<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) LARGE CAP
GROWTH FUND
ANNUAL REPORT O NOVEMBER 30, 1998
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DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 32)
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<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 22
Independent Auditors' Report .............................................. 28
MFS(R) Prepares for the Year 2000 ......................................... 30
Trustees and Officers ..................................................... 33
MFS CELEBRATES ITS DIAMOND ANNIVERSARY!
MARCH 21, 1999, MARKS THE 75TH ANNIVERSARY OF MFS' INVENTION OF
THE MUTUAL FUND. THE MUTUAL FUND INDUSTRY HAS BROUGHT THE POWER
OF INVESTING TO EVERY AMERICAN, OFFERING THEM THE OPPORTUNITY FOR
COLLEGE DEGREES, HOME OWNERSHIP, AND COMFORTABLE RETIREMENT.
IMAGINE TODAY'S WORLD WITHOUT MUTUAL
FUNDS. WE COULDN'T. AND WHILE THE MFS 75 YEARS
YEARS AHEAD WILL BRING A NUMBER OF [graphic omitted]
CHALLENGES, OUR 75 YEARS OF EXPERIENCE EXPERIENCE THE FUTURE(SM)
WILL HELP GUIDE A NEW GENERATION OF
INVESTORS INTO THE FUTURE.
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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,
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual fund
- -- our Massachusetts Investors Trust (MIT) -- was introduced to the public on
March 21, 1924. Since then, MFS Investment Management(R), the company that grew
out of that original fund, has helped guide shareholders through many economic
and investment cycles, primarily by focusing on the long-term opportunities
created by an expanding global economy. As of November 30, 1998, MFS manages
over $90 billion, and the firm's 2,000 people serve 3.9 million investors and
their financial advisers worldwide. Meanwhile, MIT's assets have grown to over
$10 billion, and 56 mutual funds are offered in the MFS Family of Funds(R).
One of the elements in the success of MIT did not exist before our founders
invented it in 1924. That is daily redemption. This innovation means that if you
want to sell your investment in any MFS mutual fund, you have the security of
knowing that you may do so immediately by exchanging into another MFS fund. Or,
if you need your money for other purposes, it can quickly be wired or mailed to
you. This daily redemption feature, through which new shares were created when
people invested in MIT and were redeemed when people sold, brought another
important change to the industry. Now, the price of a mutual fund's shares
wasn't determined by supply and demand, but by the value of the securities owned
by each portfolio.
Another factor in our growth was the development of one of the industry's
first in-house research departments in 1932. Unlike companies that rely on
Wall Street research reports, which can be used by many investors at the same
time, MIT's managers built its long-term track record by visiting companies,
talking to managers and competitors, and "kicking the tires" so they could
judge the quality and potential of each company's products and services for
themselves. Today, MFS has more than 100 full-time portfolio managers, stock
analysts, and credit analysts who track the equity and bond markets. That
number includes over 35 equity analysts who specialize in industries such as
aviation, media, technology, automobiles, and utilities.
While MIT introduced liquidity, that was not our only invention. We also
established the nation's first global bond fund, first high-yield municipal
bond fund, and first high-yield municipal closed-end bond fund.
We are proud of the record of MIT and of the funds in the MFS Family of Funds,
but we are also proud of our long-standing relationship with financial
advisers. Not only do we believe investors can benefit from the advice of
these experts but, as was shown during the market volatility of 1998, people
who work with financial advisers are less likely to abandon their carefully
designed, long-term investment strategies.
Our ability to service your investment and information needs is also extremely
important to us. The MFS Service Center handles millions of transactions and
phone calls every year. Supporting the work of financial advisers, promptly
sending out statements and confirmations, and answering hundreds of investors'
questions every day are crucial elements in maintaining long-term relationships
with our fund shareholders. That link to our investors has also been enhanced by
our site on the World Wide Web: WWW.MFS.COM. Since 1996, this site has given
investors and the general public access to up-to- date information about MFS
products and services, as well as market outlooks and retirement information.
The site has rapidly become one of our primary vehicles for communicating with
our investors and educating the public about mutual funds in general and MFS in
particular.
If there is a common thread running through these milestones, it is our
always-increasing commitment to providing you with the best possible
investment management and shareholder service, just as we have done for the
past 75 years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your
investment needs in the next century. 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)
December 15, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Stephen Pesek]
Stephen Pesek
For the 12 months ended November 30, 1998, Class A shares of the Fund provided
a total return of 20.89%, Class B shares 20.08%, and Class I shares 21.37%.
These returns include the reinvestment of distributions but exclude the
effects of any sales charges and compare to a 23.52% return for the Standard &
Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index of common
stock total return performance.
Q. COULD YOU TALK ABOUT SOME THINGS THAT AFFECTED THE FUND'S PERFORMANCE THIS
YEAR?
A. Some of the core positions in the health care industry helped. Also,
several technology companies, particularly the ones creating software, did
well. Both of these industries, in fact, held up relatively well during the
market turmoil that began in mid-July.
Q. COULD YOU TELL US ABOUT YOUR INVESTMENT STRATEGY?
A. Primarily, we seek good businesses that exhibit some kind of sustainable
competitive advantage. This can include a strong market share, low
production costs, research and development strength, distribution
expertise, and good customer service. Besides this, we seek companies
benefiting from mismatches in supply and demand, in health care, for
example, a sector which is being driven by the natural aging of the
population. As people get older, their drug use goes up, and with managed
care it's easier and cheaper to get pharmaceuticals, which means doctors
write more prescriptions. All this benefits pharmaceutical companies such
as Schering Plough, Pfizer, and Elan, drug stores such as Rite Aid and CVS,
and distributors such as McKesson.
Q. HOWEVER, THE FUND'S LARGEST SECTOR IS TECHNOLOGY. COULD YOU TALK ABOUT THAT
FOR A MINUTE?
A. As I mentioned earlier, this sector is mainly made up of software companies
such as Microsoft and Compuware. These are fast-growing companies with
recurring revenues, high margins, and the ability to generate free cash
flow. They are also benefiting from a fundamental shift of labor capital in
corporate America, that is, cost cutting. Another sector benefiting from
technology as well as from firms' trend to outsource business is service
companies such as Ceridian Corp., a payroll processor, and Computer
Sciences, a computer services and consulting company.
Q. DID YOU MAKE ANY NOTABLE CHANGES IN THE PORTFOLIO DURING THE MARKET DOWNTURN
THAT BEGAN IN JULY?
A. The most notable thing we did was to increase the technology weighting.
These companies performed relatively well during the volatility and even
better after the Federal Reserve Board's interest-rate cuts. Also, economic
trends in Asia started to bottom, and technology companies benefited from
that. The second thing we did was to increase our financial services
holdings, including our weighting in the Federal Home Loan Mortgage Corp.,
or Freddie Mac. Here, we believe favorable credit spreads and a strong
housing market should sustain a favorable operating environment. We also
increased our weighting in Associates First Capital, a spinoff of the Ford
Motor Co. It's had a great 20-year track record of consistent, high-quality
earnings growth. Over 70% of the company's business is in consumer finance,
and because a lot of the smaller consumer finance companies went out of
business, it picked up a lot of that business. Finally, Morgan Stanley
became a big position. A lot of investment companies went through turmoil,
but market shares of a few of the blue-chip companies such as Morgan
Stanley increased dramatically. These companies were conservative and
weren't making a lot of speculative loans. In an environment in which the
underwriting business in investment banking almost went to zero, there was
a huge flight to quality, so Morgan and a few of the other leading firms
got the lion's share of initial public offerings. Going forward, we believe
these companies should also benefit from lower interest rates.
Q. COULD YOU TALK ABOUT ANY STOCKS THAT HAVE PERFORMED BETTER THAN EXPECTED?
A. One of the best has been Tyco. The company has made a couple of very
creative acquisitions. It bought ADT, the security systems company, and it
bought AT&T's undersea cable business. A lot of companies are laying
fiberoptic cables under the ocean to increase capacity for the Internet and
other communications, and Tyco is getting good growth from that business.
Another surprise was WorldCom, which bought MCI Communications and seems to
be absorbing it very well. The stock has doubled this year for two reasons.
First, it is a low-cost provider of telecommunications services, including
Internet service, and, second, it is big in data communications. These are
the two fastest-growing sectors of the communications business.
Q. AND WHAT ABOUT STOCKS THAT HAVE NOT PERFORMED AS WELL AS YOU WOULD HAVE
WISHED?
A. Disappointments included Cendant, which came about from a merger between
HFS and CUC International. Subsequently, it was found that accounting
practices in one division of CUC were fraudulent. Although the stock has
recovered somewhat since this discovery, the price plunged more than 50%
when the fraud was revealed. Another disappointment was HealthSouth, a
company that experienced pricing pressure from its managed care companies.
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. I think we have to assume a slowing domestic economy and a slowdown in
corporate profits in the first half of 1999. Although I don't think we're
going to go into a recession and that we'll probably see a bottoming next
year, we want to focus on companies that we think have the ability to
sustain earnings growth and to produce defensible earnings streams. This
includes companies in industries like health care and technology,
particularly the software companies, and some business services companies.
Q. FINALLY, AS YOU KNOW, 1999 MARKS THE 75TH ANNIVERSARY OF MASSACHUSETTS
INVESTORS TRUST (MIT), THE FIRST MFS FUND AND, IN FACT, THE FIRST MUTUAL
FUND. HOW DO YOU SEE THIS FUND FITTING INTO THE MIT/MFS TRADITION?
A. I would just say that, like MIT, all of the ideas for this Fund are
completely driven by the bottom-up, fundamental analysis of our research
staff. Research was the primary tool for MIT 75 years ago, and it still is
today for all of our funds. This means talking to companies, understanding
their industries, and keeping track of the competition.
/s/ Stephen Pesek
Stephen Pesek
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
- --------------------------------------------------------------------------------
STEPHEN PESEK IS A VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R) AND PORTFOLIO
MANAGER OF MFS(R) LARGE CAP GROWTH FUND, MFS(R) GLOBAL ASSET ALLOCATION FUND,
AND THE WORLD ASSET ALLOCATION(SM) SERIES OFFERED THROUGH MFS(R)/SUN LIFE
ANNUITY PRODUCTS. HE IS ALSO CO-MANAGER OF MFS(R) EMERGING GROWTH FUND.
MR. PESEK JOINED MFS IN 1994 AS AN INDUSTRY SPECIALIST FOLLOWING THE
PHARMACEUTICAL, BIOTECHNOLOGY, AND ELECTRONICS INDUSTRIES. PRIOR TO JOINING MFS,
HE HAD WORKED SINCE 1987 FOR A MAJOR INVESTMENT MANAGEMENT FIRM AS AN EQUITY
ANALYST. HE IS A GRADUATE OF THE UNIVERSITY OF PENNSYLVANIA AND HAS A MASTER OF
BUSINESS ADMINISTRATION DEGREE FROM COLUMBIA UNIVERSITY. HE IS A CHARTERED
FINANCIAL ANALYST.
- --------------------------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS TO PROVIDE GROWTH OF CAPITAL. DIVIDEND INCOME, IF
ANY, IS INCIDENTAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: DECEMBER 29, 1986
CLASS INCEPTION: CLASS A SEPTEMBER 7, 1993
CLASS B DECEMBER 29, 1986
CLASS I JANUARY 2, 1997
SIZE: $758.8 MILLION NET ASSETS AS OF NOVEMBER 30, 1998
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<PAGE>
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include any applicable contingent deferred sales charges and reflect
the percentage change in net asset value, including reinvestment of dividends.
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. (See Notes to Performance Summary for more information.) 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, 1998)
MFS Large Cap
Growth Fund S&P 500 Consumer Price
-- Class B Composite Index Index -- U.S.
11/93 $ 9,800 $10,000 $10,000
11/94 9,651 10,105 10,268
11/95 13,334 13,841 10,531
11/96 15,847 17,698 10,878
11/97 19,596 22,744 11,077
11/98 23,531 28,125 11,262
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended November 30, 1998)
MFS Large Cap
Growth Fund S&P 500 Consumer Price
-- Class B Composite Index Index -- U.S.
11/88 $10,000 $10,000 $10,000
11/90 12,387 12,630 11,122
11/92 17,962 18,007 11,804
11/94 18,343 20,033 12,444
11/96 30,117 35,087 13,184
11/98 44,722 55,760 13,649
AVERAGE ANNUAL TOTAL RETURNS THROUGH NOVEMBER 30, 1998
CLASS A
10 Years/
1 Year 3 Years 5 Years Life
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Average Annual Total Return +20.89% +21.76% +20.17% +16.68%
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SEC Results +13.94% +19.38% +18.76% +15.99%
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CLASS B
10 Years/
1 Year 3 Years 5 Years Life
- --------------------------------------------------------------------------------
Average Annual Total Return +20.08% +20.84% +19.15% +16.16%
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SEC Results +16.09% +20.16% +18.95% +16.16%
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CLASS I
10 Years/
1 Year 3 Years 5 Years Life
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Average Annual Total Return +21.37% +21.65% +19.62% +16.39%
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COMPARATIVE INDICES
10 Years/
1 Year 3 Years 5 Years Life
- --------------------------------------------------------------------------------
Standard & Poor's 500 Composite
Index+ +23.52% +26.66% +22.98% +18.75%
- --------------------------------------------------------------------------------
Consumer Price Index+# + 1.67% + 2.26% + 2.41% + 3.16%
- --------------------------------------------------------------------------------
+ Source: CDA/Wiesenberger.
# The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
<PAGE>
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 5.75% sales charge. Class
B share ("B") SEC results reflect the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class I shares
("I") have no sales charge or Rule 12b-1 fees and are only available to
certain institutional investors.
A results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of B for periods prior to the inception of A. Because operating expenses
of B are greater than those of A, A performance generally would have been
higher than B performance. The B performance included within the A SEC
performance has been adjusted to reflect the maximum initial sales charge
generally applicable to A rather than the CDSC generally applicable to B.
I results include the performance and the operating expenses (e.g., Rule
12b-1 fees) of B for periods prior to the inception of I. Because operating
expenses of B are greater than those of I, I performance generally would have
been higher than B performance. The B performance included in the
I performance has been adjusted to reflect the fact that I 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.
<PAGE>
PORTFOLIO CONCENTRATION AS OF NOVEMBER 30, 1998
FIVE LARGEST STOCK SECTORS
TECHNOLOGY 21.2%
HEALTH CARE 13.0%
RETAILING 12.3%
FINANCIAL SERVICES 12.1%
CONGLOMERATES, SPECIAL PRODUCTS/SERVICES 11.9%
<TABLE>
TOP 10 STOCK HOLDINGS
<S> <C>
TYCO INTERNATIONAL LTD. 4.3% ASSOCIATES FIRST CAPITAL CORP. 2.1%
Security systems, packaging, and electronic Consumer finance company
equipment conglomerate
FRED MEYER, INC. 2.0%
MICROSOFT CORP. 4.0% Northwestern U.S. supermarket chain
Computer software and systems company
TIME WARNER, INC. 2.0%
RITE AID CORP. 3.0% Publishing and entertainment company
Drug store chain
FEDERAL HOME LOAN MORTGAGE CORP. 1.9%
MCI WORLDCOM, INC. 2.5% U.S. mortgage banker and underwriter
Telecommunications company
PHILIP MORRIS COS., INC. 1.9%
COMPUWARE CORP. 2.4% Tobacco, food, and beverage congolmerate
Computer software company
</TABLE>
Portfolio information is as of November 30, 1998. The portfolio is actively
managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS -- November 30, 1998
Stocks - 96.0%
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ISSUER SHARES VALUE
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U.S. Stocks - 92.9%
Aerospace - 0.6%
Raytheon Co., "A" 76,300 $ 4,172,656
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Automotive - 0.3%
Harley-Davidson, Inc. 50,000 $ 2,090,625
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Banks and Credit Companies - 0.7%
Chase Manhattan Corp. 35,400 $ 2,245,688
Wells Fargo & Co. 90,000 3,240,000
------------
$ 5,485,688
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Business Machines - 1.0%
Affiliated Computer Services, Inc., "A"* 205,300 $ 7,865,556
- --------------------------------------------------------------------------------
Business Services - 3.7%
Ceridian Corp.* 160,000 $ 10,410,000
Computer Sciences Corp. 60,000 3,427,500
DST Systems, Inc.* 80,000 4,330,000
Policy Management Systems Corp.* 190,000 9,713,750
------------
$ 27,881,250
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Computer Software - Personal Computers - 3.9%
America Online, Inc.* 2,000 $ 175,125
Microsoft Corp.* 241,700 29,487,400
------------
$ 29,662,525
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Computer Software - Services - 1.4%
EMC Corp.* 150,000 $ 10,875,000
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Computer Software - Systems - 9.9%
BMC Software, Inc.* 217,200 $ 11,090,775
Cadence Design Systems, Inc.* 200,000 5,625,000
Computer Associates International, Inc. 290,000 12,832,500
Compuware Corp.* 280,000 17,430,000
Network Associates, Inc.* 170,000 8,648,750
Oracle Corp.* 310,000 10,617,500
Parametric Technology Corp.* 60,000 1,020,000
SunGard Data Systems, Inc.* 120,000 3,840,000
Synopsys, Inc.* 89,200 4,225,850
------------
$ 75,330,375
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Consumer Goods and Services - 9.0%
Clorox Co. 20,000 $ 2,221,250
Dial Corp. 141,200 3,706,500
Gillette Co. 90,000 4,134,375
Newell Co. 90,000 3,982,500
Philip Morris Cos., Inc. 243,000 13,592,813
Procter & Gamble Co. 90,000 7,886,250
Revlon, Inc., "A"* 55,000 1,134,375
Sportsline USA, Inc.* 20,000 345,000
Tyco International Ltd. 475,000 31,260,937
------------
$ 68,264,000
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Electrical Equipment - 1.3%
General Electric Co. 110,000 $ 9,955,000
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Electronics - 2.6%
Analog Devices, Inc.* 175,100 $ 3,578,606
Applied Materials, Inc.* 50,000 1,937,500
Intel Corp. 110,000 11,838,750
Lattice Semiconductor Corp.* 63,770 2,351,519
------------
$ 19,706,375
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Entertainment - 6.9%
CBS Corp. 210,500 $ 6,275,531
Citadel Communications Corp.* 50,000 1,200,000
Clear Channel Communications, Inc.* 42,000 1,963,500
Disney (Walt) Co. 86,600 2,787,438
Gemstar International Group Ltd.* 22,200 1,348,650
Heftel Broadcasting Corp., "A"* 28,600 1,333,475
Jacor Communications, Inc.* 136,100 7,919,319
MediaOne Group, Inc.* 100,000 4,050,000
Time Warner, Inc. 135,300 14,307,975
Univision Communications, Inc., "A"* 111,000 3,108,000
Viacom, Inc., "B"* 118,100 7,861,031
------------
$ 52,154,919
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Financial Institutions - 7.2%
American Express Co. 50,000 $ 5,003,125
Associates First Capital Corp., "A" 200,100 15,582,787
Federal Home Loan Mortgage Corp. 230,000 13,915,000
Finova Group, Inc. 50,000 2,640,625
Franklin Resources, Inc. 74,300 3,176,325
Merrill Lynch & Co., Inc. 48,900 3,667,500
Morgan Stanley, Dean Witter & Co. 155,000 10,811,250
------------
$ 54,796,612
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Food and Beverage Products - 2.4%
Anheuser Busch Cos., Inc. 63,900 $ 3,873,937
Hershey Foods Corp. 59,200 3,981,200
PepsiCo., Inc. 30,000 1,160,625
Ralston-Ralston Purina Co. 49,800 1,733,663
Suiza Foods Corp.* 101,000 4,784,875
Tootsie Roll Industries, Inc. 70,000 2,668,750
------------
$ 18,203,050
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Insurance - 3.5%
Allstate Corp. 50,000 $ 2,037,500
CIGNA Corp. 30,000 2,334,375
Equitable Cos., Inc. 59,600 3,292,900
Lincoln National Corp. 58,300 4,878,981
MONY Group, Inc.* 3,300 102,094
Nationwide Financial Services, Inc., "A" 50,000 2,406,250
Progressive Corp. 45,000 6,676,875
ReliaStar Financial Corp. 100,000 4,700,000
------------
$ 26,428,975
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Medical and Health Products - 7.3%
Allergan, Inc. 15,000 $ 913,125
American Home Products Co. 107,400 5,719,050
Boston Scientific Corp.* 54,300 2,687,850
Bristol-Myers Squibb Co. 65,200 7,991,075
McKesson Corp. 156,400 11,133,725
Pfizer, Inc. 90,000 10,046,250
Schering Plough Corp. 94,000 9,999,250
Warner-Lambert Co. 93,500 7,059,250
------------
$ 55,549,575
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Medical and Health Technology and Services - 4.4%
Cardinal Health, Inc. 126,600 $ 8,687,925
Guidant Corp. 90,000 7,723,125
HBO & Co. 23,700 591,019
HealthSouth Corp.* 400,000 5,375,000
United Healthcare Corp. 250,000 11,281,250
------------
$ 33,658,319
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Oils - 0.4%
Conoco, Inc., "A"* 91,600 $ 2,169,775
Enron Oil & Gas Co. 58,600 879,000
------------
$ 3,048,775
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Printing and Publishing - 0.5%
Scholastic Corp.* 70,900 $ 3,376,613
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Railroads - 0.3%
Kansas City Southern Industries, Inc. 60,000 $ 2,561,250
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Restaurants and Lodging - 1.6%
Cendant Corp.* 320,000 $ 6,080,000
CKE Restaurants, Inc. 70,000 1,710,625
McDonalds Corp. 65,000 4,554,062
------------
$ 12,344,687
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Special Products and Services - 0.2%
SPX Corp.* 25,000 $ 1,450,000
- --------------------------------------------------------------------------------
Stores - 9.9%
BJ's Wholesale Club, Inc.* 110,000 $ 4,241,875
CVS Corp. 190,000 9,381,250
Dayton-Hudson Corp. 75,000 3,375,000
Home Depot, Inc. 20,000 995,000
Linens 'N Things, Inc.* 48,800 1,494,500
Lowes Co., Inc. 165,000 6,971,250
Office Depot, Inc.* 300,000 9,750,000
Rite Aid Corp. 480,000 22,260,000
TJX Cos., Inc. 240,000 6,150,000
Wal-Mart Stores, Inc. 134,500 10,129,531
------------
$ 74,748,406
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Supermarkets - 1.9%
Meyer (Fred), Inc.* 290,000 $ 14,753,750
- --------------------------------------------------------------------------------
Telecommunications - 11.3%
Alltel Corp. 160,300 $ 8,495,900
Ascend Communications, Inc.* 215,000 12,080,312
Century Telephone Enterprises, Inc. 176,000 10,032,000
Cisco Systems, Inc.* 160,000 12,060,000
Global TeleSystems Group, Inc.* 60,000 2,604,375
Lucent Technologies, Inc. 10,000 860,625
MCI WorldCom, Inc.* 313,300 18,484,700
Qwest Communications International, Inc.* 60,000 2,400,000
SBC Communications, Inc. 140,000 6,711,250
Sprint Corp. 55,000 4,001,250
TeleCommunications, Inc. 70,000 2,821,875
Tellabs, Inc.* 95,000 5,135,938
------------
$ 85,688,225
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Utilities - Gas - 0.7%
Columbia Energy Group, Inc. 90,400 $ 5,130,200
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Total U.S. Stocks $705,182,406
- --------------------------------------------------------------------------------
Foreign Stocks - 3.1%
France - 0.3%
Alcatel Alsthom Compagnie, ADR
(Telecommunications) 100,000 $ 2,587,500
- --------------------------------------------------------------------------------
Germany - 0.4%
Galileo International, Inc. (Consumer Goods and
Services) 65,500 $ 2,620,000
- --------------------------------------------------------------------------------
Ireland - 0.5%
Elan Corp. PLC, ADR (Medical and Health Products) 52,000 $ 3,542,500
- --------------------------------------------------------------------------------
Japan - 0.2%
AFLAC, Inc. (Insurance) 50,000 $ 1,843,750
- --------------------------------------------------------------------------------
Switzerland - 0.5%
Amoco Corp. (Oils) 69,600 $ 4,102,050
- --------------------------------------------------------------------------------
United Kingdom - 1.2%
British Petroleum PLC, ADR (Oils) 43,860 $ 4,040,603
Reuters Group PLC, ADR (Business Services) 58,900 3,386,750
Zeneca Group PLC (Medical and Health Products) 30,000 1,246,040
------------
$ 8,673,393
- --------------------------------------------------------------------------------
Total Foreign Stocks $ 23,369,193
- --------------------------------------------------------------------------------
Total Stocks (Identified Cost, $575,348,422) $728,551,599
- --------------------------------------------------------------------------------
Convertible Preferred Stock - 0.1%
- --------------------------------------------------------------------------------
Agriculture - 0.1%
Monsanto Co.* (Identified Cost, $872,000) 21,800 $ 986,450
- --------------------------------------------------------------------------------
Short-Term Obligations - 3.9%
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 12/11/98 $ 10,000 $ 9,986,083
Federal Home Loan Mortgage Discount Notes,
due 12/14/98 8,140 8,125,215
Federal National Mortgage Assn., due 12/18/98 11,188 11,162,165
Student Loan Marketing Assn., due 12/01/98 25 25,000
- --------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 29,298,463
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $605,518,885) $758,836,512
Other Assets, Less Liabilities (49,475)
- --------------------------------------------------------------------------------
Net Assets - 100.0% $758,787,037
- --------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
NOVEMBER 30, 1998
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $605,518,885) $758,836,512
Cash 2,586
Net receivable for forward foreign currency exchange
contracts subject to master netting agreements 118,247
Receivable for Fund shares sold 327,731
Receivable for investments sold 13,862,069
Dividends receivable 372,765
Other assets 5,245
------------
Total assets $773,525,155
------------
Liabilities:
Payable for Fund shares reacquired $ 5,969,748
Payable for investments purchased 8,176,028
Payable to affiliates -
Management fee 48,312
Shareholder servicing agent fee 7,248
Distribution and service fee 323,075
Administrative fee 159
Accrued expenses and other liabilities 213,548
------------
Total liabilities $ 14,738,118
------------
Net assets $758,787,037
============
Net assets consist of:
Paid-in capital $544,080,932
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 153,437,938
Accumulated undistributed net realized gain on
investments and foreign currency transactions 61,448,637
Accumulated net investment loss (180,470)
------------
Total $758,787,037
============
Shares of beneficial interest outstanding 43,844,743
==========
Class A shares:
Net asset value per share
(net assets of $323,354,134 / 18,698,786 shares of
beneficial interest outstanding) $17.29
======
Offering price per share (100 / 94.25) $18.35
======
Class B shares:
Net asset value and offering price per share
(net assets of $435,394,078 / 25,143,720 shares of
beneficial interest outstanding) $17.32
======
Class I shares:
Net asset value, offering price, and redemption
price per share (net assets of $38,825 / 2,237
shares of beneficial interest outstanding) $17.36
======
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, 1998
- -------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 4,130,471
Interest 2,116,385
------------
Total investment income $ 6,246,856
------------
Expenses -
Management fee $ 5,280,736
Trustees' compensation 47,799
Shareholder servicing agent fee 801,299
Distribution and service fee (Class A) 677,022
Distribution and service fee (Class B) 4,332,691
Administrative fee 91,158
Custodian fee 212,228
Printing 92,612
Postage 104,217
Auditing fees 32,285
Legal fees 7,430
Miscellaneous 340,593
------------
Total expenses $ 12,020,070
Fees paid indirectly (86,804)
------------
Net expenses $ 11,933,266
------------
Net investment loss $ (5,686,410)
------------
Realized and unrealized gain on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 76,407,421
Foreign currency transactions (191,350)
------------
Net realized gain on investments and foreign
currency transactions $ 76,216,071
------------
Change in unrealized appreciation -
Investments $ 59,556,084
Translation of assets and liabilities in foreign currencies 224,347
------------
Net unrealized gain on investments and foreign currency
translation $ 59,780,431
------------
Net realized and unrealized gain on investments
and foreign currency $135,996,502
------------
Increase in net assets from operations $130,310,092
============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment loss $ (5,686,410) $ (1,797,705)
Net realized gain on investments and foreign
currency transactions 76,216,071 107,469,773
Net unrealized gain on investments and foreign
currency translation 59,780,431 25,270,907
-------------- --------------
Increase in net assets from operations $ 130,310,092 $ 130,942,975
-------------- --------------
Distributions declared to shareholders -
From net realized gain on investments and foreign
currency transactions (Class A) $ (37,987,394) $ (35,176,024)
From net realized gain on investments and foreign
currency transactions (Class B) (69,353,928) (93,850,492)
From net realized gain on investments and foreign
currency transactions (Class I) (435) --
-------------- --------------
Total distributions declared to shareholders $ (107,341,757) $ (129,026,516)
-------------- --------------
Net increase in net assets from Fund share
transactions $ 83,734,417 $ 68,970,507
-------------- --------------
Total increase in net assets $ 106,702,752 $ 70,886,966
Net assets:
At beginning of period 652,084,285 581,197,319
-------------- --------------
At end of period (including accumulated net
investment loss of $180,470 and $53,204,
respectively) $ 758,787,037 $ 652,084,285
============== ==============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $17.36 $18.02 $17.67 $13.49 $14.75
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.06) $ 0.03 $ 0.08 $ 0.11 $ 0.21
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 2.94 3.41 2.96 4.91 (0.25)
------ ------ ------ ------ ------
Total from investment operations $ 2.88 $ 3.44 $ 3.04 $ 5.02 $(0.04)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $(0.16) $(0.22) $(0.06)
From net realized gain on investments and
foreign currency transactions (2.95) (4.10) (2.53) (0.62) (1.16)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(2.95) $(4.10) $(2.69) $(0.84) $(1.22)
------ ------ ------ ------ ------
Net asset value - end of period $17.29 $17.36 $18.02 $17.67 $13.49
====== ====== ====== ====== ======
Total return(+) 20.89% 24.67% 19.76% 39.51% (0.47)%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.24% 1.29% 1.31% 1.27% 1.12%
Net investment income (loss) (0.35)% 0.22% 0.47% 0.67% 1.59%
Portfolio turnover 217% 159% 112% 91% 50%
Net assets at end of period (000 omitted) $323,354 $219,755 $150,261 $88,119 $2,608
# 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>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $17.34 $17.96 $17.56 $13.37 $14.72
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.18) $(0.08) $(0.06) $ 0.01 $ 0.04
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 2.98 3.40 2.97 4.85 (0.23)
------ ------ ------ ------ ------
Total from investment operations $ 2.80 $ 3.32 $ 2.91 $ 4.86 $(0.19)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $ -- $(0.05) $ -- +++
From net realized gain on investments and
foreign currency transactions (2.82) (3.94) (2.51) (0.62) (1.16)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(2.82) $(3.94) $(2.51) $(0.67) $(1.16)
------ ------ ------ ------ ------
Net asset value - end of period $17.32 $17.34 $17.96 $17.56 $13.37
====== ====== ====== ====== ======
Total return 20.08% 23.66% 18.84% 38.16% (1.52)%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.99% 2.05% 2.13% 2.14% 2.18%
Net investment income (loss) (1.09)% (0.51)% (0.38)% 0.08% 0.32%
Portfolio turnover 217% 159% 112% 91% 50%
Net assets at end of period (000 omitted) $435,394 $432,327 $430,936 $428,445 $384,504
# 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.
+++ The per share amount was less than $0.01.
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1997*
- --------------------------------------------------------------------------------------------------------------
CLASS I
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $17.41 $13.99
------ ------
Income from investment operations# -
Net investment income (loss) $(0.02) $ 0.12
Net realized and unrealized gain on investments and foreign
currency transactions 2.96 3.30
------ ------
Total from investment operations $ 2.94 $ 3.42
------ ------
Less distributions declared to shareholders -
From net realized gain on investments and foreign currency
transactions $(2.99) $ --
------ ------
Net asset value - end of period $17.36 $17.41
====== ======
Total return 21.37% 24.45%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.98% 1.07%+
Net investment income (loss) (0.15)% 0.90%+
Portfolio turnover 217% 159%
Net assets at end of period (000 omitted) $39 $3
* For the period from the inception of Class I, January 2, 1997, through November 30, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund 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>
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.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using last quoted bid
prices. Debt securities (other than short-term obligations which mature in 60
days or less), including listed issues, 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.
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 may enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Fund may also use contracts in a manner intended to protect
foreign-currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend 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 month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Fund's tax return
and, consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on
Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. During
the year ended November 30, 1998, accumulated net investment loss was
decreased by $5,559,144, accumulated undistributed net realized gain on
investments was decreased by $12,858,982 and paid-in capital was increased by
$7,299,838 due to differences between book and tax accounting for currency
transactions and the offset of net investment loss against short term capital
gains. This change had no effect on the net assets or net asset value per
share. At November 30, 1998, 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, 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 an annual rate of 0.75%
of the Fund's average daily net assets.
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 $11,096 for the year ended
November 30, 1998.
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%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$60,643 for the year ended November 30, 1998, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A and Class B shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
paid to each securities dealer that enters into a sales agreement with MFD of
up to 0.25% per annum of the Fund's average daily net assets attributable to
Class A shares which are attributable to that securities dealer and a
distribution fee to MFD of up to 0.10% per annum of the Fund's average daily
net assets attributable to Class A shares. Payment of the 0.10% per annum
Class A distribution fee will be implemented on such date as the Trustees of
the Trust may determine. MFD retains the service fee for accounts not
attributable to a securities dealer, which amounted to $93,638 for the year
ended November 30, 1998. Fees incurred under the distribution plan during the
year ended November 30, 1998, were 0.25% of average daily net assets
attributable to Class A shares on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per
annum, of the Fund's average daily net assets attributable to Class B shares.
MFD will pay to securities dealers that enter into a sales agreement with MFD
all or a portion of the service fee attributable to Class B shares. The
service fee is intended to be consideration for services rendered by the
dealer with respect to Class B shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $82,394
for Class B shares, for the year ended November 30, 1998. Fees incurred under
the distribution plan during the year ended November 30, 1998, were 1.00% of
average daily net assets attributable to Class B shares on an annualized
basis.
Certain Class A 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 redemption's 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, 1998, were $950 and
$259,850 for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Fund's average daily net assets at an effective annual
rate of 0.1125%. Prior to January 1, 1998, the fee was calculated as a
percentage of the average Fund's daily net assets at an effective annual rate
of 0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
- --------------------------------------------------------------------------------
U.S. government securities $ 15,523,595 $ 15,669,756
-------------- --------------
Investments (non-U.S. government
securities) $1,427,838,629 $1,443,857,003
-------------- --------------
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 $625,164,615
------------
Gross unrealized appreciation 143,137,048
Gross unrealized depreciation (9,465,151)
------------
Net unrealized appreciation $133,671,897
============
(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
YEAR ENDED NOVEMBER 30, 1998 YEAR ENDED NOVEMBER 30, 1997
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 14,417,676 $ 234,120,550 6,566,820 $ 101,517,226
Shares issued to shareholders
in reinvestment of
distributions 2,499,612 34,544,727 2,244,024 31,304,372
Shares transferred to Class I -- -- (14) (202)
Shares reacquired (10,879,547) (178,012,460) (4,486,913) (68,471,593)
----------- ------------- ---------- -------------
Net increase 6,037,741 $ 90,652,817 4,323,917 $ 64,349,803
=========== ============= ========== =============
<CAPTION>
Class B Shares
YEAR ENDED NOVEMBER 30, 1998 YEAR ENDED NOVEMBER 30, 1997
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,216,923 $ 68,886,908 4,299,888 $ 67,740,816
Shares issued to shareholders
in reinvestment of
distributions 4,732,456 65,923,866 6,306,282 88,541,200
Shares reacquired (8,733,786) (141,767,243) (9,673,175) (151,660,715)
----------- ------------- ---------- -------------
Net increase (decrease) 215,593 $ (6,956,469) 932,995 $ 4,621,301
=========== ============= ========== =============
<CAPTION>
Class I Shares
YEAR ENDED NOVEMBER 30, 1998 PERIOD ENDED NOVEMBER 30, 1997*
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,950 $ 65,998 14,678 $ 217,807
Shares issued to shareholders
in reinvestment of
distributions 32 434 -- --
Shares transferred from Class A -- -- 14 202
Shares reacquired (1,890) (28,363) (14,547) (218,606)
----------- ------------- ---------- -------------
Net increase (decrease) 2,092 $ 38,069 145 $ (597)
=========== ============= ========== =============
* For the period from the inception of Class I, January 2, 1997, through Novemer 30, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Fund shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated
to the Fund for the year ended November 30, 1998, was $5,174.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include forward foreign currency exchange contracts. The
notional or contractual amounts of these instruments represent the investment
the Fund has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
Forward foreign currency purchases and sales under master netting agreements
amounted to a net receivable of $118,247 with First Boston Corp. at
November 30, 1998.
At November 30, 1998, 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 statements of assets and liabilities,
including the portfolio of investments, of MFS Large Cap Growth Fund (one of
the series constituting MFS Series Trust II) as of November 30, 1998, the
related statements of operations for the year then ended, the statement of
changes in net assets for the years ended November 30, 1998 and 1997, and the
financial highlights for each of the years in the five-year period ended
November 30, 1998. 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 and financial highlights. Our procedures included
confirmation of securities owned as of November 30, 1998, 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, 1998, and 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 8, 1999
<PAGE>
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FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 1999, SHAREHOLDERS WERE MAILED A FORM 1099 REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR
1998.
THE FUND HAS DESIGNATED $68,633,266 AS A CAPITAL GAIN DIVIDEND.
FOR THE YEAR ENDED NOVEMBER 30, 1998, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS RECEIVED DEDUCTION FOR
CORPORATIONS CAME TO 10.80%.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
MFS(R) LARGE CAP GROWTH FUND
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Former Stephen E. Cavan*
Chairman and Director (until 1991), MFS
Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Marshall N. Cohan - Private Investor
CUSTODIAN
Lawrence H. Cohn, M.D. - Chief of Cardiac State Street Bank and Trust Company
Surgery, Brigham and Women's Hospital;
Professor of Surgery, Harvard Medical School 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
Abby M. O'Neill - Private Investor a 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
Group, Inc. (office services) day 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 Boston, MA 02107-9906
Executive Officer, and Director,
MFS Investment Management For general information, call toll free:
1-800-225-2606 any business day from
J. Dale Sherratt - President, Insight 8 a.m. to 8 p.m. Eastern time.
Resources, Inc. (acquisition planning
specialists) For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business
Ward Smith - Former Chairman (until 1994), day from 9 a.m. to 5 p.m. Eastern time. (To
NACCO Industries (holding company) use this service, your phone must be equipped
with a Telecommunications Device for the
INVESTMENT ADVISER Deaf.)
Massachusetts Financial Services Company
500 Boylston Street For share prices, account balances, and
Boston, MA 02116-3741 exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone
DISTRIBUTOR telephone.
MFS Fund Distributors, Inc.
500 Boylston Street WORLD WIDE WEB
Boston, MA 02116-3741 www.mfs.com
PORTFOLIO MANAGER
Stephen Pesek*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
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MFS(R) LARGE CAP 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)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MLC-2 1/99 57M 03/203/803
