775
Net unrealized gain (loss) on investments and foreign
currency translation 25,270,907 (34,841,347)
------------- -------------
Increase in net assets from operations $ 130,942,975 $ 93,960,148
------------- -------------
Distributions declared to shareholders -
From net investment income (Class A) $ -- $ (300,226)
From net realized gain on investments and foreign
currency transactions (Class A) (35,176,024) (13,120,408)
From net realized gain on investments and foreign
currency
transactions (Class B) (93,850,492) (60,999,950)
In excess of net investment income (Class A) -- (535,376)
------------- -------------
Total distributions declared to shareholders $(129,026,516) $ (74,955,960)
------------- -------------
Net increase in net assets from Fund share
transactions $ 68,970,507 $ 45,629,972
------------- -------------
Total increase in net assets $ 70,886,966 $ 64,634,160
Net assets:
At beginning of period 581,197,319 516,563,159
------------- -------------
At end of period (including accumulated net
investment loss of $53,204 and $44,061, respectively) $ 652,084,285 $ 581,197,319
============= =============
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995 1994 1993*
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $18.02 $17.67 $13.49 $14.75 $14.58
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.03 $ 0.08 $ 0.11 $ 0.21 $ 0.03
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 3.41 2.96 4.91 (0.25) 0.14
------ ------ ------ ------ ------
Total from investment operations $ 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 (4.10) (2.53) (0.62) (1.16) --
------ ------ ------ ------ ------
Total distributions declared to shareholders $(4.10) $(2.69) $(0.84) $(1.22) $ --
------ ------ ------ ------ ------
Net asset value - end of period $17.36 $18.02 $17.67 $13.49 $14.75
====== ====== ====== ====== ======
Total return(+) 24.67% 19.76% 39.51% (0.47)% 5.01%+
Ratios (to average net assets)/Supplemental data:
Expenses## 1.29% 1.31% 1.27% 1.12% 0.91%+
Net investment income 0.22% 0.47% 0.67% 1.59% 1.67%+
Portfolio turnover 159% 112% 91% 50% 70%
Average commission rate### $ 0.0372 $ 0.0387 $ -- $ -- $ --
Net assets at end of period (000 omitted) $219,755 $150,261 $88,119 $2,608 $ 196
* For the period from the inception of Class A shares, September 7, 1993, through November 30, 1993.
+ 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.
### Average commission rate is calculated for funds with fiscal years on or after September 1, 1995.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the
results would have been lower.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $17.96 $17.56 $13.37 $14.72 $14.83
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.08) $(0.06) $ 0.01 $ 0.04 $ 0.03
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 3.40 2.97 4.85 (0.23) 0.50
------ ------ ------ ------ ------
Total from investment operations $ 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 (3.94) (2.51) (0.62) (1.16) (0.62)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(3.94) $(2.51) $(0.67) $(1.16) $(0.64)
------ ------ ------ ------ ------
Net asset value - end of period $17.34 $17.96 $17.56 $13.37 $14.72
====== ====== ====== ====== ======
Total return 23.66% 18.84% 38.16% (1.52)% 3.70%
Ratios (to average net assets)/Supplemental data:
Expenses## 2.05% 2.13% 2.14% 2.18% 2.15%
Net investment income (loss) (0.51)% (0.38)% 0.08% 0.32% 0.10%
Portfolio turnover 159% 112% 91% 50% 70%
Average commission rate### $ 0.0372 $ 0.0387 $ -- $ -- $ --
Net assets at end of period (000 omitted) $432,327 $430,936 $428,445 $384,504 $454,089
# 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.
### Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
** The per share distribution from net investment income on Class B shares was $.00312.
See notes to financial statements
</TABLE>
<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% (4.8)% 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
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- -------------------------------------------------------------------------------
PERIOD ENDED NOVEMBER 30, 1997*
- -------------------------------------------------------------------------------
CLASS I
- -------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $13.99
------
Income from investment operations# -
Net investment income $ 0.12
Net realized and unrealized gain on investments and
foreign currency transactions 3.30
------
Total from investment operations $ 3.42
------
Net asset value - end of period $17.41
======
Total return 24.45%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.07%+
Net investment income 0.90%+
Portfolio turnover 159%
Average commission rate $0.0372
Net assets at end of period (000 omitted) $ 3
+ Annualized.
++ Not annualized.
* For the period from the inception of Class I shares, January 2, 1997, through
November 30, 1997.
# 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
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(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. Effective September 1, 1997, the name of the Fund
was changed from MFS Capital Growth Fund to MFS Large Cap Growth Fund.
(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 interest rate swaps, 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 result 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 nonhedging 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 premium
and original issue 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
payments received in additional securities are recorded on the ex-dividend
date in an amount equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's average daily net assets. The fee is reduced according to an
arrangement which measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of
net investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return and,
consequently, the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on Form
1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a 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. During
the year ended November 30, 1997, $1,788,562 was reclassified from accumulated
net investment loss to accumulated net realized gain on investments due to
differences between book and tax accounting for net operating losses and
currency transactions. This change had no effect on the net assets or net
asset value per share. At November 30, 1997, accumulated net realized gain on
investments and foreign currency transactions under book accounting were
different from tax accounting due to temporary differences in accounting for
losses on wash sale transactions.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares. The classes of shares differ in their respective
distribution and service fees. All shareholders bear the common expenses of
the Fund pro rata based on average daily net assets of each class, without
distinction between share classes. Dividends are declared separately for each
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of average daily net assets.
Administrator - Effective March 1, 1997, the Fund has an administrative
services agreement with MFS to provide the Fund with certain financial, legal,
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, provided that the administrative fee is not assessed
on Fund assets that exceed $3 billion:
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
$11,081 for the year ended November 30, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$28,056 for the year ended November 30 1997, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A 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
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets
attributable to Class A shares, commissions to dealers and payments to MFD
wholesalers for sales at or above a certain dollar level, and other such
distribution-related expenses that are approved by the Fund. MFD retains the
service fee for accounts not attributable to a securities dealer which
amounted to $72,731 for the year ended November 30, 1997. Payment of the 0.10%
per annum Class A distribution fee will commence on such date as the Trustees
of the Fund may determine. Fees incurred under the distribution plan during
the year ended November 30, 1997, were 0.25% of average daily net assets
attributable to Class A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a service fee of 0.25% per annum, of
the Fund's average daily net assets attributable to Class B shares. MFD will
pay to securities dealers that enter into a sales agreement with MFD all or a
portion of the service fee attributable to Class B shares. The service fee is
intended to be additional consideration for services rendered by the dealer
with respect to Class B shares. MFD retains the service fee for accounts not
attributable to a securities dealer, which amounted to $90,638 for Class B
shares for the year ended November 30, 1997. Fees incurred under the
distribution plan during the year ended November 30 1997, were 1.00% of
average daily net assets attributable to Class B shares on an annualized
basis.
Purchases over $1 million of Class A shares and certain purchases by
retirement plans are subject to a contingent deferred sales charge in the
event of a shareholder redemption within 12 months following such purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended November 30, 1997, were
$775 and $264,561, 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 0.13%. Prior to January 1, 1997, the fee was calculated as a
percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15% and up to 0.22% attributable to Class A
and Class B shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$851,502,079 and $854,011,949, 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 $564,545,801
------------
Gross unrealized appreciation $101,603,062
Gross unrealized depreciation (9,594,852)
------------
Net unrealized appreciation $ 92,008,210
============
(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
YEAR ENDED NOVEMBER 30, 1997 YEAR ENDED NOVEMBER 30, 1996
----------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,566,820 $ 101,517,226 5,081,001 $ 84,871,838
Shares issued to shareholders
in reinvestment of
distributions 2,244,024 31,304,372 808,554 12,468,050
Shares transferred to Class I (14) (202) -- --
Shares reacquired (4,486,913) (68,471,593) (2,540,176) (42,196,319)
---------- ------------ ---------- -------------
Net increase 4,323,917 $ 64,349,803 3,349,379 $ 55,143,569
========== ============= ========== =============
<CAPTION>
Class B Shares
YEAR ENDED NOVEMBER 30, 1997 YEAR ENDED NOVEMBER 30, 1996
----------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,299,888 $ 67,740,816 5,593,976 $ 93,748,385
Shares issued to shareholders
in reinvestment of
distributions 6,306,282 88,541,200 3,699,918 57,275,484
Shares reacquired (9,673,175) (151,660,715) (9,692,478) (160,537,466)
---------- ------------ ---------- -------------
Net increase (decrease) 932,995 $ 4,621,301 (398,584) $ (9,513,597)
========== ============= ========== =============
<CAPTION>
Class I Shares
PERIOD ENDED NOVEMBER 30, 1997*
------------------------------
SHARES AMOUNT
- -------------------------------------------------------------------
<S> <C> <C>
Shares sold 14,678 $ 217,807
Shares transferred from Class A 14 202
Shares reacquired (14,547) (218,606)
---------- ------------
Net increase (decrease) 145 $ (597)
========== =============
*For the period from the inception of Class I shares, January 2, 1997, through November 30, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $400 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Fund shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated
to the Fund for the year ended November 30, 1997, was $5,036.
(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.
<TABLE>
Forward Foreign Currency Exchange Contracts
<CAPTION>
NET
CONTRACTS TO CONTRACTS UNREALIZED
SETTLEMENT DATE DELIVER IN EXCHANGE FOR AT VALUE DEPRECIATION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales GBP 1/07/98 4,626,203 $ 7,674,130 $ 7,777,872 $103,742
--------
</TABLE>
At November 30, 1997, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust II and Shareholders of MFS Large Cap
Growth Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Large Cap Growth Fund (formerly
MFS Capital Growth Fund) (one of the series constituting MFS Series Trust II)
as of November 30, 1997, the related statement of operations for the year then
ended, the statement of changes in net assets for the years ended November 30,
1997 and 1996, and the financial highlights for each of the years in the ten-
year period ended November 30, 1997. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at November 30, 1997 by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Large Cap
Growth Fund at November 30, 1997, the results of its operations, the changes
in its net assets, and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 9, 1998
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
MFS(R) LARGE CAP GROWTH FUND
TRUSTEES ASSISTANT SECRETARY
A. Keith Brodkin* - Chairman and James R. Bordewick, Jr.*
President; Chairman and Director,
Massachusetts Financial Services CUSTODIAN
Company State Street Bank and Trust Company
Richard B. Bailey* - Private AUDITORS
Investor; Former Chairman and Deloitte & Touche LLP
Director (until 1991), Massachusetts
Financial Services Company INVESTOR INFORMATION
For MFS stock and bond market outlooks,
Marshall N. Cohan - Private Investor call toll free: 1-800-637-4458 anytime
from a touch-tone telephone.
Lawrence H. Cohn, M.D. - Chief of
Cardiac Surgery, Brigham and Women's For information on MFS mutual funds,
Hospital; Professor of Surgery, call your financial adviser or, for an
Harvard Medical School information kit, call toll free:
1-800-637-2929 any business day from 9
The Hon. Sir J. David Gibbons, KBE - a.m. to 5 p.m. Eastern time (or leave a
Chief Executive Officer, Edmund message anytime).
Gibbons Ltd.
INVESTOR SERVICE
Abby M. O'Neill - Private Investor MFS Service Center, Inc.
P.O. Box 2281
Walter E. Robb, III - President and Boston, MA 02107-9906
Treasurer, Benchmark Advisors, Inc.
(corporate financial consultants); For general information, call toll free:
President, Benchmark Consulting 1-800-225-2606 any business day from
Group, Inc. (office services) 8 a.m. to 8 p.m. Eastern time.
Arnold D. Scott* - Senior Executive For service to speech- or
Vice President, Director and hearing-impaired, call toll free:
Secretary, Massachusetts Financial 1-800-637-6576 any business day from 9
Services Company a.m. to 5 p.m. Eastern time. (To use
this service, your phone must be
Jeffrey L. Shames* - President and equipped with a Telecommunications
Director, Massachusetts Financial Device for the Deaf.)
Services Company
For share prices, account balances, and
J. Dale Sherratt - President, Insight exchanges, call toll free:
Resources, Inc. (acquisition planning 1-800-MFS-TALK (1-800-637-8255) anytime
specialists) from a touch-tone telephone.
Ward Smith - Former Chairman (until WORLD WIDE WEB
1994), NACCO Industries (holding www.mfs.com
company)
[Dalbar Logo] For the fourth year
INVESTMENT ADVISER in a row, MFS earned
Massachusetts Financial Services a #1 ranking in the DALBAR, Inc.
Company Broker/Dealer Survey, Main Office
500 Boylston Street Operations Service Quality Category.
Boston, MA 02116-3741 The firm achieved a 3.42 overall score
on a scale of 1 to 4 in the 1997
DISTRIBUTOR survey. A total of 111 firms responded,
MFS Fund Distributors, Inc. offering input on the quality of
500 Boylston Street service they received from 29 mutual
Boston, MA 02116-3741 fund companies nationwide. The survey
contained questions about service
PORTFOLIO MANAGER quality in 11 categories, including
Stephen Pesek* "knowledge of operations contact,"
"keeping you informed," and "ease of
TREASURER doing business" with the firm.
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
*Affiliated with the Investment Adviser
<PAGE>
MFS(R) LARGE CAP GROWTH FUND ----------------
Bulk Rate
500 Boylston Street U.S. Postage
Boston, MA 02116-3741 Paid
MFS
----------------
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INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
[DALBAR
LOGO]
TOP-RATED SERVICE
(C)1998 MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116-3741
MLC-2 1/98 72M 3/203/803
