<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) EMERGING
GROWTH FUND
ANNUAL REPORT o NOVEMBER 30, 1999
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 25
Notes to Financial Statements ............................................. 33
Independent Auditors' Report .............................................. 41
MFS' Year 2000 Readiness Disclosure ....................................... 43
Trustees and Officers ..................................................... 45
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
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
One could easily argue that the Internet represents the greatest technological
development most of us may see in our lifetimes. There is no disputing that this
new communication medium is changing forever the way we work, play, and shop.
One might also argue that investing in this new technology represents the
investment opportunity of a lifetime. The question for any investor is whether
and how to take advantage of it.
The popular press, it seems, would have us believe that by surfing the Web, we
can learn everything we need to know about investing. Indeed, there is no doubt
that Internet-delivered information and brokerage services enable individual
investors to be well-informed and to trade at bargain prices. But we believe the
numbers and facts argue that, for most of us, mutual funds purchased through a
financial professional will continue to be one of the best products for
long-term investing in this new millennium.
According to a survey by the Investment Company Institute, a national
association of American investment companies, 44% of American households own
stock or bond mutual funds, while only 25.5% own individual stocks.(1) Of course
that doesn't tell us how well they did owning those funds or stocks, but another
statistic gives us a clue. In the third quarter of 1999, during a period of
volatility in the greatest bull market in history, a quarter of the 7,500 stocks
tracked by Morningstar, a popular rating service, lost more than 20% of their
value. But during the same period, less than 1% of the mutual funds tracked by
Morningstar -- 6 out of 10,000 funds -- were down by a similar amount.(2) So,
with all things being equal, an investor's chance of picking one of those losing
stocks was about 25 times greater than his or her chance of picking an equally
losing fund.
The numbers also show that a majority of Americans seek professional advice when
buying mutual funds. Outside of employer-sponsored retirement plans,
approximately 68% of fund shareholders state that their primary method of
purchasing shares is through a financial professional.(1)
Why do we at MFS(R) believe that mutual funds plus professional advice will
continue to define the best course of action for many investors? Let's look at
some of the characteristics of a successful long-term investment approach:
o HAVING A PLAN AND STICKING TO IT: Our experience is that successful
investors -- those whose lives are enriched by the fruits of their investing
-- share two characteristics. They have a plan for reaching their monetary
goals, and they stick with that plan through up markets and down ones. And
for many investors, working with a financial professional may be the best
way to develop a plan. Although the Internet abounds with calculators for
developing all sorts of investment plans, none has your broker or
consultant's high level of experience and an understanding of your unique
situation. And no calculator can counsel you during a down market, when you
may be tempted to abandon your goals and your plan.
o DIVERSIFICATION: Few investors can afford to own a large number of holdings,
so poor performance of one company can potentially drag down their entire
portfolio. This is especially true when investing in volatile new areas such
as the Internet. On the other hand, a diversified mutual fund that owns
dozens or even hundreds of holdings is better positioned to survive a
disappointment in one or several investments.
o GOOD IN A DOWN MARKET: As we enter the tenth year of the greatest bull
market in history, it's easy to forget that market downturns are an almost
inevitable part of investing. Few mutual funds, of course, are going to be
up when the overall market is down. But as the numbers above from the third
quarter of 1999 demonstrate, mutual funds may be less likely to suffer the
extreme downturns experienced by a large number of individual holdings when
the market heads south.
o MFS ORIGINAL RESEARCH(R): The Internet is one of the greatest research tools
ever invented, but it's still not the same as being eyeball to eyeball with
the management of a company and discussing their plans for their firm's
future.
o GOOD PERFORMANCE AT AN ACCEPTABLE LEVEL OF RISK: Investing in individual
stocks or bonds does indeed offer the potential of exhilarating performance
that few mutual funds even attempt. The downside is that the most exciting
investments are also likely to be the ones that give you sleepless nights.
The diversification and professional management of mutual funds help make
them inherently less risky than individual stock picking, and funds are
available in a wide range of risk profiles.
We believe that now, more than ever, mutual funds sold by an investment
professional may offer many investors the best way to participate in whatever
investment opportunities the new millennium may bring. The combination of
professional portfolio management and professional advice recognizes the key
reason that investors give us their money: because they don't want to make a
hobby or a second profession out of investing; they simply want their money to
work for them so they have a better likelihood of realizing their dreams.
As always, we appreciate your confidence in MFS 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, 1999
(1) Source: Investment Company Institute.
(2) Source: Morningstar CEO Don Phillips' keynote address at The Baltimore Sun's
Dollars and Sense Conference, 10/99. In the period 7/1/99 through 9/ 30/99,
of the 7,500 stocks tracked by Morningstar, 1,865 lost 20% or more; of the
10,000 mutual funds tracked by Morningstar, six lost 20% or more. Mutual
fund results are at net asset value; if sales charges had been reflected,
results would have been lower.
Investments in mutual funds will fluctuate and may be worth more or less upon
redemption.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of John W. Ballen]
John W. Ballen
For the 12 months ended November 30, 1999, Class A shares of the Fund provided a
total return of 36.91%, Class B shares 35.91%, Class C shares 35.89%, Class I
shares 37.38%, and Class J shares 36.22%. These returns assume the reinvestment
of any 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 35.23%. The Fund's returns also compare to a 20.90% 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
15.67% return for the Russell 2000 Total Return Index (the Russell 2000), an
unmanaged index comprised of 2,000 small U.S.-domiciled company common stocks
that are traded on the New York Stock Exchange, the American Stock Exchange, and
NASDAQ.
Q. IF WE LOOK BACK TO THE SEMIANNUAL ON MAY 31, THE FUND'S PERFORMANCE WAS
RUNNING ABOUT EVEN WITH THE S&P 500. WHAT CAUSED YOU TO MOVE AHEAD IN THE
SECOND HALF OF THE YEAR?
A. I'd say there were three main factors that have held us back in the first
six months and helped us go forward since then. The first was the perception
that year 2000 (Y2K) computer concerns would severely hamper a lot of the
technology companies we're invested in. We, however, did not get discouraged
by the poor performance of some of those companies in the first half and, in
fact, added to our positions on that weakness. By the second half of the
year, we feel people perceived that Y2K was largely under control, and
performance rebounded a lot quicker than we expected. We thought portfolio
holdings such as Computer Associates would perform well in the year 2000,
but they have already performed well at the end of 1999.
The second factor was the Internet. In the first half of the year, the
so-called "dot.com" companies did well. We were and continue to be
positioned more in the companies that provide Internet tools and
infrastructure. It's a bit like the California gold rush of 1849, where Levi
Strauss built a company not on gold mining, but on selling jeans to the
miners. We think it's a very risky strategy trying to figure out which
Internet site is going to strike gold. But we feel, regardless of which
sites are successful, they all need software and infrastructure. In the
second half of the year, the market began to reward that kind of thinking.
As a result, some of our holdings, such as Cisco and Oracle, did well.
The third factor was that the stock market started to broaden out after four
years of being very narrow, where it seemed the only stocks that did very
well were a small number of large-cap, slower earnings-growth companies. We
feel investors have now started to perceive that the high valuations of
those companies do not make a lot of sense. We believe the market has
started to broaden out in our favor, rewarding the companies with faster
growth rates that we invest in.
Q. DO THESE CHANGES IN THE MARKET PLAY TO THE PORTFOLIO'S STRENGTHS, ONE OF
WHICH IS ACTIVE MANAGEMENT BASED ON FUNDAMENTAL RESEARCH?
A. Yes, a broadening market is more likely to reward our style of bottom-up
fundamental research than a narrow market like we've had over the past few
years. We've still had solid performance over those years because, to some
degree, we think the market always rewards fundamental company research --
meeting with management, investigating proprietary services and products,
analyzing balance sheets, and projecting earnings growth. But we believe
that a continued market broadening -- and remember, the market had been
narrowing for four years, so it's conceivable the market can broaden out for
a long period of time -- may reward active management based on fundamental
research even more.
Q. LOOKING AT YOUR TOP HOLDINGS, DO YOU THINK THEY STILL HAVE ROOM FOR GROWTH
NEXT YEAR?
A. What has happened in 1999 so far is that a small number of holdings drove a
large part of our outperformance. Cisco and Oracle, primarily because of
their Internet exposure, were both up over 100%; each of which added
tremendous value to the Fund. Although most software stocks started to
rebound in the second half, we believe they were still suffering from Y2K
perceptions, in terms of slower business and lower P/E (price-to-earnings)
multiples. That group includes top holdings Microsoft and Computer
Associates. We feel that on the other side of Y2K, people are going to spend
a lot more money on software and the Internet, and the market's perception
of those companies should improve even further.
Another two of our top holdings, MCI WorldCom and Cisco, we feel also stand
to benefit in 2000 from the continuing Internet expansion. Although MCI was
depressed this year because of their acquisition of Sprint, we believe their
outlook is promising because they own a large portion of the Internet's
infrastructure. So overall, yes, we believe our top holdings have the
potential to do really well next year.
Q. HOW DOES THE FUND DIFFER FROM OTHER AGGRESSIVE-GROWTH INVESTMENTS?
A. I think the difference is that we buy and hold companies for a longer-term
horizon. We look for companies whose prices we think are going to be
substantially higher five years from now, because our analysts believe they
can sustain an earnings growth rate of at least 20% annually. We try to
avoid what I call the "greater fool" stocks, the ones you buy high and pray
they go higher, knowing that in five years they're going to be lower or
maybe even out of business. Because we tend to have more confidence in our
buys, the portfolio has experienced lower turnover. We've held a position in
Oracle, for example, since 1990. We stayed with the company through some
extended bad periods because we felt their fundamentals remained solid, and
the net result is that our initial Oracle shares are worth over 85 times
their original purchase price.
Also, for an aggressive-growth vehicle, the Fund has tended to do
comparatively well in down periods in the market. For example, in 1990 and
1994, the market's two worst years of the decade, our portfolio's
performance beat the average aggressive-growth portfolio by over 5% each
year.(1)
/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.
(1) According to Morningstar, the average aggressive-growth fund's total return
was -8.81% in 1990, compared to -2.54% for the Fund. In 1994, the average
aggressive-growth fund returned -1.94%, while the Fund's annual return was
4.00%.
The portfolio is actively managed, and holdings are subject to change.
<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
MANAGEMENT COMMITTEE AND BOARD OF DIRECTORS OF MFS INVESTMENT MANAGEMENT(R). HE
IS PORTFOLIO MANAGER OF MFS(R) EMERGING GROWTH FUND.
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
INVESMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS ORIGINAL RESEARCH(R), A
COMPANY-ORIENTED, BOTTOM-UP PROCESS OF SELECTING SECURITIES.
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This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial consultant, 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: $16.0 BILLION NET ASSETS AS OF NOVEMBER 30, 1999
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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.) It is not possible to invest directly
in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended November 30, 1999)
MFS Emerging Growth S&P 500 Russell 2000
Fund -- Class B Composite Index Total Return Index
--------------- --------------- ------------------
11/89 $10,000 $10,000 $10,000
11/91 15,696 11,617 10,930
11/93 24,213 15,152 16,068
11/95 37,963 20,973 20,417
11/97 52,995 34,463 29,357
11/99 78,181 51,523 31,709
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH NOVEMBER 30, 1999
<TABLE>
<CAPTION>
CLASS A
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +36.91% +77.68% +210.03% +715.07%
- ----------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +36.91% +21.12% + 25.40% + 23.34%
- ----------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +29.04% +18.75% + 23.92% + 22.62%
- ----------------------------------------------------------------------------------------
<CAPTION>
CLASS B
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +35.91% +73.75% +198.39% +681.81%
- ----------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +35.91% +20.22% + 24.44% + 22.83%
- ----------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +31.91% +19.52% + 24.27% + 22.83%
- ----------------------------------------------------------------------------------------
<CAPTION>
CLASS C
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +35.89% +73.78% +198.33% +681.64%
- ----------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +35.89% +20.23% + 24.43% + 22.83%
- ----------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +34.89% +20.23% + 24.43% + 22.83%
- ----------------------------------------------------------------------------------------
<CAPTION>
CLASS I
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +37.38% +79.05% +207.48% +705.63%
- ----------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +37.38% +21.43% + 25.19% + 23.20%
- ----------------------------------------------------------------------------------------
<CAPTION>
CLASS J
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +36.22% +74.24% +199.23% +684.00%
- ----------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +36.22% +20.33% + 24.51% + 22.87%
- ----------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +32.13% +19.12% + 23.75% + 22.49%
- ----------------------------------------------------------------------------------------
<CAPTION>
COMPARATIVE INDICES(+)
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average mid-cap fund+ +35.23% +17.49% + 20.35% + 14.82%
- ----------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index# +20.90% +24.32% + 27.47% + 17.81%
- ----------------------------------------------------------------------------------------
Russell 2000 Total Return Index# +15.67% +10.05% + 14.82% + 12.23%
- ----------------------------------------------------------------------------------------
(+) Average annual rates of return.
+ Source: Lipper Analytical Services, Inc.
# Source: Standard & Poor's Micropal, Inc.
</TABLE>
<PAGE>
NOTES TO PERFORMANCE SUMMARY
Class A Share Performance Including Sales Charge takes into account the
deduction of the maximum 5.75% sales charge. Class B Share Performance Including
Sales Charge takes into account the deduction of the applicable contingent
deferred sales charge (CDSC), which declines over six years from 4% to 0%. Class
C Share Performance Including Sales Charge takes into account the deduction of
the 1% CDSC applicable to Class C shares redeemed within 12 months. Class I
shares have no sales charge and are only available to certain institutional
investors. Class J Share Performance Including Sales Charge takes into account
the deduction of the maximum 3% sales charge. Class J shares are only available
to Japanese investors.
Class A, C, I, and J share performance include the performance of the Fund's
Class B shares for periods prior to their inception (blended performance). Class
A and J blended performance has been adjusted to take into account the initial
sales charge applicable to Class A and J shares rather than the CDSC applicable
to Class B shares. Class C blended performance has been adjusted to take into
account the lower CDSC applicable to Class C shares. Class I blended performance
has been adjusted to account for the fact that Class I shares have no sales
charge. These blended performance figures have not been adjusted to take into
account differences in class-specific operating expenses. Because operating
expenses for Class A, I, and J shares are lower than those of Class B shares,
the blended Class A, I, and J share performance is lower than it would have been
had Class A, I, and J shares been offered for the entire period. Because
operating expenses of Class B and C shares are approximately the same, the
blended Class C performance is approximately the same as it would have been had
Class C shares been offered for the entire period.
All 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 NOVEMBER 30, 1999
FIVE LARGEST STOCK SECTORS
TECHNOLOGY 58.7%
LEISURE 13.0%
CONGLOMERATES, SPECIAL PRODUCTS/SERVICES 10.3%
UTILITIES & COMMUNICATIONS 6.6%
HEALTH CARE 5.1%
TOP 10 STOCK HOLDINGS
<TABLE>
<S> <C>
ORACLE CORP. 13.7% COMPUTER ASSOCIATES INTERNATIONAL, INC. 4.8%
Database software developer and manufacturer Computer software company
CISCO SYSTEMS, INC. 12.2% MCI WORLDCOM, INC. 4.7%
Computer network developer Telecommunications company
BMC SOFTWARE, INC. 5.3% MICROSOFT CORP. 4.7%
Computer software company Computer software and systems company
TYCO INTERNATIONAL LTD. 5.1% CENDANT CORP. 3.8%
Fire protection, packaging, and electronic Hotel, real estate, and consumer services
equipment manufacturer company franchiser
COMPUWARE CORP. 5.0% UNITED HEALTHCARE CORP. 2.3%
Computer software company Health maintenance organization
</TABLE>
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS -- November 30, 1999
Stocks - 100.5%
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ISSUER SHARES VALUE
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U.S. Stocks - 98.1%
Advertising - 0.7%
Lamar Advertising Co., "A"*
132,500 $ 7,602,187
Outdoor Systems, Inc.* 1,375,782 61,222,299
Snyder Communications, Inc.* 292,200 3,926,438
Ventiv Health, Inc.* 97,400 773,113
Young & Rubicam, Inc. 652,600 34,057,562
---------------
$ 107,581,599
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Aerospace
General Dynamics Corp. 53,300 $ 2,748,281
- --------------------------------------------------------------------------------
Airlines
Airnet Systems, Inc.* 95,000 $ 510,625
Atlas Air, Inc.* 206,750 5,207,516
---------------
$ 5,718,141
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Automotive - 0.3%
AutoNation, Inc.* 3,350,000 $ 31,196,875
Federal-Mogul Corp. 370,300 8,262,319
National Equipment Services, Inc.* 195,800 1,909,050
---------------
$ 41,368,244
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Biotechnology - 0.7%
Guidant Corp.* 1,591,100 $ 79,555,000
Waters Corp.* 670,000 32,830,000
---------------
$ 112,385,000
- --------------------------------------------------------------------------------
Broadcasting - 0.2%
Hispanic Broadcasting Corp.* 233,320 $ 19,219,735
Radio One, Inc.* 84,500 5,339,343
Spanish Broadcasting Systems, Inc.* 64,025 2,032,794
---------------
$ 26,591,872
- --------------------------------------------------------------------------------
Business Machines - 0.4%
Affiliated Computer Services, Inc., "A"*
1,234,500 $ 46,216,594
Aztec Consulting, Inc.* 907,203 3,685,512
Texas Instruments, Inc. 80,000 7,685,000
---------------
$ 57,587,106
- --------------------------------------------------------------------------------
Business Services - 3.8%
A Consulting Team, Inc.* 20,000 $ 78,750
ACSYS, Inc.* 136,100 255,188
Adelphia Business Solutions* 83,000 2,593,750
BISYS Group, Inc.* 451,000 26,129,812
Breakaway Solutions, Inc.* 21,400 1,219,800
BridgeStreet Accomodations, Inc.* 23,600 41,300
Building One Services Corp.* 857,124 8,785,521
Ceridian Corp.* 1,562,570 33,790,576
Command Systems, Inc.* 42,900 75,075
Complete Business Solutions, Inc.* 489,980 9,278,996
Computer Sciences Corp.* 409,800 26,739,450
Concord EFS, Inc.* 700,200 18,555,300
Cornell Corrections, Inc.* 121,200 1,386,225
Cotelligent Group, Inc.* 589,800 2,469,787
DST Systems, Inc.* 546,300 34,382,756
Employee Solutions, Inc.* 488,200 381,406
F.Y.I., Inc.* 333,400 10,668,800
Finisar Corp.* 24,280 2,798,270
First Data Corp. 2,632,804 113,868,773
Fiserv, Inc.* 720,071 25,562,520
Hagler Bailly, Inc.* 72,000 396,000
Hall Kinion & Associates, Inc.* 15,600 279,825
ICT Group, Inc.* 101,700 1,233,113
Ikon Office Solutions, Inc. 2,500,000 16,718,750
IMRglobal Corp.* 1,077,400 12,322,762
Insight Enterprises, Inc.* 506,575 17,001,923
IntelliQuest Information Group, Inc.* 53,800 652,325
Interim Services, Inc.* 1,231,600 22,707,625
Labor Ready, Inc.* 41,250 523,359
Learning Tree International, Inc.* 86,850 2,165,822
Luminant Worldwide Corp.* 54,500 1,696,313
Mecon, Inc.* 28,600 307,450
Meta Group, Inc.* 18,750 309,375
Metamor Worldwide, Inc.* 1,203,600 31,744,950
Modis Professional Services, Inc.*++ 8,343,050 89,166,347
National Data Corp. 87,273 2,858,191
National Processing, Inc.* 215,900 1,862,138
NOVA Corp.* 378,400 11,588,500
Official Payments Corp.* 29,570 1,086,698
Personnel Group of America, Inc.* 393,700 3,075,781
Policy Management Systems Corp.* 46,800 941,850
Predictive Systems, Inc.* 4,875 219,680
PRT Group, Inc.* 361,500 903,750
Quintiles Transnational Corp.* 70,000 1,544,375
Radiant Systems, Inc.* 51,500 1,274,625
RCM Technologies, Inc.* 472,300 6,080,862
RemedyTemp, Inc., "A"* 63,000 980,438
Renaissance Worldwide, Inc.* 2,138,100 10,155,975
Romac International, Inc.* 516,200 5,791,119
Rural/Metro Corp.* 383,900 2,183,431
Service Experts, Inc.* 160,000 1,000,000
Sitel Corp.* 276,400 1,641,125
SPR, Inc.* 210,000 945,000
Staffmark, Inc.* 841,900 6,708,891
Syntel, Inc.* 127,500 1,593,750
Tanning Technology Corp.* 36,300 2,214,300
Technology Solutions Co.* 129,000 3,531,375
The Management Network Group, Inc.* 14,700 496,125
UBICS, Inc.* 110,000 275,000
United Parcel Service, Inc. 363,490 24,013,058
Vestcom International, Inc.* 142,100 479,588
Waterlink, Inc.* 201,000 628,125
Wireless Facilities, Inc.* 12,830 692,820
---------------
$ 611,054,564
- --------------------------------------------------------------------------------
Cellular Telephones
Triton PCS Holdings, Inc.* 55,450 $ 2,592,287
- --------------------------------------------------------------------------------
Chemicals
Polymer Group, Inc. 149,700 $ 2,816,231
- --------------------------------------------------------------------------------
Computer Hardware - Systems - 0.1%
Compaq Computer Corp. 47,500 $ 1,160,781
Dell Computer Corp.* 418,300 17,986,900
---------------
$ 19,147,681
- --------------------------------------------------------------------------------
Computer Software - Personal Computers - 4.9%
America Online, Inc.* 12,400 $ 901,325
Autodesk, Inc. 1,063,537 31,174,928
Microsoft Corp.* 8,211,400 747,622,310
---------------
$ 779,698,563
- --------------------------------------------------------------------------------
Computer Software - Services - 0.2%
Broadbase Software, Inc.* 17,550 $ 1,524,656
BSQUARE Corp.* 10,300 448,050
EMC Corp.* 259,600 21,692,825
Immersion Corp.* 10,750 290,922
Ingram Micro, Inc.* 57,900 770,794
Intertrust Technologies Corp.* 20,200 2,596,962
Kana Communications, Inc.* 14,100 2,072,700
Metasolv Software, Inc.* 15,810 975,279
Quintus Corp.* 22,260 1,235,430
RSA Security, Inc.* 105,800 3,941,050
SonicWall, Inc.* 11,230 383,926
TIBCO Software, Inc.* 40,400 3,918,800
Tier Technologies, Inc.* 32,400 231,863
---------------
$ 40,083,257
- --------------------------------------------------------------------------------
Computer Software - Systems - 33.1%
Active Software, Inc.* 102,025 $ 6,504,094
Acxiom Corp.* 74,900 1,331,816
Agile Software Corp.* 9,400 1,001,688
Alteon Websystems, Inc.* 16,300 1,572,950
Ariba, Inc.* 26,900 4,857,131
Aspen Technology, Inc.* 227,600 4,295,950
Bluestone Software, Inc.* 17,550 1,105,650
BMC Software, Inc.* 11,660,757 849,048,869
Cadence Design Systems, Inc.*++ 13,451,270 238,760,042
Cambridge Technology Partners, Inc.* 1,934,100 27,802,687
Citrix Systems, Inc.* 37,300 3,538,837
Computer Associates International, Inc. 11,872,400 771,706,000
Compuware Corp.*++ 23,589,390 797,616,249
Crossroads Systems, Inc.* 33,775 2,978,533
Cysive, Inc.* 45,175 2,281,337
Digex, Inc.* 75,025 2,513,337
E.piphany, Inc.* 8,800 1,491,050
Foundry Networks, Inc.* 19,550 4,596,694
Gadzoox Networks, Inc.* 17,050 1,346,950
Interliant, Inc.* 12,100 269,225
JNI Corp.* 16,750 1,312,781
Keane, Inc.* 400,000 10,800,000
Liberate Technologies, Inc.* 38,000 4,849,750
NetIQ Corp.* 20,850 870,488
NetSolve, Inc.* 12,125 315,250
Network Associates, Inc.* 274,600 6,933,650
Open TV Corp.* 24,180 1,867,905
Oracle Corp.* 32,523,775 2,205,518,492
Packeteer, Inc.* 16,050 832,594
Paradyne Networks, Inc.* 32,500 954,688
Peoplesoft, Inc.* 224,400 4,221,525
Quest Software, Inc.* 25,950 1,946,250
Rational Software Corp.* 200,600 10,255,675
Redback Networks, Inc.* 14,000 1,959,125
Siebel Systems, Inc.* 861,262 60,395,998
Silverstream Software, Inc.* 46,225 3,830,897
SunGard Data Systems, Inc.* 701,900 15,617,275
Sycamore Networks, Inc.* 26,625 5,910,750
Synopsys, Inc.* 2,929,394 212,014,891
System Software Associates, Inc.* 591,812 1,294,589
Transaction System Architects, Inc., "A"* 222,800 7,784,075
VERITAS Software Corp.* 95,979 8,788,077
Vitria Technology, Inc.* 20,750 2,071,109
Vixel Corp.* 8,850 300,900
---------------
$ 5,295,265,823
- --------------------------------------------------------------------------------
Conglomerates - 5.1%
Tyco International Ltd. 20,260,296 $ 811,678,108
- --------------------------------------------------------------------------------
Consumer Goods and Services - 0.2%
Blyth Industries, Inc.* 270,000 $ 6,480,000
Carson, Inc., "A"* 70,800 247,800
Cole National Corp., "A"* 47,100 253,163
Dollar Thrifty Automotive Group, Inc.* 21,300 420,675
Galileo International, Inc. 672,000 21,504,000
Tickets.com, Inc.* 38,850 813,422
United Rentals, Inc.* 132,562 2,286,694
---------------
$ 32,005,754
- --------------------------------------------------------------------------------
Containers
Silgan Holdings, Inc.* 74,200 $ 1,126,912
- --------------------------------------------------------------------------------
Electrical Equipment
Barnett, Inc.* 100,000 $ 878,125
JPM Co.* 150,000 1,350,000
Micrel, Inc.* 79,200 3,900,600
---------------
$ 6,128,725
- --------------------------------------------------------------------------------
Electronics - 5.7%
Aether Systems, Inc.* 33,950 $ 2,580,200
Agilent Technologies, Inc.* 205,470 8,668,266
Altera Corp.* 5,817,400 313,412,425
Amkor Technology, Inc.* 125,299 3,383,073
Analog Devices, Inc.* 1,744,800 100,216,950
Atmel Corp.* 751,000 33,654,187
Burr-Brown Corp.* 901,675 39,955,473
Cable Design Technologies Corp.* 568,800 13,615,650
Intel Corp. 1,091,900 83,735,081
Lattice Semiconductor Corp.* 391,600 17,524,100
Linear Technology Corp. 520,800 37,009,350
LSI Logic Corp.* 236,200 14,275,338
Maxim Integrated Products, Inc.* 261,800 21,025,812
Micro Linear Corp.* 193,000 1,387,188
Novellus Systems, Inc.* 152,470 12,521,599
Peak International Ltd.* 150,000 1,443,750
Rudolph Technologies, Inc.* 7,150 203,775
Sage, Inc.* 7,860 196,500
Silicon Image, Inc.* 12,350 531,050
Teradyne, Inc.* 91,400 3,981,613
Virata Corp.* 11,520 370,080
Xilinx, Inc.* 2,180,364 195,142,578
---------------
$ 904,834,038
- --------------------------------------------------------------------------------
Entertainment - 5.6%
Acme Communications, Inc.* 20,450 $ 691,466
AMFM, Inc.* 293,300 20,732,644
CBS Corp.* 1,128,521 58,683,092
Citadel Communications Corp.* 108,900 5,451,806
Clear Channel Communications, Inc.* 3,785,700 304,275,637
Cox Radio, Inc., "A"* 380,500 28,918,000
Emmis Broadcasting Corp., "A"* 71,000 5,751,000
Entercom Communications Corp.* 246,400 14,091,000
Gametech International, Inc.* 515,000 2,446,250
Gemstar International Group Ltd.* 12,000 1,353,000
Harrah's Entertainment, Inc.* 1,590,400 43,934,800
Hearst-Argyle Television, Inc.* 440,000 9,570,000
Infinity Broadcasting Corp.* 506,300 18,448,306
MediaOne Group, Inc.* 443,500 35,147,375
Premier Parks, Inc.* 1,434,500 35,862,500
Radio Unica Communications Co.* 31,500 870,188
Silverleaf Resorts, Inc.* 54,000 394,875
Sinclair Broadcast Group, Inc., "A"* 77,800 894,700
Time Warner, Inc. 2,838,100 175,075,294
Univision Communications, Inc., "A"* 1,504,200 131,617,500
West Coast Entertainment Corp.* 595,000 148,750
Young Broadcasting, Inc., "A"* 10,000 401,875
---------------
$ 894,760,058
- --------------------------------------------------------------------------------
Financial Institutions - 0.9%
Associates First Capital Corp., "A" 1,962,140 $ 65,241,155
CIT Group, Inc., "A" 274,100 5,687,575
Federated Investors, Inc., "A" 166,500 2,965,781
Franklin Resources, Inc. 1,449,000 45,552,938
Goldman Sachs Group, Inc. 115,200 8,654,400
Heller Financial, Inc., "A" 195,531 4,326,123
Morgan Stanley Dean Witter & Co. 26,400 3,184,500
Schwab (Charles) Corp. 110,000 4,173,125
WMF Group Ltd.* 60,000 288,750
---------------
$ 140,074,347
- --------------------------------------------------------------------------------
Food and Beverage Products - 0.1%
Suiza Foods Corp.* 438,100 $ 15,744,219
- --------------------------------------------------------------------------------
Insurance - 0.1%
Conseco, Inc. 262,844 $ 5,322,591
Hartford Life, Inc.,"A" 90,500 4,049,875
Nationwide Financial Services, Inc., "A" 108,400 3,895,625
---------------
$ 13,268,091
- --------------------------------------------------------------------------------
Internet - 1.0%
Akamai Technologies, Inc.* 8,000 $ 1,896,000
Art Technology Group, Inc.* 6,050 384,175
Be Free, Inc.* 13,350 587,400
CacheFlow, Inc.* 22,870 3,464,805
Calico Commerce, Inc.* 5,825 367,339
Chemdex Corp.* 42,075 2,729,616
Circle.com Co.* 73,050 949,650
Cobalt Networks, Inc.* 11,940 2,015,621
Data Return Corp.* 32,600 882,238
Deltathree.com, Inc.* 14,250 417,703
Digital Impact, Inc.* 19,000 1,023,625
Digital Insight Corp.* 26,525 1,024,528
E - Stamp Corp.* 7,825 283,656
Engage Technologies, Inc.* 15,000 738,750
Expedia, Inc.* 20,620 1,098,015
Getthere.com, Inc. 11,240 285,918
iManage, Inc.* 3,340 126,503
Internap Network Services Corp.* 52,450 4,943,412
Interspeed, Inc.* 28,550 556,725
Interwoven, Inc.* 15,450 1,911,937
ITXC Corp.* 98,350 4,216,756
Keynote Systems, Inc.* 18,375 1,049,672
Lifeminders.com, Inc.* 12,730 272,104
Mediaplex, Inc.* 15,580 529,720
NaviSite, Inc.* 6,675 353,775
PC - Tel, Inc.* 37,525 1,383,734
Proxicom, Inc.* 249,200 17,194,800
Radware Ltd.* 19,525 890,828
Retek, Inc.* 15,720 1,066,013
SciQuest.com, Inc.* 15,680 517,440
Talk.com, Inc.*++ 6,456,100 108,946,687
USinternetworking, Inc.* 29,100 1,595,044
Webvan Group, Inc.* 27,040 667,550
---------------
$ 164,371,739
- --------------------------------------------------------------------------------
Machinery
ITEQ, Inc.* 300,000 $ 243,750
- --------------------------------------------------------------------------------
Medical and Health Products - 0.3%
Boston Scientific Corp.* 1,443,100 $ 30,485,487
Coast Dental Services, Inc.* 64,600 201,875
Matria Healthcare, Inc.* 458,500 1,791,016
Orthofix International N.V.* 473,827 6,752,035
PSS World Medical, Inc.* 519,500 5,211,234
Renex Corp.* 262,200 1,655,138
---------------
$ 46,096,785
- --------------------------------------------------------------------------------
Medical and Health Technology and Services - 4.1%
Balanced Care Corp.* 13,900 $ 18,244
Capital Senior Living Corp.* 354,900 1,774,500
Cardinal Health, Inc. 408,235 21,355,793
Carematrix Corp.* 357,000 736,313
Foundation Health Systems, Inc.* 1,000,409 8,440,951
Genentech, Inc.* 184,400 15,835,350
Health Management Associates, Inc., "A"* 411,525 5,066,902
HEALTHSOUTH Corp.* 3,714,398 21,125,639
Henry Schein, Inc.* 14,350 183,859
McKesson HBOC, Inc. 955,499 22,334,789
Medtronic, Inc. 390,560 15,183,020
Mid Atlantic Medical Services, Inc.*++ 2,526,988 20,215,904
NCS Healthcare, Inc., "A"* 36,200 96,156
Orthodontic Centers of America, Inc.*++ 2,545,500 31,023,281
Oxford Health Plans, Inc.* 450,000 6,595,313
PacifiCare Health Systems, Inc., "A"* 993,646 46,515,053
ProVantage Health Services, Inc.* 30,000 311,250
Renal Care Group, Inc.* 55,000 1,127,500
Total Renal Care Holdings, Inc.* 2,165,528 15,429,387
Trigon Healthcare, Inc.* 60,000 1,766,250
United Healthcare Corp. 7,182,954 373,064,673
United Payors & United Providers, Inc.* 100,600 1,609,600
Wellpoint Health Networks, Inc.* 755,900 43,511,494
---------------
$ 653,321,221
- --------------------------------------------------------------------------------
Pollution Control - 0.6%
Allied Waste Industries, Inc.* 290,300 $ 2,358,688
Republic Services, Inc.* 6,023,100 74,912,306
Waste Management, Inc. 1,035,462 16,826,257
---------------
$ 94,097,251
- --------------------------------------------------------------------------------
Printing and Publishing - 0.2%
Applied Graphics Technologies, Inc.* 148,000 $ 1,387,500
Mail-Well, Inc.* 1,640,000 19,577,500
Workflow Management, Inc.* 273,001 6,449,649
---------------
$ 27,414,649
- --------------------------------------------------------------------------------
Railroads - 0.4%
Kansas City Southern Industries, Inc. 1,182,000 $ 70,402,875
- --------------------------------------------------------------------------------
Real Estate Investment Trusts
MeriStar Hospitality Corp. 242,500 $ 3,758,750
- --------------------------------------------------------------------------------
Restaurants and Lodging - 6.3%
Amerihost Properties, Inc.*++ 527,000 $ 1,712,750
Applebee's International, Inc.++ 3,139,500 94,577,438
Avado Brands, Inc.## 370,000 1,780,625
Buffets, Inc.*++ 2,989,750 32,139,813
Candlewood Hotel Co., Inc.* 186,000 418,500
CEC Entertainment, Inc.*++ 1,573,100 47,193,000
Cendant Corp.*++ 36,763,885 608,901,845
CKE Restaurants, Inc. 81,900 527,231
Extended Stay America, Inc.*##(+) 1,000,000 7,687,500
Extended Stay America, Inc.* 401,904 3,089,637
Four Seasons Hotels, Inc. 152,400 7,505,700
Friendly Ice Cream Corp.* 315,000 1,555,313
Hammons (John Q) Hotels, Inc., "A"* 168,000 609,000
IHOP Corp.* 679,000 10,524,500
Meristar Hotels and Resorts, Inc.* 884,000 2,983,500
MGM Grand, Inc.* 35,000 1,728,125
Mortons Restaurant Group, Inc.*++ 426,000 6,363,375
Papa John's International, Inc.* 113,500 4,075,359
Promus Hotel Corp.*++ 4,459,013 142,967,104
Schlotzskys, Inc.* 270,700 1,877,981
Sonic Corp.* 700,000 18,900,000
Star Buffet, Inc.* 35,000 140,000
Sunterra Corp.* 140,000 1,505,000
U.S. Franchise Systems, Inc., "A"* 489,900 2,418,881
---------------
$ 1,001,182,177
- --------------------------------------------------------------------------------
Special Products and Services - 0.1%
Backweb Technologies Ltd.* 20,675 $ 671,938
Ballantyne of Omaha, Inc.* 38,025 204,384
Central Parking Corp. 218,900 5,664,037
Flanders Corp.* 115,000 380,938
Gartner Group, Inc.* 47,900 550,850
Navigant International, Inc.* 126,500 1,170,125
Stewart Enterprises, Inc., "A" 900,000 4,584,375
Stratesec, Inc.* 27,000 43,875
Wackenhut Corp. 184,000 1,863,000
Wilmar Industries, Inc.* 66,600 899,100
---------------
$ 16,032,622
- --------------------------------------------------------------------------------
Steel
Citation Corp.* 440,000 $ 7,452,500
- --------------------------------------------------------------------------------
Stores - 2.8%
American Pad & Paper Co.* 840,000 $ 294,000
Consolidated Stores Corp.* 1,193,125 18,791,719
CVS Corp. 300,100 11,910,219
Friedmans, Inc., "A"* 130,000 983,125
Gymboree Corp.* 131,200 803,600
Home Depot, Inc. 1,194,300 94,424,344
Micro Warehouse, Inc.*++ 2,857,100 33,570,925
Mothers Work, Inc.*++ 192,000 1,968,000
Movie Gallery, Inc.* 338,000 1,373,125
MSC Industrial Direct, Inc., "A"* 301,600 2,733,250
Office Depot, Inc.* 13,052,150 145,205,168
OfficeMax, Inc.* 893,000 5,469,625
Rental-A-Center, Inc.* 226,000 4,138,625
Republic Industries, Inc.*+(+) 6,505,000 60,577,812
Rite Aid Corp. 7,314,800 55,318,175
U.S. Office Products Co.* 1,115,603 4,044,061
Wal-Mart Stores, Inc. 39,800 2,293,475
---------------
$ 443,899,248
- --------------------------------------------------------------------------------
Supermarkets - 0.3%
Kroger Co.* 1,896,800 $ 40,425,550
Safeway, Inc.* 50,000 1,843,750
---------------
$ 42,269,300
- --------------------------------------------------------------------------------
Telecommunications - 19.8%
Adelphia Communications Corp., "A"* 42,800 $ 2,407,500
AirGate PCS, Inc.* 37,925 1,493,297
Amdocs Ltd.* 117,000 4,116,937
American Tower Corp., "A"* 50,179 1,310,926
APAC Teleservices, Inc.* 413,000 2,400,563
AT&T Corp.* 200,000 8,362,500
BroadWing, Inc.* 115,368 3,360,093
Charter Communications, Inc.* 682,120 15,816,657
Cisco Systems, Inc.* 22,010,574 1,963,068,069
Efficient Networks, Inc.* 7,400 444,000
General Instrument Corp.* 74,400 4,873,200
Glenayre Technologies, Inc.* 1,370,000 6,421,875
Global TeleSystems Group, Inc.* 599,570 19,148,767
Hypercom Corp.* 275,200 2,597,200
iBasis, Inc.* 7,210 244,239
Illuminet Holdings, Inc.* 26,850 1,409,625
Insight Communications, Inc.* 165,200 4,088,700
Intermedia Communications, Inc.* 136,900 3,816,088
International Telecommunication
Data Systems, Inc.* 16,600 215,800
JDS Uniphase Corp.* 110,575 25,294,031
Lucent Technologies, Inc. 1,182,150 86,370,834
MCI WorldCom, Inc.* 9,140,723 755,823,533
MCK Communications, Inc.* 4,500 151,031
Metromedia Fiber Network, Inc., "A"* 711,400 27,566,750
Motorola, Inc. 27,600 3,153,300
Network Solutions, Inc.* 206,300 30,738,700
Next Level Communications, Inc.* 15,380 992,971
NEXTEL Communications, Inc.* 197,975 19,624,272
Nortel Networks Corp. 268,200 19,846,800
NTL, Inc.* 50,000 4,559,375
Partner Communications Co. Ltd.* 55,300 1,036,875
Qwest Communications International, Inc.* 680,776 23,274,029
RMH Teleservices, Inc.* 231,000 1,638,656
SCC Communications Corp.* 263,400 1,695,638
Scientific-Atlanta, Inc. 20,000 1,166,250
Sprint Corp. 72,600 5,036,625
Sprint Corp. (PCS Group)* 635,000 58,261,250
Sterling Commerce, Inc.* 59,826 1,540,520
TeleCorp PCS, Inc.* 32,540 1,173,474
Tellabs, Inc.* 436,000 28,285,500
Time Warner Telecom, Inc.* 41,700 1,211,906
Transaction Network Services, Inc.* 245,700 11,240,775
VDI Media* 102,200 1,354,150
Williams Communications Group, Inc.* 345,525 10,300,964
Wink Communications, Inc.* 10,575 460,013
---------------
$ 3,167,394,258
- --------------------------------------------------------------------------------
Transportation
Budget Group, Inc., "A"* 302,700 $ 2,364,844
Carey International, Inc.* 34,400 735,300
Dispatch Management Services Corp.* 215,600 485,100
Dynamex, Inc.* 89,600 196,000
---------------
$ 3,781,244
- --------------------------------------------------------------------------------
Utilities - Electric - 0.1%
Calpine Corp.* 199,175 $ 11,751,325
- --------------------------------------------------------------------------------
Venture Capital
Copley Partners 1*+(+) 3,000,000 $ 258,600
Copley Partners 2*+(+) 3,000,000 966,360
Highland Capital Partners*+(+) 7,500,000 624,825
---------------
$ 1,849,785
- --------------------------------------------------------------------------------
Total U.S. Stocks $15,679,578,380
- --------------------------------------------------------------------------------
Foreign Stocks - 2.4%
Bermuda - 0.1%
Ace Ltd. (Insurance) 695,200 $ 11,818,400
- --------------------------------------------------------------------------------
Canada
Laidlaw, Inc. (Pollution Control) 190,000 $ 1,163,750
- --------------------------------------------------------------------------------
Finland
Nokia Corp., ADR (Telecommunications) 5,300 $ 732,394
- --------------------------------------------------------------------------------
France - 0.1%
STMicroelectronics Co. (Electronics)* 86,275 $ 11,733,318
Thomson Multimedia (Business Services) 9,350 405,025
---------------
$ 12,138,343
- --------------------------------------------------------------------------------
Germany - 1.4%
Mannesmann AG (Conglomerate) 37,200 $ 7,734,901
SAP AG (Computer Software - Systems) 174,300 57,242,302
SAP AG, ADR (Computer Software - Systems) 1,238,800 41,809,500
SAP AG, Preferred (Computer
Software - Systems) 305,625 123,616,524
---------------
$ 230,403,227
- --------------------------------------------------------------------------------
Ireland - 0.1%
Elan Corp. PLC, ADR (Health Products)* 257,200 $ 7,040,850
Trintech Group PLC, ADR (Computer
Software - Products)* 203,850 7,542,450
---------------
$ 14,583,300
- --------------------------------------------------------------------------------
Italy - 0.1%
Gucci Group N.V. (Apparel and Textiles) 267,000 $ 22,227,750
- --------------------------------------------------------------------------------
Japan
Nippon Telephone & Telegraph Co.
(Utilities - Telephone) 130 $ 2,338,083
- --------------------------------------------------------------------------------
Netherlands
KPNQwest N.V. (Internet)* 25,930 $ 970,428
- --------------------------------------------------------------------------------
Sweden - 0.1%
Ericsson LM, ADR (Telecommunications) 106,800 $ 5,146,425
Skandia Forsakrings AB (Insurance) 100,000 2,393,273
---------------
$ 7,539,698
- --------------------------------------------------------------------------------
United Kingdom - 0.5%
CBT Group PLC, ADR (Computer Software
- Personal Computers)* 1,024,400 $ 25,097,800
Danka Business Systems, ADR++
(Business Services) 4,117,000 47,345,500
NDS Group PLC (Internet)* 9,180 278,843
Thus PLC (Internet)* 105,110 656,943
---------------
$ 73,379,086
- --------------------------------------------------------------------------------
Total Foreign Stocks $ 377,294,459
- --------------------------------------------------------------------------------
Total Stocks (Identified Cost, $7,766,005,262) $16,056,872,839
- --------------------------------------------------------------------------------
Convertible Preferred Stock
- --------------------------------------------------------------------------------
Restaurants and Lodging
Avado Financing, "A", 7s*##
(Identified Cost, $5,000,000) 100,000 $ 2,650,000
- --------------------------------------------------------------------------------
Rights
- --------------------------------------------------------------------------------
Internet
Talk.com, Inc. (Identified Cost, $0) 253,555 $ --
- --------------------------------------------------------------------------------
Convertible Bond
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------
Restaurants and Lodging
ShoLodge, Inc.++, 7.5s, 2004
(Identified Cost $2,000,000) $ 2,000 $ 1,250,000
- --------------------------------------------------------------------------------
Short-Term Obligations - 0.9%
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
due 12/01/99 $ 67,000 $ 67,000,000
General Electric Capital Corp.,
due 12/01/99 75,000 75,000,000
- --------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 142,000,000
- --------------------------------------------------------------------------------
Total Investments (Identified Cost,
$7,915,005,262) $16,202,772,839
Other Assets, Less Liabilities - (1.4)% (219,912,732)
- --------------------------------------------------------------------------------
Net Assets - 100.0% $15,982,860,107
- --------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
+ Restricted security.
++ Affiliated issuers are those in which the Fund's holdings of an issuer
represent 5% or more of the outstanding voting shares of the issuer.
(+) Security valued by or at the direction of the Trustees.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
NOVEMBER 30, 1999
- ------------------------------------------------------------------------------
Assets:
Investments, at value -
Unaffiliated issuers (identified cost,
$6,359,890,367) $13,900,304,579
Affiliated issuers (identified cost, $1,555,114,895) 2,302,468,260
---------------
Total investments, at value (identified cost,
$7,915,005,262) $16,202,772,839
Cash 62,820
Receivable for Fund shares sold 33,569,963
Receivable for investments sold 53,595,293
Interest and dividends receivable 850,548
Other assets 154,324
---------------
Total assets $16,291,005,787
---------------
Liabilities:
Payable for investments purchased $ 81,066,518
Payable for Fund shares reacquired 223,656,083
Payable to affiliates -
Management fee 938,517
Shareholder servicing agent fee 139,076
Distribution and service fee 940,288
Accrued expenses and other liabilities 1,405,198
---------------
Total liabilities $ 308,145,680
---------------
Net assets $15,982,860,107
===============
Net assets consist of:
Paid-in capital $ 7,614,681,252
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 8,287,767,590
Accumulated undistributed net realized gain on
investments and foreign currency transactions 80,525,191
Accumulated net investment loss (113,926)
---------------
Total $15,982,860,107
===============
Shares of beneficial interest outstanding 295,524,651
===========
Class A shares:
Net asset value per share
(net assets of $6,570,499,007 / 119,226,894 shares of
beneficial interest outstanding) $55.11
======
Offering price per share (100 / 94.25 of net asset
value per share) $58.47
======
Class B shares:
Net asset value and offering price per share
(net assets of $8,389,743,919 / 157,126,234 shares of
beneficial interest outstanding) $53.39
======
Class C shares:
Net asset value and offering price per share
(net assets of $909,676,162 / 17,127,778 shares of
beneficial interest outstanding) $53.11
======
Class I shares:
Net asset value, offering price, and redemption
price per share (net assets of $102,188,488
/ 1,842,938 shares of beneficial interest
outstanding) $55.45
======
Class J shares:
Net asset value and redemption price per share
(net assets of $10,752,531 / 200,807 shares of
beneficial interest outstanding) $53.55
======
Offering price per share (100/ 97 of net asset value
per share) $55.21
======
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
- ------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1999
- ------------------------------------------------------------------------------
Net investment income (loss):
Income -
Dividends (including $282,555 received from
affiliated issuers) $ 14,265,531
Interest 10,198,433
Income on securities loaned 2,630,923
Foreign taxes withheld (168,491)
--------------
Total investment income $ 26,926,396
--------------
Expenses -
Management fee $ 93,311,329
Trustees' compensation 60,474
Shareholder servicing agent fee 14,153,675
Distribution and service fee (Class A) 14,164,340
Distribution and service fee (Class B) 71,547,861
Distribution and service fee (Class C) 7,340,426
Distribution and service fee (Class J) 21,598
Administrative fee 322,750
Custodian fee 2,393,668
Printing 427,006
Postage 1,218,552
Auditing fees 40,449
Legal fees 79,521
Miscellaneous 7,772,756
--------------
Total expenses $ 212,854,405
Fees paid indirectly (1,026,859)
--------------
Net expenses $ 211,827,546
--------------
Net investment loss $ (184,901,150)
--------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions (including $85,917,989
net gain from transactions with affiliated issuers) $ 247,019,881
Foreign currency transactions (144,231)
--------------
Net realized gain on investments and foreign currency
transactions $ 246,875,650
--------------
Change in unrealized appreciation (depreciation) -
Investments $4,203,677,934
Translation of assets and liabilities in foreign
currencies (1,237)
--------------
Net unrealized gain on investments and foreign
currency translation $4,203,676,697
--------------
Net realized and unrealized gain on investments
and foreign currency $4,450,552,347
--------------
Increase in net assets from operations $4,265,651,197
==============
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (184,901,150) $ (138,210,859)
Net realized gain on investments and foreign
currency transactions 246,875,650 214,629,856
Net unrealized gain on investments and foreign
currency translation 4,203,676,697 860,183,198
--------------- ---------------
Increase in net assets from operations $ 4,265,651,197 $ 936,602,195
--------------- ---------------
Distributions declared to shareholders -
From net realized gain on investments and foreign
currency tranactions (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 transations (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 $ 314,846,659 $ 1,248,664,828
--------------- ---------------
Total increase in net assets $ 4,463,321,535 $ 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 $113,926 and $99,759,
respectively) $15,982,860,107 $11,519,538,572
=============== ===============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <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
-------- -------- -------- -------- --------
Income from investment operations# -
Net investment loss $ (0.43) $ (0.34) $ (0.34) $ (0.29) $ (0.23)
Net realized and unrealized gain on investments
and foreign currency 15.30 3.79 6.24 5.51 8.68
-------- -------- -------- -------- --------
Total from investment operations $ 14.87 $ 3.45 $ 5.90 $ 5.22 $ 8.45
-------- -------- -------- -------- --------
Less distributions declared to shareholders -
From net realized gain on investments and foreign
currency transactions $ (0.41) $ (0.34) $ (0.37) -- $ (0.38)
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)
-------- -------- -------- -------- --------
Net asset value - end of period $ 55.11 $ 40.65 $ 37.54 $ 32.01 $ 26.79
======== ======== ======== ======== ========
Total return(+) 36.91% 9.36% 18.66% 19.52% 45.98%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.13% 1.16% 1.21% 1.20% 1.28%
Net investment loss (0.92)% (0.87)% (0.99)% (1.01)% (1.04)%
Portfolio turnover 16% 15% 21% 22% 20%
Net assets at end of period (000,000 Omitted) $ 6,570 $ 4,713 $ 3,875 $ 2,524 $ 1,312
* The per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
(+) 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, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------------------
<S> <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
--------- --------- --------- --------- ---------
Income from investment operations# -
Net investment loss $ (0.76) $ (0.62) $ (0.59) $ (0.52) $ (0.41)
Net realized and unrealized gain on investments
and foreign currency 14.87 3.72 6.14 5.44 8.65
--------- --------- --------- --------- ---------
Total from investment operations $ 14.11 $ 3.10 $ 5.55 $ 4.92 $ 8.24
--------- --------- --------- --------- ---------
Less distributions declared to shareholders -
From net realized gain on investments and foreign
currency transactions $ (0.41) $ (0.26) $ (0.18) $ -- $ (0.24)
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)
--------- --------- --------- --------- ---------
Net asset value - end of period $ 53.39 $ 39.69 $ 36.85 $ 31.48 $ 26.56
========= ========= ========= ========= =========
Total return 35.91% 8.55% 17.78% 18.52% 44.89%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.88% 1.91% 1.97% 2.00% 2.08%
Net investment loss (1.67)% (1.62)% (1.75)% (1.80)% (1.83)%
Portfolio turnover 16% 15% 21% 22% 20%
Net assets at end of period (000,000 Omitted) $ 8,390 $ 6,190 $ 5,144 $ 3,659 $ 2,001
* The per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, PERIOD ENDED
------------------------------------- NOVEMBER 30,
1999 1998 1997 1996*
- ------------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C>
Net asset value - beginning of period $ 39.49 $ 36.66 $ 31.48 $ 28.37
------- ------- ------- -------
Income from investment operations# -
Net investment loss $ (0.76) $ (0.61) $ (0.59) $ (0.38)
Net realized and unrealized gain on investments
and foreign currency 14.79 3.70 6.12 3.49
------- ------- ------- -------
Total from investment operations $ 14.03 $ 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 $ 53.11 $ 39.49 $ 36.66 $ 31.48
======= ======= ======= =======
Total return 35.89% 8.54% 17.81% 10.96%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.88% 1.91% 1.97% 1.35%+
Net investment loss (1.67)% (1.62)% (1.75)% (1.25)%+
Portfolio turnover 16% 15% 21% 22%
Net assets at end of period (000,000 Omitted) $ 910 $ 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.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, PERIOD ENDED
---------------------------------------------------------------- NOVEMBER 30,
1999 1998 1997*
- -------------------------------------------------------------------------------------------------------------------------
CLASS I
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 40.76 $ 37.62 $ 29.98
-------- -------- -------
Income from investment operations# -
Net investment loss $ (0.32) $ (0.24) $ (0.23)
Net realized and unrealized gain on investments and
foreign currency 15.42 3.80 7.87
-------- -------- -------
Total from investment operations $ 15.10 $ 3.56 $ 7.64
-------- -------- -------
Less distributions declared to shareholders from net
realized gains on investments and foreign currency
transactions $ (0.41) $ (0.42) $ --
-------- -------- -------
Net asset value - end of period $ 55.45 $ 40.76 $ 37.62
======== ======== =======
Total return 37.38% 9.67% 25.48%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.88% 0.91% 0.97%+
Net investment loss (0.68)% (0.62)% (0.74)%+
Portfolio turnover 16% 15% 21%
Net assets at end of period (000 Omitted)
$102,188 $ 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.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30,
1999 1998*
- ----------------------------------------------------------------------------------------------------------
CLASS J
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 39.71 $ 35.31
-------- --------
Income from investment operations# -
Net investment loss $ (0.63) $ (0.09)
Net realized and unrealized gain on investments and foreign currency 14.88 4.49
-------- --------
Total from investment operations $ 14.25 $ 4.40
-------- --------
Less distributions declared to shareholders from net realized gain on
investments and foreign currency $ (0.41) $ --
-------- --------
Net asset value - end of period $ 53.55 $ 39.71
======== ========
Total return 36.22% 12.46%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.63% 1.66%+
Net investment loss (1.44)% (1.50)%+
Portfolio turnover 16% 15%
Net assets at end of period (000 Omitted) $ 10,753 $ 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.
## Ratios do not reflect expense reductions from directed brokerage and certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(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. The Fund can
invest in foreign securities. 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) 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 in good faith, at fair value by 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.
Deferred Trustee Compensation - Effective July 24, 1999, under a Deferred
Compensation Plan (the Plan) independent Trustees may elect to defer receipt of
all or a portion of their annual compensation. Deferred amounts are treated as
though equivalent dollar amounts had been invested in shares of the Fund or
other MFS funds selected by the Trustee. Deferred amounts represent an unsecured
obligation of the Fund until distributed in accordance with the Plan.
Security Loans - State Street Bank and Trust Company ("State Street") and Chase
Manhattan Bank ("Chase"), as lending agents, may loan the securities of the Fund
to certain qualified institutions (the "Borrowers") approved by the Fund. The
loans are collateralized at all times by U.S. Treasury securities in an amount
at least equal to the market value of the securities loaned. State Street and
Chase provide the Fund with indemnification against Borrower default.
At November 30, 1999, the value of securities loaned was $291,187,034. These
loans were collateralized by U.S. Treasury securities of $326,355,861. On loans
collateralized by U.S. Treasury securities, a fee is received from the Borrower,
and is allocated between the Fund and the lending agents. 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. During
the period, the Fund's custodian fees were reduced by $941,556 under this
arrangement. The Fund has entered into a directed brokerage agreement, under
which the broker will credit the Fund a portion of the commissions generated, to
offset certain expenses of the Fund. For the period, the Fund's custodian fees
were reduced by $85,303 under this agreement. These amounts are 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.
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 be 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. During
the year ended November 30, 1999, $161,060,875 and $23,826,108 were reclassified
from accumulated undistributed net realized gain on investments and foreign
currency transactions and paid-in capital, respectively, to accumulated net
investment loss due to differences between book and tax accounting.
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 daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. 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 0.750%
Next $4.5 billion 0.700%
Next $8 billion 0.650%
In excess of $15 billion 0.625%
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 $18,961 for the year ended
November 30, 1999.
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
$1,784,658 for the year ended November 30, 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, and Class C
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee paid to each
securities dealer that enters into a sales agreement with MFD of up to 0.25% per
annum of the Fund's average daily net assets attributable to Class A shares
which are attributable to that securities dealer and a distribution fee to MFD
of up to 0.10% per annum of the Fund's average daily net assets attributable to
Class A shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $623,269 for the year ended November 30,
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 year ended November 30, 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 $275,873 and $13,696 for Class B and Class C shares, respectively,
for the year ended November 30, 1999. Fees incurred under the distribution plan
during the year ended November 30, 1999, were 1.00% of average daily net assets
attributable to 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 Securities 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 Securities Company. Fees incurred under the
distribution plan during the year ended November 30, 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 year ended November 30,
1999, were $595,932, $12,012,181, and $267,777 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 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 annual rate of 0.1125%.
(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 $ 2,450,907 $ 2,390,092
-------------- --------------
Investments (non-U.S. government securities) $2,169,987,567 $2,188,732,982
-------------- --------------
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 $7,929,242,415
--------------
Gross unrealized appreciation $9,340,125,685
Gross unrealized depreciation (1,066,595,261)
--------------
Net unrealized appreciation $8,273,530,424
==============
(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, 1999 YEAR ENDED NOVEMBER 30, 1998
------------------------------------ ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 455,312,210 $ 21,378,736,699 323,635,709 $ 12,557,270,573
Shares issued to shareholders in
reinvestment of distributions 1,050,363 44,113,129 959,730 33,147,195
Shares reacquired (453,076,386) (21,320,862,046) (311,882,646) (12,167,722,188)
---------------- ---------------- ---------------- ----------------
Net increase 3,286,187 $ 101,987,782 12,712,793 $ 422,695,580
================ ================ ================ ================
<CAPTION>
Class B Shares
YEAR ENDED NOVEMBER 30, 1999 YEAR ENDED NOVEMBER 30, 1998
------------------------------------ ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 75,802,531 $ 3,432,408,496 74,377,060 $ 2,833,309,632
Shares issued to shareholders in
reinvestment of distributions 1,244,617 49,917,727 861,205 29,129,405
Shares reacquired (75,879,435) (3,432,109,745) (58,855,318) (2,223,583,962)
---------------- ---------------- ---------------- ----------------
Net increase 1,167,713 $ 50,216,478 16,382,947 $ 638,855,075
================ ================ ================ ================
<CAPTION>
Class C Shares
YEAR ENDED NOVEMBER 30, 1999 YEAR ENDED NOVEMBER 30, 1998
------------------------------------ ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 40,184,179 $ 1,810,714,904 31,755,320 $ 1,218,876,343
Shares issued to shareholders in
reinvestment of distributions 92,240 3,679,900 40,350 1,357,348
Shares reacquired (37,434,750) (1,690,564,944) (26,901,015) (1,033,437,490)
---------------- ---------------- ---------------- ----------------
Net increase 2,841,669 $ 123,829,860 4,894,655 $ 186,796,201
================ ================ ================ ================
<CAPTION>
Class I Shares
YEAR ENDED NOVEMBER 30, 1999 YEAR ENDED NOVEMBER 30, 1998
------------------------------------ ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 800,542 $ 39,590,011 209,180 $ 8,247,866
Shares issued to shareholders in
reinvestment of distributions 12,017 494,873 15,319 526,918
Shares reacquired (233,924) (10,875,702) (215,813) (8,535,894)
---------------- ---------------- ---------------- ----------------
Net increase 578,635 $ 29,209,182 8,686 $ 238,890
================ ================ ================ ================
<CAPTION>
Class J Shares
YEAR ENDED NOVEMBER 30, 1999 YEAR ENDED NOVEMBER 30, 1998
------------------------------------ ------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 232,665 $ 11,295,508 2,222 $ 79,082
Shares reacquired (34,080) (1,692,151) -- --
---------------- ---------------- ---------------- ----------------
Net increase 198,585 $ 9,603,357 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 an $820 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, 1999, was $90,760. The Fund had no
significant borrowings during the year.
(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 year ended November
30, 1999, is set forth below:
<TABLE>
<CAPTION>
ACQUISTIONS DISPOSITIONS
BEGINNING --------------------------- ---------------------------
AFFILIATE SHARE AMOUNT SHARES COST SHARES COST
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amerihost Properties, Inc. 527,000 $ -- -- -- $ --
Applebee's International, Inc. 3,139,500 -- -- -- --
Buffets, Inc. 3,124,450 -- -- 134,700 1,520,962
Cadence Design Systems, Inc. 11,529,670 2,046,600 30,895,451 125,000 2,250,300
CEC Entertainment, Inc. 1,588,000 -- -- 14,900 458,841
Cendant Corp. 36,039,148 1,214,300 20,519,200 489,563 10,721,560
Compuware Corp. 17,636,242 7,484,198 261,071,603 1,531,050 104,407,956
Danka Business Systems, ADR 4,210,300 -- -- 93,300 579,853
Micro Warehouse, Inc. 2,918,500 -- -- 61,400 1,812,165
Midatlantic Medical Services 2,359,888 174,600 1,312,404 7,500 62,360
Modis Professional
Services, Inc. 7,210,150 1,137,400 12,996,708 4,500 68,938
Mortons Restaurant Group, Inc. 440,000 -- -- 14,000 251,420
Mothers Work, Inc. 202,000 -- -- 10,000 126,871
Orthodontic Centers of
America, Inc. 2,205,000 349,700 4,106,087 9,200 112,903
Promus Hotel Corp. 4,108,413 360,900 9,495,337 10,300 350,214
Talk.com 6,471,100 -- -- 15,000 244,679
------------ ------------
$340,396,790 $122,969,022
============ ============
<CAPTION>
ENDING REALIZED DIVIDEND ENDING
AFFILIATE SHARE AMOUNT GAIN (LOSS) INCOME VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amerihost Properties, Inc. 527,000 -- -- $ 1,712,750
Applebee's International, Inc. 3,139,500 -- 282,555 94,577,438
Buffets, Inc. 2,989,750 (713,194) -- 32,139,813
Cadence Design Systems, Inc. 13,451,270 1,071,097 -- 238,760,042
CEC Entertainment, Inc. 1,573,100 218,511 -- 47,193,000
Cendant Corp. 36,763,885 4,883,108 -- 608,901,845
Compuware Corp. 23,589,390 84,966,790 -- 797,616,249
Danka Business Systems, ADR 4,117,000 (3,168,654) -- 47,345,500
Micro Warehouse, Inc. 2,857,100 (1,005,078) -- 33,570,925
Midatlantic Medical Services 2,526,988 5,965 -- 20,215,904
Modis Professional Services, Inc. 8,343,050 (84,332) -- 89,166,347
Mortons Restaurant Group, Inc. 426,000 37,920 -- 6,363,375
Mothers Work, Inc. 192,000 (44,379) -- 1,968,000
Orthodontic Centers of America, Inc. 2,545,500 (20,497) -- 31,023,281
Promus Hotel Corp. 4,459,013 (140,941) -- 142,967,104
Talk.com 6,456,100 (88,327) -- 108,946,687
----------- -------- --------------
$85,917,989 $282,555 $2,302,468,260
=========== ======== ==============
</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 November 30, 1999,
the Fund owned the following restricted securities, excluding securities issued
under Rule 144A, constituting 0.39% 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, in good faith by the Trustees.
DATE OF SHARE
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- --------------------------------------------------------------------------------
Copley Partners 1 12/06/86 3,000,000 $ 336,043 $ 258,600
Copley Partners 2 12/02/86 - 8/09/91 3,000,000 1,235,812 966,360
Highland Capital
Partners 6/28/88 - 6/28/93 7,500,000 534,615 624,825
Republic Industries,
Inc. 5/15/96 6,505,000 227,897,500 60,577,813
-----------
$62,427,598
===========
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of the MFS Series Trust II and the Shareholders of MFS Emerging
Growth Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Emerging Growth Fund (a series of MFS Series Trust II), including the portfolio
of investments, as of November 30, 1999, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1999, by correspondence with the custodian and brokers; where
replies were not received by 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Emerging Growth Fund as of November 30, 1999, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 6, 2000
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 2000, SHAREHOLDERS WILL BE MAILED A FORM 1099-DIV REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR 1999.
THE FUND HAS DESIGNATED $117,176,321 AS A CAPITAL GAIN DIVIDEND FOR THE YEAR
ENDED NOVEMBER 30, 1999.
- --------------------------------------------------------------------------------
<PAGE>
MFS Emerging Growth Fund
<TABLE>
<S> <C>
TRUSTEES ASSISTANT TREASURERS
Richard B. Bailey+ - Private Investor; Mark E. Bradley*
Former Chairman and Director (until Ellen Moynihan*
1991), MFS Investment Management James O. Yost*
Marshall N. Cohan+ - Private Investor SECRETARY
Stephen E. Cavan*
Lawrence H. Cohn, M.D.+ - Chief of
Cardiac Surgery, Brigham and Womens ASSISTANT SECRETARY
Hospital; Professor of Surgery, James R. Bordewick, Jr.*
Harvard Medical School
CUSTODIAN
The Hon. Sir J. David Gibbons, KBE+ - State Street Bank and Trust Company
Chief Executive Officer, Edmund
Gibbons Ltd.; Chairman, Colonial AUDITORS
Insurance Company, Ltd. Deloitte & Touche LLP
Abby M. ONeill+ - Private Investor INVESTOR INFORMATION
For MFS stock and bond market
Walter E. Robb, III+ - President and outlooks, call toll free:
Treasurer, Benchmark Advisors, Inc. 1-800-637-4458 any time from a
(corporate financial consultants); touch-tone telephone.
President, Benchmark Consulting
Group, Inc. (office services) For information on MFS mutual funds,
call your financial consultant or,
Arnold D. Scott* - Senior Executive for an information kit, call toll
Vice President, Director, and free: 1-800-637-2929 any business day
Secretary, MFS Investment Management from 9 a.m. to 5 p.m. Eastern time
(or leave a message anytime).
Jeffrey L. Shames* - Chairman and
Chief Executive Officer, MFS INVESTOR SERVICE
Investment Management MFS Service Center, Inc.
P.O. Box 2281
J. Dale Sherratt+ - President, Boston, MA 02107-9906
Insight Resources, Inc. (acquisition
planning specialists) For general information, call toll free:
1-800-225-2606 any business day from
Ward Smith+ - Former Chairman (until 8 a.m. to 8 p.m. Eastern time.
1994), NACCO Industries (holding
company) For service to speech- or
hearing-impaired, call toll free:
INVESTMENT ADVISER 1-800-637-6576 any business day from
Massachusetts Financial Services Company 9 a.m. to 5 p.m. Eastern time. (To
500 Boylston Street use this service, your phone must be
Boston, MA 02116-3741 equipped with a Telecommunications
Device for the Deaf.)
DISTRIBUTOR
MFS Fund Distributors, Inc. For share prices, account balances
500 Boylston Street and exchanges, call toll free:
Boston, MA 02116-3741 1-800-MFS-TALK (1-800-637-8255)
anytime from a touch-tone telephone.
CHAIRMAN AND PRESIDENT
Jeffrey L. Shames* WORLD WIDE WEB
www.mfs.com
PORTFOLIO MANAGER
John W. Ballen*
TREASURER
W. Thomas London*
</TABLE>
+ Independent Trustee
* MFS Investment Management
<PAGE>
MFS(R) EMERGING GROWTH FUND ------------
BULK RATE
[Logo] M F S(R) U.S. POSTAGE
INVESTMENT MANAGEMENT PAID
We invented the mutual fund(R) MFS
------------
500 Boylston Street
Boston, MA 02116-3741
(c)2000 MFS Investment Management.(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MEG-2 3/00 18M 27/207/307/807
