<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) EMERGING
GROWTH FUND
SEMIANNUAL REPORT o MAY 31, 1999
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 23
Notes to Financial Statements ............................................. 31
MFS' Year 2000 Readiness Disclosure ....................................... 39
Trustees and Officers ..................................................... 41
MFS(R) ORIGINAL RESEARCH(SM)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
It has been almost two years since financial turmoil began to rock markets in
Asia, Russia, and Latin America. Even developed markets such as Europe and the
United States were not immune. In the U.S. equity market, for example, investors
focused on a narrow group of 50 of the largest-company growth stocks because
they seemed to offer less volatility in uncertain times. Fixed-income investors
also became more concerned about risk, moving money into U.S. Treasury
securities and out of corporate and municipal bonds and mortgage-backed
securities.
The narrowness of the market was just one of three broad issues that dominated
the U.S. equity market until recently. The other two were a slowdown in
corporate earnings growth and high valuations, with stocks of many companies
selling at extremely high prices relative to their earnings.
Although these have been challenging issues, we now see signs that we feel
demonstrate each one is changing for the better. Today, we believe the markets
are presenting more opportunities for investors to diversify, for our portfolio
managers to find good values, and for us to show the benefits of staying with
our long-term objectives and strategies. Investors seem to be regaining
confidence in a wider range of companies. Stocks of some small and mid-sized
companies, as well as some large industrial companies, have begun to perform
better in the past few months than they had for the previous year or so. These
companies appear to have benefited from early signs of stability in emerging
markets and a continuation of economic growth in the United States.
U.S. companies also have produced better earnings. Corporate earnings were, on
average, relatively flat in 1998. However, we expect earnings to grow 12% to 14%
this year because more companies have benefited from the strong economy and from
aggressive consolidation and cost-cutting measures they have taken over the past
several years.
Based on their earnings projections, our analysts estimate that the U.S. stock
market is still about 30% overvalued. While there has been some shift to a wider
group of stocks, many investors are still focusing on the large-company stocks.
As a result, most of the overvaluation is in the 50 largest stocks in the
Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index
of common stock total return performance. That means about 450 stocks are
selling at more attractive prices, particularly given what we see as the
improved earnings outlooks for these and many small and mid-sized companies not
in the S&P 500. These companies also benefit from consolidation, cost cutting,
and global growth. Because they are smaller, they may be able to respond to
changes more quickly, and thus they have the potential to grow faster than the
big companies.
The fixed-income markets, meanwhile, seem to be approaching the level of
relative stability they enjoyed before the Asian turmoil. Some credit for this
stability goes to the Federal Reserve Board (the Fed), which has reassured
investors that it will act to prevent rapid economic growth from causing higher
inflation and reduced purchasing power. Also, once investors saw that the
overseas turmoil had little, if any, effect on the financial strength of most
domestic bond issuers, the major non-Treasury markets -- corporate, municipal,
and mortgage -- began to rebound. Our portfolio managers are now finding more
opportunities to buy bonds with relatively stable prices and attractive yields.
The past two years have challenged investors. However, we believe we are well
positioned for the current environment because our analysts and portfolio
managers continue to rely on MFS(R) Original Research(SM) to help evaluate the
long-term investment potential of each holding being considered for our
portfolios. Also, we believe our discipline of maintaining diversified
portfolios and of staying with our funds' clearly defined investment strategies
can help us offer investment products with the potential to sustain returns over
a variety of market cycles.
We appreciate your confidence 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(R)
June 17, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of John W. Ballen]
John W. Ballen
For the six months ended May 31, 1999, Class A shares of the Fund provided a
total return of 12.47%, Class B shares 12.03%, Class C shares 12.02%, Class I
shares 12.58%, and Class J shares 12.15%. These returns assume the reinvestment
of distributions but exclude the effects of any sales charges.
During the same period, the average mid-cap fund tracked by Lipper Analytical
Services, Inc., an independent firm that reports mutual fund performance,
returned 16.18%. The Fund's returns also compare to a 12.60% return over the
same period for the Standard & Poor's 500 Composite Index (the S&P 500), a
popular, unmanaged index of common stock total return performance, and to a
12.28% return for the Russell 2000 Total Return Index (the Russell 2000), an
unmanaged index comprised of 2,000 of the smallest U.S.-domiciled company common
stocks that are traded on the New York Stock Exchange, the American Stock
Exchange, and NASDAQ.
Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE OVER THE PAST SIX MONTHS?
A. Three factors impacted performance. First, the Fund has holdings in small,
mid-sized, and large companies. Until early April, when the market began to
broaden, its best-performing segment was made up of a narrow group of about
50 of the largest-company growth stocks in the S&P 500, as well as some
Internet stocks. Prices of the large-company stocks reached what we believe
were excessive levels, relative to their earnings. Recently, however, some
small and mid-sized company stocks have performed better as investors sought
their less expensive prices. This broadening of the stock market has been
positive for the Fund because we have companies of all sizes in the
portfolio. Also, it has made it possible for us to find mid-sized and small
companies with what we think are greater potential earnings growth rates.
Second, the Fund was affected by the fact that we have not invested in many
of the Internet stocks. We do own established companies such as Cisco Systems
that provide the systems to support Internet traffic. Internet stocks
performed very well in the early part of the year but, because investors saw
that these stocks also were becoming overvalued, there has been a huge rush
out of them in the past month or two. As a result of our underweighting, the
Fund has not been hurt by the recent decline in Internet stocks.
The third factor has been our exposure to computer software companies. Many
software companies have faced uncertainty over the Year 2000 (Y2K) computer
issue. Earlier this year, it looked like many businesses would reduce their
spending on computer software and systems to give themselves time to ensure
their existing systems were Y2K ready. Although it now looks like spending
won't be cut as much as people feared, the stocks have been impacted. We
think the Y2K issue will be behind us by next spring. At that time, companies
such as BMC Software and Computer Associates, which are dominant in their
markets, may be among the best positioned in what we expect to be a very
rapidly growing industry.
Q. TECHNOLOGY CONTINUES TO BE THE FUND'S LARGEST SECTOR. WHY IS THIS
INDUSTRY ATTRACTIVE?
A. Companies continue to increase earnings growth by aggressively downsizing,
restructuring, and outsourcing many business functions. Technology allows
these companies to be more productive without necessarily hiring more people.
We believe these trends will continue both domestically and internationally,
where companies are well behind in restructuring efforts and in technology
investments. Although prices of software stocks did decline this spring, we
think the industry will perform well over the long term.
Q. WHAT STOCKS IN PARTICULAR HELPED PERFORMANCE?
A. Several of our telecommunications and media holdings have performed well. MCI
WorldCom is a dominant player in telecommunications and the backbone of
worldwide cellular traffic. MediaOne, which is being acquired by AT&T, has
been a big beneficiary of the growth of cable, both for entertainment and for
access to the Internet. Also, health maintenance organizations such as United
HealthCare are starting to raise prices, which may make them more profitable.
Q. YOUR NEXT-LARGEST SECTOR IS LEISURE. WHAT COMPANIES DO YOU LIKE THERE?
A. Cendant is the largest leisure holding. The company has come back from a
difficult year in 1998, and its divisions have performed well. Its hotels,
for example, have benefited from a slowdown in new construction, which has
reduced the industry's overcapacity of rooms. Univision also has performed
well. This cable company has a 90% share of the Hispanic market, which is the
fastest-growing segment of the population and has very attractive
demographics for advertisers.
Q. ANOTHER LARGE SECTOR IS CONGLOMERATES AND SPECIAL SERVICES. WHAT COMPANIES
FIT INTO THIS CATEGORY?
A. This category includes special services companies that can help larger
organizations downsize and outsource. The group can include information
technology consulting companies and payroll processing vendors. Most of the
companies are relatively small. For example, we own more than 10 different
information technology consulting organizations.
Q. WHAT IS YOUR OUTLOOK FOR THE EQUITY MARKETS, AND HOW IS THAT VIEW
REFLECTED IN THE PORTFOLIO?
A. I think we'll continue to see a broadening of the market, which should
benefit the Fund. Over the past couple of years, the Fund has been more
heavily weighted toward the large companies than the mid-sized and small
companies. One reason is that we have been reluctant to sell strong-
performing stocks just because the companies get big. We will continue to
rely on MFS(R) Original Research(SM) to help us find companies of all sizes
that we feel can demonstrate favorable growth, earnings potential, and share
price value.
/s/ John W. Ballen
John W. Ballen
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
current 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.
It is not possible to invest directly in an index.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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JOHN W. BALLEN IS PRESIDENT, CHIEF INVESTMENT OFFICER, AND A MEMBER OF THE BOARD
OF DIRECTORS OF MFS INVESTMENT MANAGEMENT(R). HE IS PORTFOLIO MANAGER OF MFS(R)
EMERGING GROWTH FUND. MR. BALLEN IS ALSO A PORTFOLIO MANAGER OF MFS(R)
INSTITUTIONAL EMERGING EQUITIES FUND, MFS(R) EMERGING GROWTH SERIES (PART OF
MFS(R) VARIABLE INSURANCE TRUST(SM)), THE EMERGING GROWTH SERIES OFFERED THROUGH
MFS(R)/SUN LIFE ANNUITY PRODUCTS, MFS(R) INSTITUTIONAL MID CAP GROWTH FUND,
MFS(R) GLOBAL GROWTH FUND, AND THE GLOBAL GROWTH SERIES OFFERED THROUGH
MFS(R)/SUN LIFE ANNUITY PRODUCTS.
MR. BALLEN JOINED THE MFS RESEARCH DEPARTMENT IN 1984 AS A RESEARCH ANALYST. HE
WAS NAMED INVESTMENT OFFICER AND PORTFOLIO MANAGER IN 1986, VICE PRESIDENT IN
1987, DIRECTOR OF RESEARCH IN 1988, SENIOR VICE PRESIDENT IN 1990, DIRECTOR OF
EQUITY PORTFOLIO MANAGEMENT IN 1993, CHIEF EQUITY OFFICER IN 1995, EXECUTIVE
VICE PRESIDENT IN 1997, AND PRESIDENT, CHIEF INVESTMENT OFFICER, AND A MEMBER OF
THE BOARD IN 1998. MR. BALLEN IS A GRADUATE OF HARVARD COLLEGE AND EARNED A
MASTER OF COMMERCE DEGREE FROM THE UNIVERSITY OF NEW SOUTH WALES IN AUSTRALIA
AND AN M.B.A. DEGREE FROM STANFORD UNIVERSITY.
ALL EQUITY PORTFOLIO MANAGERS BEGAN THEIR CAREERS AT MFS INVESTMENT
MANAGEMENT(R) AS RESEARCH ANALYSTS. OUR PORTFOLIO MANAGERS ARE SUPPORTED BY AN
INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS(R) ORIGINAL
RESEARCH(SM), A COMPANY-ORIENTED, BOTTOM-UP PROCESS OF SELECTING SECURITIES.
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>
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FUND FACTS
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OBJECTIVE: SEEKS LONG-TERM GROWTH OF CAPITAL. DIVIDEND AND
INTEREST INCOME, IF ANY, IS INCIDENTAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: DECEMBER 29, 1986
CLASS INCEPTION: CLASS A SEPTEMBER 13, 1993
CLASS B DECEMBER 29, 1986
CLASS C APRIL 1, 1996
CLASS I JANUARY 2, 1997
CLASS J SEPTEMBER 24, 1998
SIZE: $13.3 BILLION NET ASSETS AS OF MAY 31, 1999
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. (See Notes to Performance
Summary for more information.)
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH MAY 31, 1999
<TABLE>
<CAPTION>
CLASS A
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +12.47% +11.86% +47.49% +162.82% +577.21%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +11.86% +13.83% + 21.32% + 21.08%
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SEC Results -- + 5.43% +11.60% + 19.89% + 20.37%
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<CAPTION>
CLASS B
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +12.03% +11.00% +44.06% +152.80% +551.92%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +11.00% +12.94% + 20.38% + 20.62%
- --------------------------------------------------------------------------------------------------------------
SEC Results -- + 7.00% +12.15% + 20.19% + 20.62%
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<CAPTION>
CLASS C
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +12.02% +10.98% +44.06% +152.69% +551.92%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +10.98% +12.94% + 20.37% + 20.62%
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SEC Results -- + 9.98% +12.94% + 20.37% + 20.62%
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<CAPTION>
CLASS I
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +12.58% +12.09% +47.57% +158.95% +567.76%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +12.09% +13.85% + 20.96% + 20.91%
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<CAPTION>
CLASS J
6 Months 1 Year 3 Years 5 Years 10 Years/Life
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return +12.15% +11.17% +44.29% +153.22% +553.00%
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Average Annual Total Return -- +11.17% +13.00% + 20.42% + 20.64%
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SEC Results -- + 7.84% +11.86% + 19.69% + 20.28%
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</TABLE>
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 5.75% sales charge. Class J
shares ("J") SEC results include the maximum 3% sales charge. Class B share
("B") SEC results reflect the applicable contingent deferred sales charge
(CDSC), which declines over six years from 4% to 0%. Class C shares ("C") have
no initial sales charge but, like B, have higher annual fees and expenses than
A. C SEC results reflect the 1% CDSC applicable to shares redeemed within 12
months. Class I shares ("I") have no sales charge or Rule 12b-1 fees and are
only available to certain institutional investors. Class J shares are only
available to certain institutional investors.
A, C, and J results include the performance and the operating expenses (e.g.,
Rule 12b-1 fees) of B for periods prior to the inception of A, C, and J. Because
operating expenses of A and J are lower than those of B, A and J performance
generally would have been higher than B performance. Operating expenses of C are
not significantly different from those of B. The B performance included in the A
SEC performance has been adjusted to reflect the maximum initial sales charge
generally applicable to A rather than the CDSC generally applicable to B. The B
performance included in the J SEC performance has been adjusted to reflect the
maximum initial sales charge generally applicable to J rather than the CDSC
generally applicable to B. The C SEC performance has been adjusted to reflect
the lower CDSC generally applicable to C rather than the CDSC generally
applicable to B.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of B for periods prior to the inception of I. Because operating expenses
of B are greater than those of I, I performance generally would have been higher
than B performance. The B performance included in the I performance has been
adjusted to reflect that I 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. 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, 1999
FIVE LARGEST STOCK SECTORS
TECHNOLOGY 44.5%
LEISURE 15.3%
MISCELLANEOUS 13.3%
HEALTH CARE 7.7%
UTILITIES & COMMUNICATIONS 7.4%
TOP 10 STOCK HOLDINGS
CISCO SYSTEMS, INC. 9.2% MICROSOFT CORP. 4.9%
Computer network developer Computer software and systems company
TYCO INTERNATIONAL LTD. 6.8% COMPUWARE CORP. 4.5%
Fire protection, packaging, and Computer software company
electronic equipment manufacturer
BMC SOFTWARE, INC. 4.5%
ORACLE CORP. 6.2% Computer software company
Database software developer and
manufacturer COMPUTER ASSOCIATES
INTERNATIONAL, INC. 4.5%
MCI WORLDCOM, INC. 6.1% Computer software company
Telecommunications company
UNITED HEALTHCARE CORP. 3.2%
CENDANT CORP. 5.1% Health maintenance organization
Hotel, real estate, and consumer
services company franchiser
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- May 31, 1999
Stocks - 97.3%
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ISSUER SHARES VALUE
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U.S. Stocks - 94.7%
Advertising - 0.6%
Lamar Advertising Co., "A"* 132,500 $ 4,521,563
Outdoor Systems, Inc.* 1,309,782 39,211,599
Snyder Communications, Inc.* 292,200 7,140,637
Young & Rubicam, Inc. 638,600 24,426,450
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$ 75,300,249
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Aerospace - 0.1%
Gulfstream Aerospace Corp.* 266,100 $ 16,431,675
Ladish Co., Inc.* 55,000 440,000
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$ 16,871,675
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Airlines - 0.1%
Airnet Systems, Inc.* 110,000 $ 1,161,875
Atlas Air, Inc.* 286,350 7,695,656
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$ 8,857,531
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Apparel and Textiles - 0.1%
Nine West Group, Inc.* 322,316 $ 8,944,269
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Automotive - 0.6%
AutoNation, Inc. 3,350,000 $ 54,856,250
Dura Automotive Systems, Inc.* 43,400 1,291,150
Federal-Mogul Corp. 360,300 16,618,837
Hayes Lemmerz International, Inc.* 9,000 297,000
National Equipment Services, Inc.* 203,700 2,113,388
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$ 75,176,625
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Biotechnology - 0.3%
Waters Corp.* 335,000 $ 33,039,375
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Broadcasting - 0.1%
AT&T Corp. - Liberty Media Group* 100,000 $ 6,643,750
Infinity Broadcasting Corp.* 506,300 12,942,294
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$ 19,586,044
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Business Machines - 0.5%
Affiliated Computer Services, Inc., "A"* 1,129,500 $ 48,992,063
Aztec Consulting, Inc.* 907,203 2,211,307
Kulicke & Soffa Industries, Inc.* 188,800 3,988,400
Texas Instruments, Inc. 40,000 4,375,000
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$ 59,566,770
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Business Services - 4.7%
A Consulting Team, Inc.* 20,000 $ 162,500
ACSYS, Inc.* 136,100 561,413
BISYS Group, Inc.* 451,000 24,762,719
BridgeStreet Accomodations, Inc.* 37,600 131,600
Building One Services Corp.* 857,124 11,464,033
Caribiner International, Inc.* 14,900 80,088
Ceridian Corp.* 476,800 15,734,400
Command Systems, Inc.* 42,900 69,713
Compass International Services Corp.* 255,100 1,705,981
Complete Business Solutions, Inc. 206,380 5,004,715
Computer Sciences Corp.* 499,500 32,311,406
Cornell Corrections, Inc.* 232,800 4,510,500
Cotelligent Group, Inc.* 589,800 7,888,575
Data Processing Corp.* 229,000 3,477,937
DST Systems, Inc.* 560,400 30,261,600
Employee Solutions, Inc.* 588,200 698,488
F.Y.I., Inc.* 333,400 9,168,500
First Data Corp. 2,632,804 118,311,630
Fiserv, Inc.* 720,071 27,002,662
Forrester Research, Inc.* 10,000 320,000
Hagler Bailly, Inc.* 72,000 587,250
Hall Kinion & Associates, Inc.* 15,600 113,100
ICT Group, Inc.* 293,200 1,502,650
Ikon Office Solutions, Inc. 2,500,000 34,843,750
IMRglobal Corp.* 914,900 19,155,719
Innovative Valve Technologies, Inc.* 60,000 52,500
Insight Enterprises, Inc.* 546,075 13,856,653
IntelliQuest Information Group, Inc.* 53,800 416,950
Interim Services, Inc.* 1,231,600 26,864,275
International Network Services* 135,000 5,045,625
ITT Educational Services, Inc.* 8,000 190,500
Labor Ready, Inc.* 42,500 1,514,062
Learning Tree International, Inc.* 86,850 911,925
Mecon, Inc.* 28,600 232,375
Meta Group, Inc.* 18,750 257,813
Metamor Worldwide, Inc.* 1,203,600 32,948,550
Modis Professional Services, Inc.*++ 7,220,150 106,497,212
National Data Corp. 87,273 4,107,286
National Processing, Inc.* 215,900 1,295,400
NCO Group, Inc.* 52,950 1,614,975
Nextera Enterprises, Inc. 75,000 632,813
NOVA Corp.* 378,400 8,419,400
Outsource International, Inc.* 151,900 678,803
Paymentech, Inc.* 134,600 3,373,412
Personnel Group of America, Inc.* 393,700 4,478,337
Policy Management Systems Corp.* 46,800 1,702,350
Precision Response Corp.* 95,000 546,250
PRT Group, Inc.* 361,500 971,531
Quintiles Transnational Corp.* 75,000 3,046,875
Radiant Systems, Inc.* 151,500 1,903,219
RCM Technologies, Inc.* 472,300 6,936,906
RemedyTemp, Inc., "A"* 80,000 1,080,000
Renaissance Worldwide, Inc.* 2,138,100 15,501,225
Romac International, Inc.* 373,500 5,369,062
Rural/Metro Corp.* 410,900 3,107,431
Scient Corp. 8,200 411,025
Service Experts, Inc.* 160,000 2,970,000
Sitel Corp.* 276,400 760,100
SPR, Inc.* 202,700 1,355,556
Staffmark, Inc.* 841,900 9,155,662
Syntel, Inc.* 127,500 1,378,594
Technology Solutions Co.* 129,000 1,201,313
UBICS, Inc.* 110,000 481,250
Vestcom International, Inc.* 142,100 834,838
Waterlink, Inc.* 225,000 914,063
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$ 622,847,045
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Chemicals
Polymer Group, Inc.* 167,700 $ 2,054,325
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Computer Hardware - Systems - 0.1%
Compaq Computer Corp. 155,100 $ 3,673,931
Dell Computer Corp.* 460,000 15,841,250
---------------
$ 19,515,181
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Computer Software - Personal Computers - 5.1%
America Online, Inc.* 6,200 $ 740,125
Autodesk, Inc. 1,273,637 35,184,222
Microsoft Corp.* 7,871,400 635,123,587
Systemax, Inc. 333,300 4,541,213
---------------
$ 675,589,147
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Computer Software - Services - 0.1%
EMC Corp.* 129,800 $ 12,931,325
Ingram Micro, Inc.* 107,900 3,129,100
Tier Technologies, Inc. 32,400 227,813
USinternetworking, Inc. 29,100 847,537
---------------
$ 17,135,775
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Computer Software - Systems - 22.1%
Alphanet Solutions, Inc.* 130,000 $ 511,875
Aspen Technology, Inc.* 227,600 2,375,575
BMC Software, Inc.* 11,678,957 577,378,437
Cadence Design Systems, Inc.*++ 12,356,970 159,095,989
Cambridge Technology Partners, Inc.* 1,934,100 32,879,700
CCC Information Services Group, Inc.* 28,000 360,500
CHS Electronics, Inc.* 464,950 2,063,216
Computer Associates International, Inc. 11,852,400 560,766,675
Compuware Corp.*++ 18,990,192 589,882,839
Keane, Inc.* 400,000 11,600,000
Momentum Business Applications, Inc.* 4,488 35,904
Network Associates, Inc.* 274,600 4,033,187
Oracle Corp.* 32,588,775 808,608,980
Peoplesoft, Inc.* 224,400 3,632,475
Rational Software Corp.* 185,200 6,262,075
Redback Networks, Inc.* 9,700 1,062,150
Security Dynamics Technologies, Inc.* 105,800 2,010,200
Siebel Systems, Inc.* 570,631 25,981,543
SunGard Data Systems, Inc.* 195,700 6,849,500
Synopsys, Inc.* 2,929,394 129,991,859
System Software Associates, Inc.* 2,367,251 4,808,478
Transaction System Architects, Inc., "A"* 222,800 7,101,750
Unigraphics Solutions, Inc.* 35,000 557,812
Vantive Corp.* 15,000 163,125
VERITAS Software Corp.* 19,693 1,737,907
---------------
$ 2,939,751,751
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Construction Services
Shaw Group, Inc.* 113,000 $ 1,476,063
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Consumer Goods and Services - 7.0%
Avis Rent A Car, Inc.* 21,900 $ 628,256
Blyth Industries, Inc.* 305,000 8,540,000
Carson, Inc., "A"* 94,800 331,800
Cole National Corp., "A"* 47,100 432,731
Dollar Thrifty Automotive Group, Inc.* 431,300 9,165,125
Galileo International, Inc. 562,900 25,330,500
Service Corp. International 91,127 1,748,499
Swisher International Group, Inc., "A"* 210,000 1,968,750
Tyco International Ltd. 10,100,148 882,500,432
United Rentals, Inc.* 132,562 3,976,860
---------------
$ 934,622,953
- -------------------------------------------------------------------------------
Containers
Silgan Holdings, Inc.* 75,200 $ 1,513,400
- -------------------------------------------------------------------------------
Electrical Equipment - 0.1%
AFC Cable Systems, Inc.* 60,000 $ 2,062,500
Barnett, Inc.* 100,000 925,000
JPM Co.* 150,000 1,537,500
Micrel, Inc.* 39,600 2,217,600
---------------
$ 6,742,600
- -------------------------------------------------------------------------------
Electronics - 4.2%
Altera Corp.* 5,817,400 $ 202,518,237
Amkor Technology, Inc.* 237,399 2,195,941
Analog Devices, Inc.* 1,764,000 67,803,750
Applied Materials, Inc.* 6,100 335,119
Atmel Corp.* 861,000 17,004,750
Burr-Brown Corp.* 901,675 28,853,600
Cable Design Technologies Corp.* 856,200 12,093,825
Intel Corp. 1,100,800 59,512,000
Lattice Semiconductor Corp.* 195,800 9,618,675
Linear Technology Corp. 535,800 28,397,400
LSI Logic Corp.* 336,200 12,460,413
Maxim Integrated Products, Inc.* 261,800 13,989,937
Micro Linear Corp.* 198,000 717,750
Novellus Systems, Inc.* 152,470 7,442,442
Peak International Ltd.* 150,000 918,750
Teradyne, Inc.* 45,700 2,413,531
Xilinx, Inc.* 2,180,364 96,889,925
---------------
$ 563,166,045
- -------------------------------------------------------------------------------
Entertainment - 5.8%
CBS Corp.* 1,128,521 $ 47,115,752
Chancellor Media Corp.* 293,300 14,903,306
Citadel Communications Corp.* 104,200 2,878,525
Clear Channel Communications, Inc.* 3,785,700 250,092,806
Cox Radio, Inc., "A"* 380,500 20,332,969
Entercom Communications Corp.* 43,000 1,402,875
Fox Entertainment Group, Inc.* 184,800 4,712,400
Gametech International, Inc.* 515,000 2,156,563
Gemstar International Group Ltd.* 12,000 741,750
Harrah's Entertainment, Inc.* 1,602,400 34,651,900
Hearst-Argyle Television, Inc.* 440,000 10,890,000
Heftel Broadcasting Corp., "A"* 157,220 9,767,293
MediaOne Group, Inc.* 718,500 53,079,187
Premier Parks, Inc.* 1,445,200 51,485,250
Radio One, Inc. 28,600 1,151,150
Silverleaf Resorts, Inc.* 54,000 418,500
Sinclair Broadcast Group, Inc., "A"* 77,800 1,079,475
Time Warner, Inc. 2,636,100 179,419,556
Univision Communications, Inc., "A"* 1,428,100 84,704,181
Vistana, Inc.* 242,500 3,758,750
West Coast Entertainment Corp.* 595,000 223,125
---------------
$ 774,965,313
- -------------------------------------------------------------------------------
Financial Institutions - 1.5%
ARM Financial Group, Inc., "A" 333,700 $ 5,005,500
Associates First Capital Corp., "A" 1,962,140 80,447,740
CIT Group, Inc., "A" 274,100 7,948,900
Federated Investors, Inc., "A" 166,500 2,913,750
Franklin Resources, Inc. 1,473,100 64,079,850
Goldman Sachs Group, Inc.* 124,500 8,458,219
Healthcare Financial Partners, Inc.* 226,500 7,644,375
Heller Financial, Inc., "A" 154,100 4,584,475
Liberty Financial Cos., Inc. 132,000 3,448,500
Morgan Stanley Dean Witter & Co. 51,300 4,950,450
Schwab (Charles) Corp. 55,000 5,819,687
WMF Group Ltd.* 90,000 585,000
---------------
$ 195,886,446
- -------------------------------------------------------------------------------
Food and Beverage Products - 0.2%
International Home Foods, Inc.* 122,200 $ 1,955,200
Suiza Foods Corp.* 483,000 17,689,875
---------------
$ 19,645,075
- -------------------------------------------------------------------------------
Insurance - 0.2%
American International Group, Inc. 45,100 $ 5,155,494
Compdent Corp.* 280,400 4,065,800
Conseco, Inc. 332,744 10,169,488
Frontier Insurance Group, Inc. 99,000 1,701,563
Hartford Life, Inc., "A" 90,500 4,298,750
Nationwide Financial Services, Inc., "A" 108,400 4,681,525
---------------
$ 30,072,620
- -------------------------------------------------------------------------------
Machinery
ITEQ, Inc.* 300,000 $ 628,125
JLK Direct Distribution, Inc., "A"* 17,000 187,000
---------------
$ 815,125
- -------------------------------------------------------------------------------
Medical and Health Products - 0.6%
Becton, Dickinson & Co. 108,300 $ 4,196,625
Boston Scientific Corp.* 1,325,600 50,289,950
Coast Dental Services, Inc.* 64,600 452,200
Matria Healthcare, Inc.* 533,500 3,201,000
Orthofix International N.V.* 473,749 7,106,235
PSS World Medical, Inc.* 519,500 6,396,344
Renex Corp.* 262,200 1,179,900
Wesley Jessen Visioncare, Inc.* 136,700 4,254,787
---------------
$ 77,077,041
- -------------------------------------------------------------------------------
Medical and Health Technology and Services - 6.8%
Balanced Care Corp.* 351,700 $ 835,288
Capital Senior Living Corp.* 458,000 4,980,750
Cardinal Health, Inc. 408,235 24,647,188
Carematrix Corp.* 357,000 5,288,063
Concentra Managed Care, Inc.* 335,500 4,927,656
Foundation Health Systems, Inc.* 1,000,409 17,882,311
Genesis Health Ventures, Inc.* 256,150 1,136,666
Guidant Corp. 1,670,500 83,525,000
HCIA, Inc.* 565,000 4,837,813
Health Management Associates, Inc., "A"* 451,625 5,871,125
HealthSouth Corp.* 3,714,398 49,680,073
Henry Schein, Inc.* 14,350 433,191
Integrated Health Services, Inc. 1,166,200 6,851,425
Mariner Post-Acute Network, Inc.* 1,634,200 3,676,950
McKesson HBOC, Inc. 955,499 32,546,685
Medtronic, Inc. 214,680 15,242,280
Mid Atlantic Medical Services, Inc.* 2,516,988 26,113,750
NCS Healthcare, Inc., "A"* 36,200 497,750
Orthodontic Centers of America, Inc.*++ 2,474,600 29,849,862
Oxford Health Plans, Inc.* 450,000 8,578,125
PacifiCare Health Systems, Inc., "A"* 364,900 31,221,756
PacifiCare Health Systems, Inc., "B"* 628,746 54,307,936
Phymatrix Corp.* 98,200 162,644
Renal Care Group, Inc.* 60,000 1,665,000
St. Jude Medical, Inc.* 32,933 1,113,547
Total Renal Care Holdings, Inc.* 2,165,528 33,294,993
Trigon Healthcare, Inc.* 85,000 3,240,625
United HealthCare Corp. 7,167,554 417,510,020
United Payors & United Providers, Inc.* 170,300 3,182,481
Wellpoint Health Networks, Inc. 466,300 38,440,606
---------------
$ 911,541,559
- -------------------------------------------------------------------------------
Metals and Minerals
NS Group, Inc.* 217,400 $ 1,548,975
- -------------------------------------------------------------------------------
Office Equipment
Steelcase, Inc. 37,100 $ 679,394
- -------------------------------------------------------------------------------
Pollution Control - 1.0%
Allied Waste Industries, Inc.* 739,300 $ 13,769,463
Casella Waste Systems, Inc., "A"* 61,200 1,204,875
Republic Services, Inc.* 3,820,900 89,791,150
Superior Services, Inc.* 110,700 2,373,131
Waste Industries, Inc.* 16,400 264,450
Waste Management, Inc. 535,462 28,312,553
---------------
$ 135,715,622
- -------------------------------------------------------------------------------
Printing and Publishing - 0.2%
Applied Graphics Technologies, Inc.* 148,000 $ 1,609,500
Mail-Well, Inc.* 1,640,000 24,292,500
Workflow Management, Inc. 507,801 6,537,938
---------------
$ 32,439,938
- -------------------------------------------------------------------------------
Railroads - 0.5%
Kansas City Southern Industries, Inc. 1,186,600 $ 66,746,250
- -------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.1%
MeriStar Hospitality Corp.* 662,300 $ 14,487,812
- -------------------------------------------------------------------------------
Restaurants and Lodging - 8.0%
Amerihost Properties, Inc.*++ 527,000 $ 1,943,313
Applebee's International, Inc.++ 3,139,500 92,615,250
Avado Brands, Inc.## 370,000 3,341,562
Buffets, Inc.*++ 3,114,750 32,704,875
Candlewood Hotel Co., Inc.* 210,000 761,250
Cavanaughs Hospitality Corp.* 18,800 179,775
CEC Entertainment, Inc.*++ 1,052,000 39,778,750
Cendant Corp.* 36,204,848 667,526,885
CKE Restaurants, Inc. 100,000 1,837,500
Extended Stay America, Inc.* 401,904 4,270,230
Extended Stay America, Inc.*##(+) 1,000,000 10,625,000
Four Seasons Hotels, Inc. 152,400 6,400,800
Friendly Ice Cream Corp.* 315,000 2,342,813
Hammons (John Q) Hotels, Inc., "A"* 168,000 714,000
IHOP Corp.* 723,000 17,261,625
Lone Star Steakhouse & Saloon, Inc.* 270,500 2,721,906
Marriott International, Inc., "A" 120,000 4,567,500
Meristar Hotels and Resorts, Inc. 884,000 3,812,250
Mortons Restaurant Group, Inc.*++ 440,000 7,755,000
Papa John's International, Inc.* 132,700 5,241,650
Promus Hotel Corp.*++ 4,469,313 111,732,825
Rainforest Cafe, Inc.* 132,500 720,469
Schlotzskys, Inc.* 270,700 2,757,756
ShoLodge, Inc.*++ 337,000 1,621,813
Sonic Corp.* 660,000 18,170,625
Star Buffet, Inc.* 35,000 214,375
Sunterra Corp.* 140,000 1,898,750
Taco Cabana, Inc.* 541,000 5,781,937
Total Entertainment Restaurant Corp.* 56,500 169,500
U.S. Franchise Systems, Inc., "A"* 562,000 9,975,500
---------------
$ 1,059,445,484
- -------------------------------------------------------------------------------
Special Products and Services - 0.3%
Ballantyne of Omaha, Inc.* 137,025 $ 1,061,944
Central Parking Corp. 218,900 7,114,250
Flanders Corp.* 117,000 438,750
Gartner Group, Inc.* 47,900 1,101,700
Navigant International, Inc. 306,800 2,483,163
Royal Caribbean Cruises Ltd. 180,800 7,073,800
School Specialty, Inc. 45,200 672,350
Stewart Enterprises, Inc., "A" 675,000 12,445,312
Stratesec, Inc.* 50,000 59,375
Wackenhut Corp. 184,000 3,530,500
Wilmar Industries, Inc.* 66,600 757,575
---------------
$ 36,738,719
- -------------------------------------------------------------------------------
Steel
Citation Corp.* 463,000 $ 6,221,563
- -------------------------------------------------------------------------------
Stores - 6.0%
American Pad & Paper Co.* 840,000 $ 1,968,792
Boise Cascade Office Products Corp.* 336,400 4,015,775
CompUSA, Inc.* 445,000 3,587,813
Consolidated Stores Corp.* 1,193,125 41,013,672
Corporate Express, Inc.* 3,662,100 24,032,531
CVS Corp. 290,800 13,376,800
Dayton Hudson Corp. 26,900 1,694,700
Friedmans, Inc., "A"* 130,000 1,170,000
General Nutrition Cos., Inc.* 1,543,288 25,560,707
Gymboree Corp.* 131,200 1,615,400
Home Depot, Inc. 1,194,300 67,925,812
Lowe's Cos., Inc. 32,700 1,698,356
Micro Warehouse, Inc.*++ 2,857,100 44,285,050
Mothers Work, Inc.*++ 196,000 2,131,500
Movie Gallery, Inc.* 338,000 2,112,500
MSC Industrial Direct, Inc., "A"* 301,600 5,692,700
Office Depot, Inc.* 11,478,450 239,612,644
OfficeMax, Inc.* 893,000 10,269,500
Rental Service Corp.* 112,800 2,693,100
Rental-A-Center, Inc. 226,000 5,833,625
Republic Industries, Inc.*+(+) 6,000,000 98,250,000
Republic Industries, Inc.*+ 505,000 8,269,375
Rite Aid Corp. 6,956,700 173,917,500
TJX Cos., Inc. 225,000 6,750,000
U.S. Office Products Co. 1,115,603 5,856,916
Wal-Mart Stores, Inc. 49,600 2,114,200
---------------
$ 795,448,968
- -------------------------------------------------------------------------------
Supermarkets - 0.4%
Kroger Co.* 944,600 $ 55,318,137
Safeway, Inc.* 15,700 730,050
---------------
$ 56,048,187
- -------------------------------------------------------------------------------
Telecommunications - 17.1%
Adelphia Communications Corp. "A"* 61,600 $ 4,650,800
Amdocs Ltd.* 196,100 4,498,044
American Tower Corp., "A"* 111,300 2,504,250
APAC Teleservices, Inc.* 450,000 1,659,375
Ascend Communications, Inc.* 320,100 29,669,269
Cisco Systems, Inc.* 11,005,287 1,199,576,283
Copper Mountain Networks, Inc.* 13,900 889,600
General Instrument Corp.* 83,600 3,234,275
Glenayre Technologies, Inc.* 1,420,000 5,058,750
Global TeleSystems Group, Inc.* 291,085 22,122,460
Hypercom Corp.* 316,200 2,233,162
Hyperion Telecommunications, Inc., "A"* 83,000 1,400,625
Intermedia Communications, Inc.*## 120,000 3,037,500
IXC Communications, Inc.* 55,000 1,980,000
Lucent Technologies, Inc. 539,600 30,689,750
MCI WorldCom, Inc.* 9,140,723 789,529,949
McLeodUSA, Inc., "A"* 25,500 1,364,250
Metromedia Fiber Network, Inc., "A"* 513,600 20,736,600
Net Perceptions, Inc.* 16,200 275,400
Nortel Networks Corp. 134,100 10,057,500
Qwest Communications International, Inc.* 530,776 22,624,327
Rhythms NetConnections, Inc.* 22,600 1,096,100
RMH Teleservices, Inc.* 238,000 699,125
SCC Communications Corp.* 300,000 1,143,750
Sprint Corp. (PCS Group)* 206,900 9,310,500
Sterling Commerce, Inc.* 59,826 2,325,736
Talk.com, Inc.++ 6,471,100 67,137,662
Tellabs, Inc.* 436,000 25,506,000
Time Warner Telecom, Inc.* 60,900 1,560,563
Transaction Network Services, Inc.* 245,700 6,572,475
Uniphase Corp. 20,000 2,680,000
VDI Media* 290,000 1,885,000
---------------
$ 2,277,709,080
- -------------------------------------------------------------------------------
Transportation - 0.1%
Budget Group, Inc., "A"* 302,700 $ 4,048,613
Carey International, Inc.* 98,000 1,837,500
Coach USA, Inc.* 298,600 8,696,725
Dispatch Management Services Corp.* 215,600 603,006
Dynamex, Inc.* 89,600 296,800
Hub Group, Inc., "A"* 25,000 696,875
---------------
$ 16,179,519
- -------------------------------------------------------------------------------
Utilities - Telephone - 0.1%
Frontier Corp. 258,600 $ 13,608,825
- -------------------------------------------------------------------------------
Venture Capital
Copley Partners 1*+(+) 3,000,000 $ 365,880
Copley Partners 2*+(+) 3,000,000 1,281,510
Highland Capital Partners*+(+) 7,500,000 988,200
---------------
$ 2,635,590
- -------------------------------------------------------------------------------
Total U.S. Stocks $12,607,413,928
- -------------------------------------------------------------------------------
Foreign Stocks - 2.6%
Bermuda - 0.2%
Ace Ltd. (Insurance) 695,200 $ 21,203,600
- -------------------------------------------------------------------------------
Canada
Laidlaw, Inc. (Pollution Control) 480,000 $ 3,360,000
Legacy Hotels Real Estate Investment Trust
(Real Estate Investment Trust)*## 305,000 1,698,241
---------------
$ 5,058,241
- -------------------------------------------------------------------------------
Finland
Nokia Corp., ADR (Telecommunications) 20,200 $ 1,434,200
- -------------------------------------------------------------------------------
Germany - 1.7%
SAP AG, ADR (Computer Software - Systems) 174,300 $ 60,502,853
SAP AG, ADR (Computer Software - Systems)## 1,238,800 41,266,906
SAP AG, Preferred (Computer Software
- Systems) 305,625 122,176,726
---------------
$ 223,946,485
- -------------------------------------------------------------------------------
Ireland
Elan Corp. PLC, ADR (Health Products)* 128,600 $ 6,944,400
- -------------------------------------------------------------------------------
Italy - 0.3%
Gucci Group N.V. (Apparel and Textiles) 525,000 $ 34,715,625
- -------------------------------------------------------------------------------
Mexico
TV Azteca, S.A. de C.V., ADR (Broadcasting) 41,000 $ 207,563
- -------------------------------------------------------------------------------
Netherlands - 0.1%
Benckiser N.V., "B" (Consumer Goods
and Services) 137,895 $ 7,445,820
- -------------------------------------------------------------------------------
Sweden
Ericsson LM, ADR (Telecommunication
Equipment) 136,800 $ 3,685,050
Skandia Forsakrings AB (Insurance) 100,000 1,716,473
---------------
$ 5,401,523
- -------------------------------------------------------------------------------
United Kingdom - 0.3%
CBT Group PLC, ADR (Computer Software -
Personal Computers)* 1,043,100 $ 15,907,275
Danka Business Systems, ADR
(Business Services)++ 4,136,600 22,622,031
Merant PLC, ADR (Computer Software
- Services) 68,750 859,375
---------------
$ 39,388,681
- -------------------------------------------------------------------------------
Total Foreign Stocks $ 345,746,138
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $7,555,922,333) $12,953,160,066
- -------------------------------------------------------------------------------
Convertible Preferred Stock
- -------------------------------------------------------------------------------
Restaurants and Lodging
Avado Financing, "A", 7s*##
(Identified Cost, $5,000,000) 100,000 $ 3,787,500
- -------------------------------------------------------------------------------
Convertible Bonds - 0.1%
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED)
- -------------------------------------------------------------------------------
Construction Services
American Residential Services, Inc.,
7.25s, 2004## $ 4,000 $ 3,960,000
- -------------------------------------------------------------------------------
Entertainment - 0.1%
CBS Radio, Inc., 7s, 2011## $ 4,555 $ 7,083,025
- -------------------------------------------------------------------------------
Medical and Health Products
Ventritex, Inc., 5.75s, 2001 $ 1,230 $ 1,265,362
- -------------------------------------------------------------------------------
Restaurants and Lodging
ShoLodge, Inc., 7.5s, 2004 $ 2,000 $ 1,170,000
- -------------------------------------------------------------------------------
Telecommunications
Midcom Communications, Inc., 8.25s, 2003**## $ 4,600 $ 782,000
- -----------------------------------------------------------------------------
Total Convertible Bonds
(Identified Cost, $16,385,000) $ 14,260,387
- -------------------------------------------------------------------------------
Short-Term Obligations - 0.7%
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- -------------------------------------------------------------------------------
General Electric Capital Corp.,
due 6/01/99, at Amortized Cost $ 97,630 $ 97,630,000
- -------------------------------------------------------------------------------
Total Investments
(Identified Cost, $7,674,937,333) $13,068,837,953
Other Assets, Less Liabilities - 1.9% 248,598,954
- -------------------------------------------------------------------------------
Net Assets - 100.0% $13,317,436,907
- -------------------------------------------------------------------------------
* Non-income producing security.
** Non-income producing security - in default.
## SEC Rule 144A restriction.
+ Restricted security.
++ Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting shares of the issuer.
(+) Security valued by or at the direction of the Trustees.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- ------------------------------------------------------------------------------
MAY 31, 1999
- ------------------------------------------------------------------------------
Assets:
Investments, at value -
Unaffiliated issuers (identified cost,
$6,704,621,050) $ 11,759,183,979
Affiliated issuer (identified cost, $970,316,283) 1,309,653,974
----------------
Total investments, at value (identified cost,
$7,674,937,333) $ 13,068,837,953
Cash 113,791
Receivable for investments sold 59,566,082
Receivable for Fund shares sold 239,448,818
Interest and dividends receivable 1,036,952
Other assets 154,324
----------------
Total assets $ 13,369,157,920
----------------
Liabilities:
Payable for investments purchased $ 21,656,591
Payable for Fund shares reacquired 20,999,473
Payable to affiliates -
Management fee 984,626
Administrative fee 4,110
Shareholder servicing agent fee 143,472
Distribution and service fee 6,845,610
Accrued expenses and other liabilities 1,087,131
----------------
Total liabilities $ 51,721,013
----------------
Net assets $ 13,317,436,907
================
Net assets consist of:
Paid-in capital $ 7,818,750,693
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 5,393,895,259
Accumulated undistributed net realized gain on
investments and foreign currency transactions 190,581,108
Accumulated net investment loss (85,790,153)
----------------
Total $ 13,317,436,907
================
Shares of beneficial interest outstanding 299,084,086
===========
Class A shares:
Net asset value per share
(net assets of $5,601,404,845 / 123,744,405 shares
of beneficial interest outstanding) $45.27
======
Offering price per share (100 / 94.25 of net asset
value per share) $48.03
======
Class B shares:
Net asset value and offering price per share
(net assets of $6,928,370,470 / 157,399,527 shares
of beneficial interest outstanding) $44.02
======
Class C shares:
Net asset value and offering price per share
(net assets of $725,822,800 / 16,577,788 shares of
beneficial interest outstanding) $43.78
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $59,558,162 / 1,310,634 shares of
beneficial interest outstanding) $45.44
======
Class J shares:
Net asset value, offering price, and redemption price per share
(net assets of $2,280,630 / 51,732 shares of
beneficial interest outstanding) $44.09
======
On sales of $50,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
- ------------------------------------------------------------------------------
SIX MONTHS ENDED MAY 31, 1999
- ------------------------------------------------------------------------------
Net investment income (loss):
Income -
Dividends (including $282,555 received from
affiliated issuers) $ 7,943,906
Interest 4,124,943
Income on securities loaned 2,195,705
Foreign taxes withheld (144,143)
--------------
Total investment income $ 14,120,411
--------------
Expenses -
Management fee $ 43,737,480
Trustees' compensation 26,870
Shareholder servicing agent fee 6,892,619
Distribution and service fee (Class A) 6,579,715
Distribution and service fee (Class B) 33,725,679
Distribution and service fee (Class C) 3,310,995
Distribution and service fee (Class J) 3,605
Administrative fee 155,284
Custodian fee 1,159,206
Postage 717,480
Printing 165,931
Auditing fees 20,250
Legal fees 16,135
Miscellaneous 3,828,942
--------------
Total expenses $ 100,340,191
Fees paid indirectly (529,386)
--------------
Net expenses $ 99,810,805
--------------
Net investment loss $ (85,690,394)
--------------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions (including $80,478,761 net
gain from transactions with affiliated issuers) $ 195,874,097
Foreign currency transactions (3,405)
--------------
Net realized gain on investments and foreign
currency transactions $ 195,870,692
--------------
Change in unrealized appreciation (depreciation) -
Investments $1,309,810,977
Translation of assets and liabilities in foreign
currencies (6,611)
--------------
Net unrealized gain on investments and foreign
currency translation $1,309,804,366
--------------
Net realized and unrealized gain on investments
and foreign currency $1,505,675,058
--------------
Increase in net assets from operations $1,419,984,664
==============
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (85,690,394) $ (138,210,859)
Net realized gain on investments and foreign
currency transactions 195,870,692 214,629,856
Net unrealized gain on investments and foreign
currency translation 1,309,804,366 860,183,198
----------------- -----------------
Increase in net assets from operations $ 1,419,984,664 $ 936,602,195
----------------- -----------------
Distributions declared to shareholders -
From net realized gain on investments and foreign
currency transactions (Class A) $ (47,160,924) $ (35,451,730)
From net realized gain on investments and foreign
currency transactions (Class B) (63,514,966) (37,089,138)
From net realized gain on investments and foreign
currency transactions (Class C) (5,989,031) (2,529,758)
From net realized gain on investments and foreign
currency transactions (Class I) (509,880) (526,650)
From net realized gain on investments and foreign
currency transactions (Class J) (1,520) --
----------------- -----------------
Total distributions declared to shareholders $ (117,176,321) $ (75,597,276)
----------------- -----------------
Net increase in net assets from Fund share
transactions $ 495,089,992 $ 1,248,664,828
----------------- -----------------
Total increase in net assets $ 1,797,898,335 $ 2,109,669,747
Net assets:
At beginning of period 11,519,538,572 9,409,868,825
----------------- -----------------
At end of period (including accumulated net
investment loss of $85,790,153 and $99,759,
respectively) $ 13,317,436,907 $ 11,519,538,572
================= =================
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED --------------------------------------------------------------------
MAY 31, 1999 1998 1997 1996 1995 1994
(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 $40.65 $37.54 $32.01 $26.79 $18.73 $17.68
------ ------ ------ ------ ------ ------
Income (loss) from investment operations# -
Net investment loss $(0.20) $(0.34) $(0.34) $(0.29) $(0.23) $(0.20)
Net realized and unrealized gain on
investments and foreign currency 5.23 3.79 6.24 5.51 8.68 1.78
------ ------ ------ ------ ------ ------
Total from investment operations $ 5.03 $ 3.45 $ 5.90 $ 5.22 $ 8.45 $ 1.58
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net realized gain on investments
and foreign currency transactions $(0.41) $(0.34) $(0.37) $ -- $(0.38) $(0.53)
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- -- (0.00)* --
From paid-in capital -- -- -- -- (0.01) --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.41) $(0.34) $(0.37) $ -- $(0.39) $(0.53)
------ ------ ------ ------ ------ ------
Net asset value - end of period $45.27 $40.65 $37.54 $32.01 $26.79 $18.73
====== ====== ====== ====== ====== ======
Total return(+) 12.47%++ 9.36% 18.66% 19.52% 45.98% 9.06%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.14%+ 1.16% 1.21% 1.20% 1.28% 1.33%
Net investment loss (0.91)%+ (0.87)% (0.99)% (1.01)% (1.04)% (1.09)%
Portfolio turnover 9% 15% 21% 22% 20% 39%
Net assets at end of period (000,000
omitted) $5,601 $4,713 $3,875 $2,524 $1,312 $470
+ Annualized.
++ Not annualized.
* The per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained by
the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's
expenses are calculated without reduction for this expense offset arrangement.
(+) 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>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED --------------------------------------------------------------------
MAY 31, 1999 1998 1997 1996 1995 1994
(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 $39.69 $36.85 $31.48 $26.56 $18.57 $17.64
------ ------ ------ ------ ------ ------
Income (loss) from investment operations# -
Net investment loss $(0.36) $(0.62) $(0.59) $(0.52) $(0.41) $(0.35)
Net realized and unrealized gain on
investments and foreign currency 5.10 3.72 6.14 5.44 8.65 1.78
------ ------ ------ ------ ------ ------
Total from investment operations $ 4.74 $ 3.10 $ 5.55 $ 4.92 $ 8.24 $ 1.43
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net realized gain on investments
and foreign currency transactions $(0.41) $(0.26) $(0.18) $ -- $(0.24) $(0.50)
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- -- (0.00)* --
From paid-in capital -- -- -- -- (0.01) --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.41) $(0.26) $(0.18) $ -- $(0.25) $(0.50)
------ ------ ------ ------ ------ ------
Net asset value - end of period $44.02 $39.69 $36.85 $31.48 $26.56 $18.57
====== ====== ====== ====== ====== ======
Total return 12.03%++ 8.55% 17.78% 18.52% 44.89% 8.21%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.89%+ 1.91% 1.97% 2.00% 2.08% 2.14%
Net investment loss (1.66)%+ (1.62)% (1.75)% (1.80)% (1.83)% (1.90)%
Portfolio turnover 9% 15% 21% 22% 20% 39%
Net assets at end of period (000,000
omitted) $6,928 $6,190 $5,144 $3,659 $2,001 $769
+ Annualized.
++ Not annualized.
* The per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained by
the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1, 1995, the Fund's
expenses are calculated without reduction for this expense offset arrangement.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
NOVEMBER 30, PERIOD ENDED
SIX MONTHS ENDED ---------------------------- NOVEMBER 30,
MAY 31, 1999 1998 1997 1996*
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $39.49 $36.66 $31.48 $28.37
------ ------ ------ ------
Income (loss) from investment operations# -
Net investment loss $(0.36) $(0.61) $(0.59) $(0.38)
Net realized and unrealized gain on investments
and foreign currency 5.06 3.70 6.12 3.49
------ ------ ------ ------
Total from investment operations $ 4.70 $ 3.09 $ 5.53 $ 3.11
------ ------ ------ ------
Less distributions declared to shareholders from net
realized gain on investments and foreign currency
transactions $(0.41) $(0.26) $(0.35) $ --
------ ------ ------ ------
Net asset value - end of period $43.78 $39.49 $36.66 $31.48
====== ====== ====== ======
Total return 12.02%++ 8.54% 17.81% 10.96%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.89%+ 1.91% 1.97% 1.35%+
Net investment loss (1.67)%+ (1.62)% (1.75)% (1.25)%+
Portfolio turnover 9% 15% 21% 22%
Net assets at end of period (000,000 omitted) $726 $564 $344 $119
* For the period from the inception of Class C, April 1, 1996, through November 30, 1996.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained by
the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without reduction for this
expense offset arrangement.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED -------------------------------------------
MAY 31, 1999 1998 1997*
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
CLASS I
- ----------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $40.76 $37.62 $29.98
------ ------ ------
Income (loss) from investment operations# -
Net investment loss $(0.15) $(0.24) $(0.23)
Net realized and unrealized gain on investments and
foreign currency 5.24 3.80 7.87
------ ------ ------
Total from investment operations $ 5.09 $ 3.56 $ 7.64
------ ------ ------
Less distributions declared to shareholders from net
realized gain on investments and foreign currency
transactions $(0.41) $(0.42) $ --
------ ------ ------
Net asset value - end of period $45.44 $40.76 $37.62
====== ====== ======
Total return 12.58%++ 9.67% 25.48%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.89%+ 0.91% 0.97%+
Net investment loss (0.66)%+ (0.62)% (0.74)%+
Portfolio turnover 9% 15% 21%
Net assets at end of period (000 omitted) $59,558 $51,537 $47,240
* 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 has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained by
the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without reduction for this
expense offset arrangement.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
MAY 31, 1999 NOVEMBER 30, 1998*
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
CLASS J
- --------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $39.71 $35.31
------ ------
Income (loss) from investment operations# -
Net investment loss $(0.29) $(0.09)
Net realized and unrealized gain on investments and foreign
currency transactions 5.08 4.49
------ ------
Total from investment operations $ 4.79 $ 4.40
------ ------
Less distributions declared to shareholders from net realized gain
on investments and foreign currency $(0.41) $ --
------ ------
Net asset value - end of period $44.09 $39.71
====== ======
Total return 12.15%++ 12.46%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.68%+ 1.66%+
Net investment loss (1.47)%+ (1.50)%+
Portfolio turnover 9% 15%
Net assets at end of period (000 omitted) $2,281 $88
* For the period from the inception of Class J, September 24, 1998, through November 30, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained by
the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without reduction for this
expense offset arrangement.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Emerging Growth Fund (the Fund) is a diversified series of MFS Series Trust
II (the Trust). The Trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in the country's legal, political, and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using last quoted bid
prices. Debt securities (other than short-term obligations which mature in 60
days or less), including listed issues, 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. Securities for which there are no such quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Security Loans - The Fund may lend its securities to member banks of the Federal
Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. The loans are collateralized at all times by U.S. Treasury
securities with a market value at least equal to the market value of the
securities loaned. As with other extensions of credit, the Fund bears the risk
of delay in recovery or even loss of rights in the collateral should the
borrower of the securities fail financially.
At May 31, 1999, the value of securities loaned was $100,530,910. These loans
were collateralized by U.S. Treasury securities of $106,563,991. On loans
collateralized by U.S. Treasury securities, a fee is received from the Borrower,
and is allocated between the Fund and State Street Bank and Trust. Income from
securities lending reported on the Statement of Operations. The dividend and
interest income earned on the securities loaned is accounted for in the same
manner as other dividend and interest income.
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 distributions from paid-in 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 $2.5 billion 0.75%
Next $4.5 billion 0.70%
In excess of $7 billion 0.65%
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee at
the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain officers and Trustees of the
Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD), and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
for all of its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $9,372 for the six months
ended May 31, 1999.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$983,256 for the six months ended May 31, 1999, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, Class C, and
Class J shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee paid to each
securities dealer that enters into a sales agreement with MFD of up to 0.25% per
annum of the Fund's average daily net assets attributable to Class A shares
which are attributable to that securities dealer and a distribution fee to MFD
of up to 0.10% per annum of the Fund's average daily net assets attributable to
Class A shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $312,430 for the six months ending May 31,
1999. Payment of the 0.10% per annum Class A distribution fee will commence on
such date as the Trustees of the Trust may determine. Fees incurred under the
distribution plan during the six months ended May 31, 1999, were 0.25% of
average daily net assets attributable to Class A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be consideration for services
rendered by the dealer with respect to Class B and Class C shares. MFD retains
the service fee for accounts not attributable to a securities dealer, which
amounted to $134,857 and $3,949 for Class B and Class C shares, respectively,
for the six months ended May 31, 1999. Fees incurred under the distribution plan
during the six months ended May 31, 1999, were 1.00% of average daily net assets
attributable to both Class B and Class C shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of up to 0.50% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class J shares. Class J shares
are available for distribution through Merrill Lynch Japan Securities Co.
("MLJ") and its network of financial intermediaries. MLJ also serves as the
Fund's Agent Company in Japan, and in that capacity represents the Fund before
Japanese regulatory authorities. MFD will pay to MLJ all of the service fee and
all of the distribution fee attributable to Class J shares. A portion of the
distribution fee equal to 0.10% per annum of the Fund's average daily net assets
attributable to Class J shares is paid to MLJ to cover its services as the
Fund's Agent Company. Fees incurred under the distribution plan during the six
months ended May 31, 1999, were 0.75% of average net assets attributable to
Class J shares, on an annualized basis.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the six months ending May 31,
1999, were $302,281, $6,914,130, and $152,707 for Class A, Class B, and Class C
shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate of
0.10%. Prior to April 1, 1999, the fee was calculated as a percentage of the
Fund's average daily net assets at an effective annual rate of 0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$1,121,610,325 and $1,285,020,635, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Fund, as computed on a federal income tax basis, are as
follows:
Aggregate cost $7,674,937,333
--------------
Gross unrealized appreciation $6,214,686,885
Gross unrealized depreciation (820,786,265)
--------------
Net unrealized appreciation $5,393,900,620
==============
(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. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
SIX MONTHS ENDED MAY 31, 1999 YEAR ENDED NOVEMBER 30, 1998
---------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 211,838,415 $ 9,329,949,878 323,635,709 $ 12,557,270,573
Shares issued to
shareholders in
reinvestment of
distributions 986,177 40,620,198 959,730 33,147,195
Shares reacquired (205,020,894) (9,033,588,646) (311,882,646) (12,167,722,188)
------------ ---------------- ------------ ----------------
Net increase 7,803,698 $ 336,981,430 12,712,793 $ 422,695,580
============ ================ ============ ================
<CAPTION>
Class B Shares
SIX MONTHS ENDED MAY 31, 1999 YEAR ENDED NOVEMBER 30, 1998
---------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 41,625,037 $ 1,790,613,640 74,377,060 $ 2,833,309,632
Shares issued to
shareholders in
reinvestment of
distributions 1,238,952 49,646,350 861,205 29,129,405
Shares reacquired (41,422,983) (1,782,065,001) (58,855,318) (2,223,583,962)
------------ ---------------- ------------ ----------------
Net increase 1,441,006 $ 58,194,989 16,382,947 $ 638,855,075
============ ================ ============ ================
<CAPTION>
Class C Shares
SIX MONTHS ENDED MAY 31, 1999 YEAR ENDED NOVEMBER 30, 1998
---------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 20,985,963 $ 898,438,966 31,755,320 $ 1,218,876,343
Shares issued to
shareholders in
reinvestment of
distributions 91,986 3,669,362 40,350 1,357,348
Shares reacquired (18,786,270) (806,396,481) (26,901,015) (1,033,437,490)
------------ ---------------- ------------ ----------------
Net increase 2,291,679 $ 95,711,847 4,894,655 $ 186,796,201
============ ================ ============ ================
<CAPTION>
Class I Shares
SIX MONTHS ENDED MAY 31, 1999 YEAR ENDED NOVEMBER 30, 1998
---------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 148,071 $ 6,585,878 209,180 $ 8,247,866
Shares issued to
shareholders in
reinvestment of
distributions 12,017 494,873 15,319 526,918
Shares reacquired (113,757) (5,031,917) (215,813) (8,535,894)
------------ ---------------- ------------ ----------------
Net increase 46,331 $ 2,048,834 8,686 $ 238,890
============ ================ ============ ================
<CAPTION>
Class J Shares
SIX MONTHS ENDED MAY 31, 1999 PERIOD ENDED NOVEMBER 30, 1998*
---------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 51,330 $ 2,230,767 2,222 $ 79,082
Shares reacquired (1,820) (77,875) -- --
------------ ---------------- ------------ ----------------
Net increase 49,510 $ 2,152,892 2,222 $ 79,082
============ ================ ============ ================
*For the period from the inception of Class J, September 24, 1998, through November 30, 1998.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $720 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, 1999, was $45,157.
(7) Transactions in Securities of Affiliated Issuers
Affiliated issuers, as defined under the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the six months ended May
31, 1999, is set forth below:
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
BEGINNING ------------------------------- ------------------------------
AFFILIATE SHARES SHARES COST SHARES COST
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amerihost Properties, Inc. 527,000 -- $ -- -- $ --
Applebees International, Inc. 3,139,500 -- -- -- --
Buffets, Inc. 3,124,450 -- -- 9,700 106,090
Cadence Design
Systems, Inc. 11,529,670 827,300 16,789,763 -- --
CEC Entertainment, Inc. 1,062,000 -- -- 10,000 293,765
Compuware Corp. 17,636,242 2,627,000 118,035,804 1,273,050 96,355,716
Danka Business
Systems, ADR 4,210,300 -- -- 73,700 361,565
Micro Warehouse, Inc. 2,918,500 -- -- 61,400 1,812,165
Modis Professional
Services, Inc. 7,210,150 10,000 121,225 -- --
Mortons Restaurant
Group, Inc. 440,000 -- -- -- --
Mothers Work, Inc. 202,000 -- -- 6,000 77,872
Orthodontic Centers 2,205,000 278,800 3,168,954 9,200 112,903
Promus Hotel 4,108,413 360,900 9,495,337 -- --
ShoLodge, Inc. 375,600 -- -- 38,600 208,643
Talk.com, Inc. 6,471,100 -- -- -- --
------------ -----------
$147,611,083 $99,328,719
============ ===========
<CAPTION>
ENDING REALIZED DIVIDEND ENDING
AFFILIATE SHARES GAIN (LOSS) INCOME VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amerihost Properties, Inc. 527,000 $ -- $ -- $ 1,943,313
Applebees International, Inc. 3,139,500 -- 282,555 92,615,250
Buffets, Inc. 3,114,750 (70,935) -- 32,704,875
Cadence Design Systems, Inc. 12,356,970 -- -- 159,095,989
CEC Entertainment, Inc. 1,052,000 128,765 -- 39,778,750
Compuware Corp. 18,990,192 81,960,878 -- 589,882,839
Danka Business Systems, ADR 4,136,600 -- -- 22,622,031
Micro Warehouse, Inc. 2,857,100 (1,005,078) -- 44,285,050
Modis Professional
Services, Inc. 7,220,150 -- -- 106,497,213
Mortons Restaurant
Group, Inc. 440,000 -- -- 7,755,000
Mothers Work, Inc. 196,000 (24,878) -- 2,131,500
Orthodontic Centers 2,474,600 (20,497) -- 29,849,863
Promus Hotels 4,469,313 -- -- 111,732,825
ShoLodge, Inc. 337,000 (489,494) -- 1,621,813
Talk.com, Inc. 6,471,100 -- -- 67,137,663
----------- -------- --------------
$80,478,761 $282,555 $1,309,653,974
=========== ======== ==============
</TABLE>
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At May 31, 1999, the
Fund owned the following restricted securities (constituting 0.82% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933. The Fund does not have the right to demand that such securities be
registered. The value of these securities is determined by valuations furnished
by dealers or by a pricing service, or if not available, are valued at fair
value as determined in good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
DATE OF
DESCRIPTION ACQUISITION SHARES COST VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Copley Partners 1 12/06/86 3,000,000 $ 1,437,794 $ 365,880
Copley Partners 2 12/02/86 - 8/09/91 3,000,000 2,451,234 1,281,510
Highland Capital Partners 6/28/88 - 6/28/93 7,500,000 4,636,048 988,200
Republic Industries, Inc. 5/15/1996 6,505,000 227,897,500 106,519,375
------------
$109,154,965
============
</TABLE>
<PAGE>
<TABLE>
MFS(R) EMERGING GROWTH FUND
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Marshall N. Cohan - Private Investor
CUSTODIAN
Lawrence H. Cohn, M.D. - Chief of Cardiac State Street Bank and Trust Company
Surgery, Brigham and Women's Hospital;
Professor of Surgery, Harvard Medical School AUDITORS
Deloitte & Touche LLP
The Hon. Sir J. David Gibbons, KBE - Chief
Executive Officer, Edmund Gibbons Ltd.; INVESTOR INFORMATION
Chairman, Colonial Insurance Company, Ltd. For MFS stock and bond market outlooks, call
toll free: 1-800-637-4458 anytime from a
Abby M. O'Neill - Private Investor touch-tone telephone.
Walter E. Robb, III - President and Treasurer, For information on MFS mutual funds, call your
Benchmark Advisors, Inc. (corporate financial financial adviser or, for an information kit,
consultants); President, Benchmark Consulting call toll free: 1-800-637-2929 any business day
Group, Inc. (office services) from 9 a.m. to 5 p.m. Eastern time (or leave a
message anytime).
Arnold D. Scott* - Senior Executive
Vice President, Director, and Secretary, INVESTOR SERVICE
MFS Investment Management MFS Service Center, Inc.
P.O. Box 2281
Jeffrey L. Shames* - Chairman, Chief Executive Boston, MA 02107-9906
Officer, and Director, MFS Investment
Management For general information, call toll free:
1-800-225-2606 any business day from 8 a.m. to
J. Dale Sherratt - President, Insight Resources, 8 p.m. Eastern time.
Inc. (acquisition planning specialists)
Ward Smith - Former Chairman (until 1994), For service to speech- or hearing-impaired,
NACCO Industries (holding company) call toll free: 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time. (To use
INVESTMENT ADVISER this service, your phone must be equipped with
Massachusetts Financial Services Company a Telecommunications Device for the Deaf.)
500 Boylston Street
Boston, MA 02116-3741 For share prices, account balances, and
exchanges, call toll free: 1-800-MFS-TALK
DISTRIBUTOR (1-800-637-8255) anytime from a touch-tone
MFS Fund Distributors, Inc. telephone.
500 Boylston Street
Boston, MA 02116-3741 WORLD WIDE WEB
www.mfs.com
PORTFOLIO MANAGER
John W. Ballen*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
----------------
MFS(R) EMERGING Bulk Rate
GROWTH FUND U.S. Postage
Paid
MFS
----------------
[Logo] M F S(R
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(c)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MEG-3 7/99 915M 07/207/307/807
