<PAGE>
MFS(R) MANAGED SECTORS FUND MFS(R) GROWTH OPPORTUNITIES FUND
MFS(R) EMERGING GROWTH FUND MFS(R) HIGH INCOME FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) MUNICIPAL BOND FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) RESEARCH FUND
MFS(R) WORLD TOTAL RETURN FUND MFS(R) VALUE FUND
MFS(R) WORLD EQUITY FUND MFS(R) BOND FUND
MFS(R) UTILITIES FUND MFS(R) LIMITED MATURITY FUND
MFS(R) STRATEGIC INCOME FUND MFS(R) MUNICIPAL LIMITED MATURITY FUND
MFS(R) MUNICIPAL INCOME FUND MFS(R) MUNICIPAL SERIES TRUST
SUPPLEMENT TO BE AFFIXED TO THE CURRENT PROSPECTUS FOR DISTRIBUTION IN OHIO
Prospective Ohio investors should note the following:
a) This Prospectus must be delivered to the investor prior to consummation of
the sale;
b) The Fund may invest up to 50% of its assets in restricted securities,
including Rule 144A securities which have been deemed to be liquid by the
Board of Trustees.
THE DATE OF THIS SUPPLEMENT IS FEBRUARY 1, 1995.
MFS-16OH-2/95/19.5M
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MASSACHUSETTS INVESTORS TRUST MFS(R) WORLD TOTAL RETURN FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS(R) MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) MUNICIPAL HIGH INCOME FUND
MFS(R) EMERGING GROWTH FUND MFS(R) MUNICIPAL INCOME FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MFS(R) GROWTH OPPORTUNITIES FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) MANAGED SECTORS FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) OTC FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) RESEARCH FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) TOTAL RETURN FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) UTILITIES FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) BOND FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MORTGAGE FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) GOVERNMENT SECURITIES FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) PENNSYLVANIA MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) STRATEGIC INCOME FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) GOVERNMENT LIMITED MATURITY FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) LIMITED MATURITY FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) MUNICIPAL LIMITED MATURITY FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) WORLD ASSET ALLOCATION FUND
MFS(R) WORLD GROWTH FUND
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
During the period from February 1, 1995 through April 14, 1995 (the "Sales
Period") (unless extended by MFS Fund Distributors, Inc. ("MFD"), the Funds'
distributor), MFD will pay Corelink Financial Inc. ("Corelink") an additional
commission equal to 0.10% of the gross commissonable sales for Class A shares
and Class B shares and the net asset value for Class C shares (if applicable) of
the Funds sold by Corelink during the Sales Period.
THE DATE OF THIS SUPPLEMENT IS FEBRUARY 1, 1995.
MFS-16CL-2/95/5M
<PAGE>
PROSPECTUS
February 1, 1995
Class A Shares of Beneficial
Interest
Class B Shares of Beneficial
MFS(R) RESEARCH Interest
FUND Class C Shares of Beneficial
(A member of the MFS Family of Funds(R)) Interest
- --------------------------------------------------------------------------------
Page
----
1. Expense Summary ........................................................ 2
2. The Fund ............................................................... 3
3. Condensed Financial Information ........................................ 4
4. Investment Objective and Policies ...................................... 5
5. Management of the Fund ................................................. 8
6. Information Concerning Shares of the Fund .............................. 9
Purchases .......................................................... 9
Exchanges .......................................................... 15
Redemptions and Repurchases ........................................ 15
Distribution Plans ................................................. 17
Distributions ...................................................... 19
Tax Status ......................................................... 19
Net Asset Value .................................................... 20
Description of Shares, Voting Rights and Liabilities ............... 20
Performance Information ............................................ 20
7. Shareholder Services ................................................... 21
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MFS RESEARCH FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
The investment objective of MFS Research Fund (the "Fund") is to provide
long-term growth of capital and future income (see "Investment Objective and
Policies"). The Fund is a diversified series of MFS Series Trust V (the
"Trust"), an open-end investment company. The minimum initial investment is
generally $1,000 per account (see "Purchases").
The Fund's investment adviser and distributor are Massachusetts Financial
Services Company ("MFS") and MFS Fund Distributors, Inc. ("MFD"), respectively,
both of which are located at 500 Boylston Street, Boston, Massachusetts 02116.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
This Prospectus sets forth concisely the information concerning the Trust and
the Fund that a prospective investor ought to know before investing. The Trust,
on behalf of the Fund, has filed with the Securities and Exchange Commission
(the "SEC") a Statement of Additional Information, dated February 1, 1995, which
contains more detailed information about the Trust and the Fund and is
incorporated into this Prospectus by reference. See page 23 for a further
description of the information set forth in the Statement of Additional
Information. A copy of the Statement of Additional Information may be obtained
without charge by contacting the Shareholder Servicing Agent (see back cover for
address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
1. EXPENSE SUMMARY ------- ------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases
of Fund Shares
(as a percentage of offering price) ............ 5.75% 0.00% 0.00%
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable) ............ See Below<F1> 4.00% 0.00%
ANNUAL OPERATING EXPENSES OF THE FUND (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees .................................. 0.39% 0.39% 0.39%
Rule 12b-1 Fees .................................. 0.19%<F2> 1.00%<F3> 1.00%<F3>
Other Expenses ................................... 0.30% 0.37% 0.30%<F4>
--- --- ---
Total Operating Expenses ......................... 0.88% 1.76% 1.69%
<FN>
- ---------
<F1> Purchases of $1 million or more are not subject to an initial sales charge;
however, a CDSC of 1% will be imposed on such purchases in the event of
certain redemption transactions within 12 months following such purchases
(see "Purchases").
<F2> The Fund has adopted a Distribution Plan for its Class A shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which provides that it will pay distribution/
service fees aggregating up to (but not necessarily all of) 0.35% per annum
of the average daily net assets attributable to the Class A shares (see
"Distribution Plans"). Currently, the service fee is reduced to 0.15% per
annum for shares sold prior to March 1, 1991, and the 0.10% per annum
distribution fee is being waived. After a substantial period of time
distribution expenses paid under this Plan, together with the initial sales
charge, may total more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge.
<F3> The Fund has adopted separate Distribution Plans for its Class B and its
Class C shares in accordance with Rule 12b-1 under the 1940 Act, which
provide that it will pay distribution/service fees aggregating up to (but
not necessarily all of) 1.00% per annum of the average daily net assets
attributable to the Class B shares under the Class B Distribution Plan and
the Class C shares under the Class C Distribution Plan (see "Distribution
Plans"). After a substantial period of time, distribution expenses paid
under these Plans, together with any CDSC payable upon redemption of Class
B shares, may total more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge.
<F4> Except for the shareholder servicing agent fee component, "Other Expenses"
is based on Class A expenses incurred during the fiscal year ended
September 30, 1994. The shareholder servicing agent fee component of "Other
Expenses" is a predetermined percentage based upon the Fund's net assets
attributable to each class.
</TABLE>
EXAMPLE OF EXPENSES
-------------------
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 5% annual return and (b) redemption at the
end of each of the time periods indicated (unless otherwise noted):
PERIOD CLASS A CLASS B CLASS C
------ ------- ---------------------- -------
(1)
1 year .................. $ 66 $ 58 $ 18 $ 17
3 years ................. 84 85 55 53
5 years ................. 103 115 95 92
10 years ................. 160 184(2) 184(2) 200
- ---------
(1) Assumes no redemption
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear directly
or indirectly. More complete descriptions of the following Fund expenses are set
forth in the following sections of the Prospectus: (i) varying sales charges on
share purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases"; (iii)
management fees -- "Investment Adviser"; and (iv) Rule 12b- 1 (i.e.,
distribution plan) fees -- "Distribution Plans."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
2. THE FUND
MFS Research Fund (the "Fund") is a diversified series of MFS Series Trust V
(the "Trust"), an open-end management investment company, which was organized as
a business trust under the laws of The Commonwealth of Massachusetts in 1984.
The Trust presently consists of two series, each of which represents a portfolio
with separate investment policies. Shares of the Fund are continuously sold to
the public and the Fund buys securities (stocks, bonds and other instruments)
for its portfolio. Three classes of shares of the Fund currently are offered to
the general public. Class A shares are offered at net asset value plus an
initial sales charge (or a contingent deferred sales charge (a "CDSC") in the
case of certain purchases of $1 million or more) and are subject to a
Distribution Plan providing for an annual distribution fee and a service fee.
Class B shares are offered at net asset value without an initial sales charge
but are subject to a CDSC and a Distribution Plan providing for an annual
distribution fee and service fee which are greater than the Class A annual
distribution fee and service fee; Class B shares will convert to Class A shares
approximately eight years after purchase. Class C shares are offered at net
asset value without an initial sales charge or a CDSC but are subject to a
Distribution Plan providing for an annual distribution fee and service fee which
are equal to the Class B annual distribution fee and service fee. Class C shares
do not convert to any other class of shares of the Fund.
The Trust's Board of Trustees provides broad supervision over the affairs of the
Fund. MFS is the Fund's investment adviser. The Adviser is responsible for the
management of the Fund's assets and the officers of the Trust are responsible
for its operations. The Adviser manages the portfolio from day to day in
accordance with the Fund's investment objective and policies. The selection of
investments and the way they are managed depend on conditions and trends in the
economy and the financial marketplaces. The Trust also offers to buy back
(redeem) shares of the Fund from Fund shareholders at any time at net asset
value, less any applicable CDSC.
3. CONDENSED FINANCIAL INFORMATION
The following information should be read in conjunction with the financial
statements included in the Fund's Annual Report to Shareholders which are
incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing.
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------
CLASS A
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- Beginning of period ............ $14.47 $12.18 $11.84 $ 9.62 $11.49 $10.20 $ 12.54
------ ------ ------ ------ ------ ------ -------
Income from investment operations<F4> --
Net investment income<F5> ......................... $ 0.02 $ 0.11 $ 0.07 $ 0.27 $ 0.36 $ 0.39 $ 0.23
Net realized and unrealized gain (loss)
on investments .................................. 1.01 3.15 1.27 2.21 (1.52) 2.30 (2.19)
------ ------ ------ ------ ------ ------ ------
Total from investment operations .................... $ 1.03 $ 3.26 $ 1.34 $ 2.48 $(1.16) $ 2.69 $(1.96)
------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income ........................ $(0.03) $(0.07) $ -- $(0.26) $(0.36) $(0.39) $(0.24)
From net realized gain on investments and foreign
currency transactions ........................... (2.87) (0.90) (1.00) -- (0.35) (1.01)<F1> (0.14)
In excess of net realized gain on investments and
foreign currency transactions ................... (0.01) -- -- -- -- -- ---
------ ------ ------ ------ ------ ------ ------
Total distributions declared to shareholders .... $(2.91) $(0.97) $(1.00) $(0.26) $ (0.71) $(1.40) $(0.38)
------ ------ ------ ------ ------ ------ ------
Net asset value -- end of period .................. $12.59 $14.47 $12.18 $11.84 $ 9.62 $11.49 $10.20
====== ====== ====== ====== ====== ====== ======
Total return<F2> .................................... 7.72% 28.27% 11.79% 25.87% (12.73)% 26.91% (15.60)%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses<F5> ...................................... 0.91% 0.90% 0.84% 0.95% 0.83% 0.88% 0.86%
Net investment income <F5>......................... 0.14% 0.36% 0.59% 2.48% 3.21% 3.48% 2.36%
PORTFOLIO TURNOVER<F3> .............................. 79% 93% 74% 177% 79% 99% 116%
NET ASSETS AT END OF PERIOD (000 OMITTED) ........... $318,170 $294,019 $240,366 $231,316 $202,377 $251,857 $239,616
<FN>
- ---------
<F1> For the year ended September 30, 1990, the per share distribution from
paid-in capital was $0.0009.
<F2> Total returns for Class A shares do not include the sales charge (except
for reinvested dividends prior to October 1, 1989). If the charge had been
included, the results would have been lower.
<F3> Annualized.
<F4> Per share data for the period subsequent to September 30, 1993 is based on
average shares outstanding.
<F5> The distributor did not impose its distribution fee for the period
indicated. If this fee had been incurred by the Fund, the net investment
income per share and ratios would have been:
Net investment income .......................... $ 0.01 -- -- -- -- -- --
Ratios (to average net assets):
Expenses 1.01% -- -- -- -- -- --
Net investment income ........................ 0.04% -- -- -- -- -- --
<PAGE>
FINANCIAL HIGHLIGHTS -- CONTINUED
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1987 1986 1985 1994 1993<F1> 1994
---- ---- ---- ---- ---- ----
CLASS A CLASS B CLASS C<F2>
---------------------------------- ------------------ ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- Beginning of period .......... $10.42 $10.36 $10.40 $14.47 $13.95 $13.18
------ ------ ------ ------ ------ ------
Income from investment operations<F5> --
Net investment income (loss) .................... $ 0.19 $ 0.25 $ 0.31 $(0.08) $(0.04) $(0.04)
Net realized and unrealized gain (loss) on
investments ................................... 4.43 2.50 0.94 1.00 0.56 0.62
------ ------ ------ ------ ------ ------
Total from investment operations .................. $ 4.62 $ 2.75 $ 1.25 $ 0.92 $ 0.52 $ 0.58
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income ...................... $(0.19) $(0.24) $(0.31) $(0.02) $ -- $ --
From net realized gain on investments and
foreign currency transactions ................. (2.31) (2.45) (0.98) (2.87) -- (1.25)
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders .. $(2.50) $(2.69) $(1.29) $(2.89) $ -- $(1.25)
------ ------ ------ ------ ------ ------
Net asset value -- end of period ................. $12.54 $10.42 $10.36 $12.50 $14.47 $12.51
====== ====== ====== ====== ====== ======
Total return<F4> ................................... 44.80% 26.65% 11.98% 6.91% 3.35% 4.43%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses ......................................... 0.73% 0.77% 0.86% 1.82% 2.33%<F3> 1.74%<F3>
Net investment income (loss) ..................... 1.51% 1.88% 2.74% (0.65)% (0.89%)<F3> (0.54%)<F3>
PORTFOLIO TURNOVER ................................. 101% 102% 75% 79% 93% 79%
NET ASSETS AT END OF PERIOD (000 OMITTED) .......... $321,050 $234,804 $207,819 $ 25,672 $ 447 $4,821
<FN>
- ---------
<F1> For the period from the commencement of offering of Class B shares,
September 7, 1993 to September 30, 1993.
<F2> For the period from the commencement of offering of Class C shares, January
3, 1994 to September 30, 1994.
<F3> Annualized.
<F4> Total returns for Class A shares do not include the sales charge (except
for reinvested dividends prior to October 1, 1989). If the charge had been
included, the results would have been lower.
<F5> Per share data for the period subsequent to September 30, 1993 is based on
average shares outstanding.
</TABLE>
4. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The Fund's investment objective is to provide long-term
growth of capital and future income. Any investment involves risk and there can
be no assurance that the Fund will achieve its investment objective.
The portfolio securities of the Fund are selected by the investment research
analysts in the Equity Research Group of the Adviser. The Fund's assets are
allocated to economic sectors (e.g., health care, technology, consumer staples),
and then to industry groups within these sectors (e.g., within the health care
sector, the managed care, drug and medical supply industries). The allocation by
sector and industry is determined by the analysts acting together as a group.
Individual analysts are then responsible for selecting what they view as the
best securities for capital appreciation and future income within their assigned
industries.
INVESTMENT POLICIES -- The Fund's policy is to invest a substantial proportion
of its assets in the common stocks or securities convertible into common stocks
of companies believed to possess better than average prospects for long-term
growth. A smaller proportion of the assets may be invested in bonds, short-term
obligations, preferred stocks or common stocks whose principal characteristic is
income production rather than growth. Such securities may also offer
opportunities for growth of capital as well as income. In the case of both
growth stocks and income issues, emphasis is placed on the selection of
progressive, well-managed companies. The Fund's debt investments, if any, may
consist of "investment grade" securities (rated Baa or better by Moody's
Investors Service, Inc. ("Moody's") or BBB or better by Standard and Poor's
Ratings Group ("S&P") or Fitch Investors Service, Inc. ("Fitch")), and, with
respect to no more than 10% of its assets, securities in the lower rated
categories (rated Ba or lower by Moody's or BB or lower by S&P or Fitch) or
securities which the Adviser believes to be of similar quality to these lower
rated securities (commonly known as "junk bonds"). For a description of bond
ratings, see Appendix A to the Statement of Additional Information. It is not
the Fund's policy to rely exclusively on ratings issued by established credit
rating agencies but rather to supplement such ratings with the Adviser's own
independent and ongoing review of credit quality. The Fund's achievement of its
investment objective may be more dependent on the Adviser's own credit analysis
than in the case of a fund investing in primarily higher quality bonds. From
time to time, the Fund's management will exercise its judgment with respect to
the proportions invested in growth stocks, income-producing securities or cash
(including foreign currency) and cash equivalents depending on its view of their
relative attractiveness.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order to
earn additional income on available cash or as a temporary defensive measure.
Under a repurchase agreement, the Fund acquires securities subject to the
seller's agreement to repurchase at a specified time and price. If the seller
becomes subject to a proceeding under the bankruptcy laws or its assets are
otherwise subject to a stay order, the Fund's right to liquidate the securities
may be restricted (during which time the value of the securities could decline).
As discussed in the Statement of Additional Information, the Fund has adopted
certain procedures intended to minimize any risk.
LENDING OF SECURITIES: The Fund may make loans of its fixed income portfolio
securities. Such loans will usually be made only to member banks of the Federal
Reserve System and member firms (and subsidiaries thereof) of the New York Stock
Exchange under contracts only if collateralized by U.S. Government securities,
cash equivalents or cash. The Fund will continue to collect the equivalent of
interest on the securities loaned and will also receive compensation based on
investment of cash collateral or a fee (if the collateral is U.S. Government
securities). The Fund pays finder's and other fees in connection with securities
loans.
RISKS OF INVESTING IN FOREIGN SECURITIES: The Fund may invest up to 20% (and
generally expects to invest between 10% and 20%) of its total assets in foreign
securities (not including American Depositary Receipts). Investing in securities
of foreign issuers generally involves risks not ordinarily associated with
investing in securities of domestic issuers. These include changes in currency
rates, exchange control regulations, governmental administration or economic or
monetary policy (in the United States or abroad) or circumstances in dealings
between nations. Costs may be incurred in connection with conversions between
various currencies. Special considerations may also include more limited
information about foreign issuers, higher brokerage costs, different accounting
standards and thinner trading markets. Foreign securities markets may also be
less liquid, more volatile and less subject to government supervision than in
the United States. Investments in foreign countries could be affected by other
factors including expropriation, confiscatory taxation and potential
difficulties in enforcing contractual obligations and could be subject to
extended settlement periods. The Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of the
Adviser, it would be beneficial to convert such currency into U.S. dollars at a
later date, based on anticipated changes in the relevant exchange rate. The Fund
may also hold foreign currency in anticipation of purchasing foreign securities.
See the Statement of Additional Information for further discussion of foreign
securities and the holding of foreign currency, as well as the associated risks.
AMERICAN DEPOSITARY RECEIPTS: The Fund may invest in American Depositary
Receipts ("ADRs") which are certificates issued by a U.S. depository (usually a
bank) and represent a specified quantity of shares of an underlying non-U.S.
stock on deposit with a custodian bank as collateral. Because ADRs trade on
United States securities exchanges, the Adviser does not treat them as foreign
securities. However, they are subject to many of the risks of foreign securities
(described above) such as changes in exchange rates and more limited information
about foreign issuers.
RISKS OF INVESTING IN LOWER RATED BONDS: As described above, the Fund may invest
in fixed income (i.e., debt) securities rated Baa by Moody's or BBB by S&P and
comparable unrated securities. These securities, while normally exhibiting
adequate protection parameters, have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than in the case of higher
grade fixed income securities.
The Fund may also invest in fixed income securities that are rated Ba or lower
by Moody's or BB or lower by S&P or Fitch or comparable unrated securities
("junk bonds"). These securities are considered speculative and, while generally
providing greater income than investments in higher rated securities, will
involve greater risk of principal and income (including the possibility of
default or bankruptcy of the issuers of such securities) and may involve greater
volatility of price (especially during periods of economic uncertainty or
change) than securities in the higher rating categories. However, since yields
vary over time, no specific level of income can ever be assured. These lower
rated high yielding fixed income securities generally tend to reflect economic
changes as well as short-term corporate and industry developments to a greater
extent than higher rated securities which react primarily to fluctuations in the
general level of interest rates. These lower rated fixed income securities are
also affected by changes in interest rates, the market's perception of their
credit quality, and the outlook for economic growth. In the past, economic
downturns or an increase in interest rates have, under certain circumstances,
caused a higher incidence of default by the issuer of these securities and may
do so in the future, especially in the case of highly leveraged issuers. During
certain periods, the higher yields on the Fund's lower rated high yielding fixed
income securities are paid primarily because of the increased risk of loss of
principal and income, arising from such factors as the heightened possibility of
default or bankruptcy of the issuers of such securities. Due to the fixed income
payments of these securities, the Fund may continue to earn the same level of
interest income while its net asset value declines due to portfolio losses,
which could result in an increase in the Fund's yield despite the actual loss of
principal. The market for these lower rated fixed income securities may be less
liquid than the market for investment grade fixed income securities. Therefore,
judgment may at times play a greater role in valuing these securities than in
the case of investment grade fixed income securities. The Fund did not invest in
lower rated bonds during its last fiscal year.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not
registered under the Securities Act of 1933 ("1933 Act") ("restricted
securities"), including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). The Trust's Board of Trustees determines, based upon a continuing
review of the trading markets for a specific Rule 144A security, whether such
security is illiquid and thus subject to the Fund's limitation on investing not
more than 10% of its net assets in illiquid investments, or liquid and thus not
subject to such limitation. The Board of Trustees has adopted guidelines and
delegated to MFS the daily function of determining and monitoring the liquidity
of Rule 144A securities. The Board, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Board will carefully
monitor the Fund's investments in Rule 144A securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing Rule 144A securities held in
the Fund's portfolio. Subject to the Fund's 10% limitation on investments in
illiquid investments, and subject to the diversification requirements of the
Internal Revenue Code of 1986, as amended (the "Code"), the Fund may also invest
in restricted securities that may not be sold under Rule 144A, which presents
certain risks. As a result, the Fund might not be able to sell these securities
when the Adviser wishes to do so, or might have to sell them at less than fair
value. In addition, market quotations are less readily available. Therefore,
judgment may at times play a greater role in valuing these securities than in
the case of unrestricted securities.
PORTFOLIO TRADING: The primary consideration in placing portfolio security
transactions with broker-dealers for execution is to obtain, and maintain the
availability of, execution at the most favorable prices and in the most
effective manner possible. Consistent with the foregoing primary consideration,
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (the "NASD") and such other policies as the Trustees may determine, the
Adviser may consider sales of shares of the Fund and of other investment company
clients of MFD, the Trust's distributor, as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions. From time to time,
the Adviser may direct certain portfolio transactions to broker-dealer firms
which, in turn, have agreed to pay a portion of the Fund's operating expenses
(e.g., fees charged by the custodian of the Fund's assets). For a further
discussion of portfolio trading, see the Statement of Additional Information.
Since shares of the Fund represent an investment in securities with fluctuating
market prices, shareholders should understand that the value of their shares
will vary as the aggregate value of the Fund's portfolio securities increases or
decreases. Moreover, any dividends the Fund pays will increase or decrease in
relation to the income received from its investments.
The Fund does not intend to trade in securities for short-term profits.
However, the Fund will trade whenever it believes that changes are appropriate.
--------------------
The investment objective and policies described above are not fundamental and
may be changed without shareholder approval. A change in the Fund's investment
objective may result in the Fund having an investment objective different from
the objective which the Shareholder considered appropriate at the time of
investment in that Fund.
The Statement of Additional Information includes a discussion of other
investment policies and a listing of specific investment restrictions which
govern the Fund's investment policies. The specific investment restrictions
listed in the Statement of Additional Information may not be changed without
approval of the shareholders of the Fund. The Fund's investment limitations,
policies and ratings standards are adhered to at the time of purchase or
utilization of assets; a subsequent change in circumstances will not be
considered to result in a violation of policy.
5. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the Fund pursuant to an Investment
Advisory Agreement, dated September 1, 1993 (the "Advisory Agreement"). The
Adviser provides the Fund with overall investment advisory and administrative
services, as well as general office facilities. The Fund is currently managed by
a committee comprised of various equity research analysts employed by the
Adviser. For these services and facilities, the Adviser receives a management
fee, computed and paid monthly, fixed by a formula based upon a percentage of
the Fund's average daily net assets plus a percentage of the Fund's gross income
(i.e., income other than gains from the sale of securities) in each case on an
annualized basis for the Fund's then current fiscal year. The applicable
percentages are reduced as assets and income reach the following levels:
<TABLE>
<CAPTION>
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
- ------------------------------------------------------------------- ---------------------------------------------
<C> <C>
0.40% of the first $100 million 5.0% of the first $2 million
0.32% of the next $400 million 4.0% of the next $8 million
0.288% of average daily net assets in excess of $500 million 3.6% of gross income in excess of $10 million
</TABLE>
For the fiscal year ended September 30, 1994, MFS received management fees of
$1,217,986 (of which $1,066,746 was based on average daily net assets and
$151,240 on gross income), equivalent, on an annualized basis, to .39% of the
Fund's average daily net assets.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds"), to MFS(R) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermediate
Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS
Institutional Trust, MFS Union Standard Trust, MFS Variable Insurance Trust,
MFS/Sun Life Series Trust, Sun Growth Variable Annuity Fund, Inc. and seven
variable accounts, each of which is a registered investment company established
by Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)") in
connection with the sale of Compass-2 and Compass-3 combination fixed/variable
annuity contracts. MFS and its wholly-owned subsidiary, MFS Asset Management,
Inc., provide investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately $33.4 billion on behalf of over 1.5 million investor accounts as
of December 30, 1994. MFS is a subsidiary of Sun Life of Canada (U.S.) which in
turn is a subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). The
Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, John R. Gardner, John
D. McNeil and Arnold D. Scott. Mr. Brodkin is the Chairman, Mr. Shames is the
President and Mr. Scott is the Secretary and a Senior Executive Vice President
of MFS. Messrs. McNeil and Gardner are the Chairman and the President,
respectively, of Sun Life. Sun Life, a mutual life insurance company, is one of
the largest international life insurance companies and has been operating in the
United States since 1895, establishing a headquarters office here in 1973. The
executive officers of MFS report to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman and a director of MFS, is also the Chairman,
President and a Trustee of the Trust. W. Thomas London, Stephen E. Cavan, James
O. Yost and James R. Bordewick, Jr., all of whom are officers of MFS, are also
officers of the Trust.
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor for each of the other MFS
Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency
and certain other services for the Fund.
6. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased at the public offering price through any
securities dealer, certain banks and other financial institutions having selling
agreements with MFD. Non-securities dealer financial institutions will receive
transaction fees that are the same as commission fees to dealers. Securities
dealers and other financial institutions may also charge their customers fees
relating to investments in the Fund.
The Fund offers three classes of shares which bear sales charges and
distribution fees in different forms and amounts:
CLASS A SHARES: Class A shares are offered at net asset value per share plus an
initial sales charge (or CDSC in the case of certain purchases of $1 million or
more) as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS<F1>
PERCENTAGE OF:
-------------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
<S> <C> <C> <C>
Less than $50,000 .......................................................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000 ............................................. 4.75 4.99 4.00
$100,000 but less than $250,000 ............................................ 4.00 4.17 3.20
$250,000 but less than $500,000 ............................................ 2.95 3.04 2.25
$500,000 but less than $1,000,000 .......................................... 2.20 2.25 1.70
$1,000,000 or more ......................................................... None<F2> None<F2> See Below<F2>
<FN>
- ---------
<F1> Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages
above.
<F2> A CDSC may apply in certain instances. MFD (on behalf of the Fund) will
also pay a commission on purchases of $1 million or more.
</TABLE>
No sales charge is payable at the time of purchase of Class A shares on
investments of $1 million or more. However, a CDSC shall be imposed on such
investments in the event of a share redemption within 12 months following the
share purchase, at the rate of 1% on the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares.
In determining whether a CDSC on Class A shares is payable, and, if so, the
amount of the charge, it is assumed that shares not subject to the CDSC are the
first redeemed followed by other shares held for the longest period of time. All
investments made during a calendar month, regardless of when during the month
the investment occurred, will age one month on the last day of that month and
each subsequent month. Except as noted below, the CDSC on Class A shares will be
waived in the case of: (i) exchanges (except that if the shares acquired by
exchange were then redeemed within 12 months of the initial purchase (other than
in connection with subsequent exchanges to other MFS Funds), the charge would
not be waived); (ii) distributions to participants from a retirement plan
qualified under section 401(a) of the Code (a "Retirement Plan"), due to: (a) a
loan from the plan (repayments of loans, however, will constitute new sales for
purposes of assessing the CDSC); (b) "financial hardship" of the participant in
the plan, as that term is defined in Treasury Regulation Section
1.401(k)-1(d)(2), as amended from time to time; or (c) the death of a
participant in such a plan; (iii) distributions from a 403(b) plan or an
Individual Retirement Account ("IRA") due to death, disability or attainment of
age 59 1/2; (iv) tax-free returns of excess contributions to an IRA; (v)
distributions by other employee benefit plans to pay benefits; and (vi) certain
involuntary redemptions and redemptions in connection with certain automatic
withdrawals from a qualified retirement plan. The CDSC on Class A shares will
not be waived, however, if the Retirement Plan withdraws from the Fund except if
that Retirement Plan has invested its assets in Class A shares of one or more of
the MFS Funds for more than 10 years from the later to occur of (i) January 1,
1993 or (ii) the date such Retirement Plan first invests its assets in Class A
shares of one or more of the MFS Funds, the CDSC on Class A shares will be
suspended in the case of a redemption of all of the Retirement Plan's shares
(including shares of any other class) in all MFS Funds (i.e., all the assets of
the Retirement Plan invested in the MFS Funds are withdrawn), unless,
immediately prior to the redemption, the aggregate amount invested by the
Retirement Plan in Class A shares of the MFS Funds (excluding the reinvestment
of distributions) during the prior four year period equals 50% or more of the
total value of the Retirement Plan's assets in the MFS Funds, in which case the
CDSC will not be waived. The CDSC on Class A shares will be waived upon
redemption by a Retirement Plan where the redemption proceeds are used to pay
expenses of the Retirement Plan or certain expenses of participants under the
Retirement Plan (e.g., participant account fees), provided that the Retirement
Plan's sponsor subscribes to the MFS Fundamental 401(k) Plan( \s/\m/) or another
similar recordkeeping system made available by the Shareholder Servicing Agent.
The CDSC on Class A shares will be waived upon the transfer of registration from
shares held by a Retirement Plan through a single account maintained by the
Shareholder Servicing Agent to multiple Class A share accounts maintained by the
Shareholder Servicing Agent on behalf of individual participants in the
Retirement Plan, provided that the Retirement Plan's sponsor subscribes to the
MFS Fundamental 401(k) Plan( \s/\m/) or another similar recordkeeping system
made available by the Shareholder Servicing Agent. Any applicable CDSC will be
deferred upon an exchange of Class A shares of the Fund for units of
participation of the MFS Fixed Fund (a bank collective investment fund) (the
"Units"), and the CDSC will be deducted from the redemption proceeds when such
Units are subsequently redeemed (assuming the CDSC is then payable). No CDSC
will be assessed upon an exchange of Units for Class A shares of the Fund. For
purposes of calculating the CDSC payable upon redemption of Class A shares of
the Fund or Units acquired pursuant to one or more exchanges, the period during
which the Units are held will be aggregated with the period during which the
Class A shares are held. MFD shall receive all CDSCs which it intends to apply
for the benefit of the Fund.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 5% and MFD retains approximately
3/4 of 1% of the public offering price. In addition, MFD, on behalf of the Fund,
and pursuant to the Fund's Class A Distribution Plan described below, pays a
commission to dealers who initiate and are responsible for purchases of $1
million or more as follows: 1.00% on sales up to $5 million, plus 0.25% on the
amount in excess of $5 million. Purchases of $1 million or more for each
shareholder account will be aggregated over a 12-month period (commencing from
the date of the first such sale) for purposes of determining the level of
commissions to be paid during that period with respect to such account. The
sales charge may vary depending on the number of shares of the Fund as well as
certain MFS Funds and other funds owned or being purchased, the existence of an
agreement to purchase additional shares during a 13-month period (or a 36- month
period for purchases of $1 million or more) or other special purchase programs.
A description of the Right of Accumulation, Letter of Intent and Group Purchases
privileges by which the sales charge may be reduced is set forth in the
Statement of Additional Information.
Class A shares of the Fund may be sold at their net asset value to the officers
of the Trust, to any of the subsidiary companies of Sun Life, to eligible
Directors, officers, employees (including retired employees), and agents of MFS,
Sun Life or any of their subsidiary companies, to any trust, pension,
profit-sharing or any other benefit plan for such persons, to any trustees and
retired trustees of any investment company for which MFD serves as distributor
or principal underwriter and to certain family members of such individuals and
their spouses, provided such shares will not be resold except to the Fund. Class
A shares of the Fund may be sold at net asset value to any employee, partner,
officer or trustee of any sub-adviser to any MFS Fund and to certain family
members of such individuals and their spouses, or to any trust, pension,
profit-sharing or other retirement plan for the sole benefit of such employee or
representative, provided such shares will not be resold except to the Fund.
Class A shares of the Fund may also be sold at their net asset value to any
employee or registered representative of any dealer or other financial
institution which has a sales agreement with MFD or its affiliates, to certain
family members of such employees or representatives and their spouses, or to any
trust, pension, profit-sharing or other retirement plan for the sole benefit of
such employee or representative, as well as to clients of the MFS Asset
Management, Inc. Class A shares may be sold at net asset value, subject to
appropriate documentation, through a dealer where the amount invested represents
redemption proceeds from a registered open-end management investment company not
distributed or managed by MFD or its affiliates, if: (i) the redeemed shares
were subject to an initial sales charge or a deferred sales charge (whether or
not actually imposed); (ii) such redemption has occurred no more than 90 days
prior to the purchase of Class A shares of the Fund; and (iii) the Fund, MFD or
its affiliates have not agreed with such company or its affiliates, formally or
informally, to sell Class A shares at net asset value or provide any other
incentive with respect to such redemption and sale. Class A shares of the Fund
may also be sold at net asset value where the amount invested represents
redemption proceeds from the MFS Fixed Fund. In addition, Class A shares of the
Fund may be sold at net asset value in connection with the acquisition or
liquidation of the assets of other investment companies or personal holding
companies. Insurance company separate accounts may purchase Class A shares of
the Fund at their net asset value. Class A shares of the Fund may be purchased
at net asset value by retirement plans whose third party administrators have
entered into an administrative services agreement with MFD or one or more of its
affiliates to perform certain administratiive services, subject to certain
operational requirements specified from time to time by MFD or one or more of
its affiliates. Class A shares of the Fund may also be sold at net asset value
through the automatic investment of Class A and B periodic distributions which
constitute required withdrawals from qualified retirement plans. Class A shares
of the Fund may be purchased at net asset value through certain broker-dealers
and other financial institutions which have entered into an agreement with MFD,
which includes a requirement that such shares be sold for the benefit of clients
participating in a "wrap account" or a similar program under which such clients
pay a fee to such broker-dealer or other financial institution.
Class A shares of the Fund may be purchased at net asset value by retirement
plans qualified under Section 401(k) of the Code through certain broker-dealers
and other financial institutions which have entered into an agreement with MFD
which includes certain minimum size qualifications for such Retirement Plans and
provides that the broker-dealer or other financial institution will perform
certain administrative services with respect to the plan's account.
Class A shares of the Fund may be purchased at net asset value by certain
retirement plans subject to the Employee Retirement Income Security Act of 1974,
as amended, subject to the following:
(i) the sponsoring organization must demonstrate to the satisfaction of MFD
that either (a) the employer has at least 25 employees or (b) the aggregate
purchases by the retirment plan of Class A shares of the MFS Funds will be
in an amount of at least $250,000 within a reasonable period of time, as
determined by MFD in its sole discretion; and
(ii) a CDSC of 1% will be imposed on such purchases in the event of certain
redemption transactions within 12 months following such purchases.
Dealers who initiate and are responsible for purchases of Class A shares of the
Fund in this manner will be paid a commission by MFD, as follows: 1.00% on sales
up to $5 million, plus 0.25% on the amount in excess of $5 million; provided,
however, that MFD may pay a commission, on sales in excess of $5 million to
certain retirement plans, of 1.00% to certain dealers which, at MFD's
invitation, enter into an agreement with MFD in which the dealer agrees to
return any commission paid to it on the sale (or on a pro rata portion thereof)
if the shareholder redeems his or her shares within a period of time after
purchase as specified by MFD. Purchases of $1 million or more for each
shareholder account will be aggregated over a 12-month period (commencing from
the date of the first such purchase) for purposes of determining the level of
commissions to be paid during that period with respect to such account. Class A
shares of the Fund may be sold at net asset value through the automatic
reinvestment of Class A and Class B distributions which constitute required
withdrawals from qualified retirement plans. Furthermore, Class A shares of the
Fund may be sold at net asset value through the automatic reinvestment of
distributions of dividends and capital gains of Class A shares of other MFS
Funds pursuant to the Distribution Investment Program (see "Shareholder
Services" in the Statement of Additional Information).
CLASS B SHARES: Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ......................................................... 4%*
Second ........................................................ 4%
Third ......................................................... 3%
Fourth ........................................................ 3%
Fifth ......................................................... 2%
Sixth ......................................................... 1%
Seventh and following ......................................... 0%
*Class B shares purchased from January 1, 1993 through August 31, 1993, will be
subject to a CDSC of 5% in the event of a redemption within the first year
after purchase.
For Class B shares purchased prior to January 1, 1993, the Fund imposes a CDSC
as a percentage of redemption proceeds as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ......................................................... 6%
Second ........................................................ 5%
Third ......................................................... 4%
Fourth ........................................................ 3%
Fifth ......................................................... 2%
Sixth ......................................................... 1%
Seventh and following ......................................... 0%
No CDSC is paid upon an exchange of shares. For purposes of calculating the CDSC
upon redemption of shares acquired in an exchange, the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares. See "Redemptions and Repurchases --
Contingent Deferred Sales Charge" for further discussion of the CDSC.
The CDSC on Class B shares will be waived upon the death or disability (as
defined in section 72(m)(7) of the Code) of any investor, provided the account
is registered (i) in the case of a deceased individual, solely in the deceased
individual's name, (ii) in the case of a disabled individual, solely or jointly
in the disabled individual's name or (iii) in the name of a living trust for the
benefit of the deceased or disabled individual. The CDSC on Class B shares will
also be waived in the case of redemptions of shares of the Fund pursuant to a
systematic withdrawal plan. In addition, the CDSC on Class B shares will be
waived in the case of distributions from an IRA, SAR-SEP or any other retirement
plan qualified under section 401(a), 401(k) or 403(b) of the Code due to death
or disability, or in the case of required minimum distributions from any such
retirement plan due to attainment of age 70 1/2. The CDSC on Class B shares will
be waived in the case of distributions from a retirement plan qualified under
Section 401(a) or 401(k) of the Code due to (i) returns of excess contribution
to the plan, (ii) retirement of a participant in the plan, (iii) a loan from the
plan (repayments of loans, however, will constitute new sales for purposes of
assessing the CDSC), (iv) "financial hardship" of the participant in the plan,
as that term is defined in Treasury Regulation Section 1.401(k)-1(d)(2), as
amended from time to time, and (v) termination of employment of the participant
in the plan (excluding, however, a partial or other termination of the plan).
The CDSC on Class B shares of the Fund will also be waived upon redemption by
(i) officers of the Trust, (ii) any of the subsidiary companies of Sun Life,
(iii) eligible Directors, officers, employees (including retired employees) and
agents of MFS, Sun Life or any of their subsidiary companies, (iv) any trust,
pension, profit-sharing or any other benefit plan for such persons, (v) any
trustees and retired trustees of any investment company for which MFD serves as
distributor or principal underwriter, and (vi) certain family members of such
individuals and their spouses, provided in each case that the shares will not be
resold except to the Fund. The CDSC on Class B shares will also be waived in the
case of redemptions by any employee or registered representative of any dealer
or other financial institution which has a sales agreement with MFD, by certain
family members of such employee or representative and their spouses, by any
trust, pension, profit-sharing or other retirement plan for the sole benefit of
such employee or representatives and by clients of the MFS Asset Management,
Inc. The CDSC on Class B shares may also be waived in connection with the
acquisition or liquidation of the assets of other investment companies or
personal holding companies. A retirement plan qualified under Section 401(a) of
the Code (a "Retirement Plan") that has invested its assets in Class B shares of
one or more of the MFS Funds for more than 10 years from the later to occur of
(i) January 1, 1993 or (ii) the date the Retirement Plan first invests its
assets in Class B shares of one or more of the MFS Funds will have the CDSC on
Class B shares waived in the case of a redemption of all the Retirement Plan's
shares (including shares of any other class) in all MFS Funds (i.e., all the
assets of the Retirement Plan invested in the MFS Funds are withdrawn), except
that if, immediately prior to the redemption, the aggregate amount invested by
the Retirement Plan in Class B shares of the MFS Funds (excluding the
reinvestment of distributions) during the prior four year period equals 50% or
more of the total value of the Retirement Plan's assets in the MFS Funds, then
the CDSC will not be waived. The CDSC on Class B shares will be waived upon
redemption by a Retirement Plan where the redemption proceeds are used to pay
expenses of the Retirement Plan or certain expenses of participants under the
Retirement Plan (e.g., participant account fees), provided that the Retirement
Plan's sponsor subscribes to the MFS Fundamental 401(k) Plan( \s/\m/) or another
similar recordkeeping system made available by the Shareholder Servicing Agent.
The CDSC on Class B shares will be waived upon the transfer of registration from
shares held by a Retirement Plan through a single account maintained by the
Shareholder Servicing Agent to multiple Class B share accounts provided that the
Retirement Plan's sponsor subscribes to the MFS Fundamental 401(k) Plan( \s/\m/)
or another similar recordkeeping system made available by the Shareholder
Servicing Agent. The CDSC on Class B shares may also be waived in connection
with the acquisition or liquidation of the assets of other investment companies
or personal holding companies.
CONVERSION OF CLASS B SHARES: Class B shares of the Fund that remain outstanding
for approximately eight years will convert to Class A shares of the Fund. Shares
purchased through the reinvestment of distributions paid in respect of Class B
shares will be treated as Class B shares for purposes of the payment of the
distribution and service fees under the Distribution Plan applicable to Class B
shares. However, for purposes of conversion to Class A shares, all shares in a
shareholder's account that were purchased through the reinvestment of dividends
and distributions paid in respect of Class B shares (and which have not
converted to Class A shares as provided in the following sentence) will be held
in a separate sub-account. Each time any Class B shares in the shareholder's
account (other than those in the sub-account) convert to Class A shares, a
portion of the Class B shares then in the sub-account will also convert to Class
A shares. The portion will be determined by the ratio that the shareholder's
Class B shares not acquired through reinvestment of dividends and distributions
that are converting to Class A shares bear to the shareholder's total Class B
shares not acquired through reinvestment. The conversion of Class B shares to
Class A shares is subject to the continuing availability of a ruling from the
Internal Revenue Service or an opinion of counsel that such conversion will not
constitute a taxable event for federal tax purposes. There can be no assurance
that such ruling or opinion will be available, and the conversion of Class B
shares to Class A shares will not occur if such ruling or opinion is not
available. In such event, Class B shares would continue to be subject to higher
expenses than Class A shares for an indefinite period.
CLASS C SHARES: Class C shares are offered at net asset value without an initial
sales charge or a CDSC. Class C shares do not convert to any other class of
shares of the Fund.The maximum investment in Class C shares that may be made is
$5,000,000 per transaction.
Class C shares are not currently available for purchase by any retirement plan
qualified under Internal Revenue Code Section 401(a) or 403(b) if the retirement
plan and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k)
Plan or another similar 401(a) or 403(b) recordkeeping program made available by
MFS Service Center, Inc.
GENERAL: Except as described below, the minimum initial investment is $1,000 per
account and the minimum additional investment is $50 per account. Accounts being
established for monthly automatic investments and under payroll savings programs
and tax-deferred retirement programs (other than IRAs) involving the submission
of investments by means of group remittal statements are subject to the $50
minimum on initial and additional investments per account. The minimum initial
investment for IRAs is $250 per account and the minimum additional investment is
$50 per account. Accounts being established for participation in the Automatic
Exchange Plan are subject to a $50 minimum on initial and additional investments
per account. There are also other limited exceptions to these minimums for
certain tax-deferred retirement programs. Any minimums may be changed at any
time at the discretion of MFD. The Fund reserves the right to cease offering its
shares at any time.
For shareholders who elect to participate in certain investment programs (e.g.,
the automatic investment plan) or other shareholder services, MFD or its
affiliates may either (i) give a gift of nominal value, such as a hand-held
calculator, or (ii) make a nominal charitable contribution on their behalf.
A shareholder whose shares are held in the name of, or controlled by, an
investment dealer might not receive many of the privileges and services from the
Fund (such as Right of Accumulation, Letter of Intent and certain recordkeeping
services) that the Fund ordinarily provides.
Purchases and exchanges should be made for investment purposes only. The Fund
and MFD each reserve the right to reject any specific purchase order or to
restrict purchases by a particular purchaser (or group of related purchasers).
The Fund or MFD may reject or restrict any purchases by a particular purchaser
or group, for example, when such purchase is contrary to the best interests of
the Fund's other shareholders or otherwise would disrupt the management of the
Fund.
MFD may enter into an agreement with shareholders who intend to make exchanges
among certain classes of certain MFS Funds (as determined by MFD) which follow a
timing pattern, and with individuals or entities acting on such shareholders'
behalf (collectively, "market timers"), setting forth the terms, procedures and
restrictions with respect to such exchanges. In the absence of such an
agreement, it is the policy of the Fund and MFD to reject or restrict purchases
by market timers if (i) more than two exchange purchases are effected in a timed
account in the same calendar quarter or (ii) a purchase would result in shares
being held in timed accounts by market timers representing more than (x) one
percent of the Fund's net assets or (y) specified dollar amounts in the case of
certain MFS Funds which may include the Fund and which may change from time to
time. The Fund and MFD each reserve the right to request market timers to redeem
their shares at net asset value, less any applicable CDSC, if either of these
restrictions is violated.
Securities dealers and other financial institutions may receive different
compensation with respect to sales of Class A, Class B and Class C shares. In
some instances, promotional incentives to dealers may be offered only to certain
dealers who have sold or may sell significant amounts of Fund shares. From time
to time, MFD may pay dealers 100% of the applicable sales charge on sales of
Class A shares of certain specified MFS Funds sold by such dealer during a
specified sales period. In addition, MFD or its affiliates may, from time to
time, pay dealers an additional commission equal to 0.50% of the net asset value
of all of the Class B shares of certain specified MFS Funds sold by such dealer
during a specified sales period. In addition, from time to time MFD, at its
expense, may provide additional commissions, compensation or promotional
incentives ("concessions") to dealers which sell shares of the Fund. The staff
of the SEC has indicated that dealers who receive more than 90% of the sales
charge may be considered underwriters. Such concessions provided by MFD may
include financial assistance to dealers in connection with preapproved
conferences or seminars, sales or training programs for invited registered
representatives, payment for travel expenses, including lodging, incurred by
registered representatives and members of their families or other invited guests
to various locations for such seminars or training programs, seminars for the
public, advertising and sales campaigns regarding one or more MFS Funds, and/or
other dealer-sponsored events. In some instances, these concessions may be
offered to dealers or only to certain dealers who have sold or may sell, during
specified periods, certain minimum amounts of shares of the Fund. From time to
time, MFD may make expense reimbursements for special training of a dealer's
registered representatives in group meetings or to help pay the expenses of
sales contests. In some instances, promotional incentives to dealers may be
offered only to certain dealers who have sold or may sell significant amounts of
Fund shares. Other concessions may be offered to the extent not prohibited by
the laws of any state or any self-regulatory agency, such as the NASD.
The Glass-Steagall Act prohibits national banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of the
prohibition has not been clearly defined, MFD believes that such Act should not
preclude banks from entering into agency agreements with MFD (as described
above). If, however, a bank were prohibited from so acting, the Trustees would
consider what actions, if any, would be necessary to continue to provide
efficient and effective shareholder services. It is not expected that
shareholders would suffer any adverse financial consequence as a result of these
occurrences. In addition, state securities laws on this issue may differ from
the interpretation of federal law expressed herein and banks and financial
institutions may be required to register as broker-dealers pursuant to state
law.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been secured by the Fund (i.e., an
established account) may be exchanged for shares of the same class of any of the
other MFS Funds (if available for sale) at net asset value. In addition, Class C
shares may be exchanged for shares of MFS Money Market Fund at net asset value.
Shares of one class may not be exchanged for shares of any other class.
Exchanges will be made after instructions in writing or by telephone (an
"Exchange Request") are received for an established account by the Shareholder
Servicing Agent in proper form (i.e., if in writing -- signed by the record
owner(s) exactly as the shares are registered; if by telephone -- proper account
identification is given by the dealer or shareholder of record) and each
exchange must involve either shares having an aggregate value of at least $1,000
or all the shares in the account (except that the minimum is $50 for accounts of
retirement plan participants whose sponsoring organizations subscribe to the MFS
FUNDamental 401(k) Plan or another similar 401(k) recordkeeping system made
available by MFS Service Center, Inc.). If an Exchange Request is received by
the Shareholder Servicing Agent on any business day prior to the close of
regular trading on the New York Stock Exchange (the "Exchange"), the exchange
usually will occur on that day if all the requirements set forth above have been
complied with at that time. No more than five exchanges may be made in any one
Exchange Request by telephone. Additional information concerning this exchange
privilege and prospectuses for any of the other MFS Funds may be obtained from
investment dealers or the Shareholder Servicing Agent. A shareholder should read
the prospectus of the other MFS Fund and consider the differences in objectives
and policies before making any exchange. For federal and (generally) state
income tax purposes, an exchange is treated as a sale of the shares exchanged
and, therefore, an exchange could result in a gain or loss to the shareholder
making the exchange. Exchanges by telephone are automatically available to most
non- retirement plan accounts and certain retirement plan accounts. For further
information regarding exchanges by telephone see "Redemptions By Telephone." The
exchange privilege (or any aspect of it) may be changed or discontinued and is
subject to certain limitations, including certain restrictions on purchases by
market timers. Special procedures, privileges and restrictions with respect to
exchanges may apply to market timers who enter into an agreement with MFD, as
set forth in such agreement (see "Purchases").
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the amount in his account on
any date on which the Fund is open for business by redeeming shares at their net
asset value or by selling such shares to the Fund through a dealer (a
repurchase). Since the net asset value of shares in the account fluctuate,
redemptions or repurchases, which are taxable transactions, are likely to result
in gains or losses to the shareholder. When a shareholder withdraws an amount
from his account, the shareholder is deemed to have tendered for redemption a
sufficient number of full and fractional shares in his account to cover the
amount withdrawn. The proceeds of a redemption (except, in certain cases,
redemptions of shares made by check, see below) or repurchase will normally be
available within seven days, except that for shares purchased, or received in
exchange for shares purchased, by check (including certified checks or cashier's
checks) payment of redemption proceeds may be delayed for up to 15 days from the
purchase date in an effort to assure that such check has cleared. Payment of
redemption proceeds may be delayed for up to seven days from the redemption date
if the Fund determines that such a delay would be in the best interest of all
its shareholders.
A. REDEMPTION BY MAIL -- Each shareholder has the right to redeem all or any
portion of the shares in his account by mailing or delivering to the Shareholder
Servicing Agent (see back cover for address) a stock power with a written
request for redemption or a letter of instruction, together with his share
certificates (if any were issued), all in "good order" for transfer. "Good
order" generally means that the stock power, written request for redemption,
letter of instruction or share certificate must be endorsed by the record
owner(s) exactly as the shares are registered and the signature(s) must be
guaranteed in the manner set forth below under the caption "Signature
Guarantee." In addition, in some cases "good order" may require the furnishing
of additional documents. The Shareholder Servicing Agent may make certain de
minimis exceptions to the above requirements for redemption. Within seven days
after receipt of a redemption request by the Shareholder Servicing Agent in
"good order," the Fund will make payment in cash of the net asset value of the
shares next determined after such redemption request was received, reduced by
the amount of any applicable CDSC and the amount of any income tax required to
be withheld, except during any period in which the right of redemption is
suspended or date of payment is postponed because the Exchange is closed or
trading on the Exchange is restricted or, to the extent otherwise permitted by
the 1940 Act, if an emergency exists. See "Tax Status".
B. REDEMPTION BY TELEPHONE -- Each shareholder may redeem an amount from his
account by telephoning toll-free at (800) 225-2606. Shareholders wishing to
avail themselves of this telephone redemption privilege must so elect on their
Account Application, designate thereon a commercial bank and account number to
receive the proceeds of such redemption, and sign the Account Application Form
with the signature(s) guaranteed in the manner set forth below under the caption
"Signature Guarantee." The proceeds of such a redemption, reduced by the amount
of any applicable CDSC described above and the amount of any income tax required
to be withheld, are mailed by check to the designated account, without charge.
As a special service, investors may arrange to have proceeds in excess of $1,000
wired in federal funds to the designated account. If a telephone redemption
request is received by the Shareholder Servicing Agent by the close of regular
trading on the Exchange on any business day, shares will be redeemed at the
closing net asset value of the Fund on that day. Subject to the conditions
described in this section, proceeds of a redemption are normally mailed or wired
on the next business day following the date of receipt of the order for
redemption. The Shareholder Servicing Agent will not be responsible for any
losses resulting from unauthorized telephone transactions if it follows
reasonable procedures designed to verify the identity of the caller. The
Shareholder Servicing Agent will request personal or other information from the
caller, and will normally also record calls. Shareholders should verify the
accuracy of confirmation statements immediately after their receipt.
C. REPURCHASE THROUGH A DEALER -- If a shareholder desires to sell his shares at
net asset value through his securities dealer (a repurchase), the shareholder
can place a repurchase order with his dealer, who may charge the shareholder a
fee. IF THE DEALER RECEIVES THE SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF
REGULAR TRADING ON THE EXCHANGE AND COMMUNICATES IT TO MFD ON THE SAME DAY
BEFORE MFD CLOSES FOR BUSINESS, THE SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE
CALCULATED ON THAT DAY.
SIGNATURE GUARANTEE: In order to protect shareholders against fraud to the
greatest extent possible, the Fund requires in certain instances as indicated
above that the shareholder's signature be guaranteed. In these cases the
shareholder's signature must be guaranteed by an eligible bank, broker, dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association. Signature guarantees shall be accepted
in accordance with policies established by the Shareholder Servicing Agent.
GENERAL: Shareholders of the Fund who have redeemed their shares have a one-time
right to reinvest the redemption proceeds in the same class of shares of any of
the MFS Funds (if shares of such Fund are available for sale) at net asset value
(with a credit for any CDSC paid) within 90 days of the redemption pursuant to
the Reinstatement Privilege. If the shares credited for any CDSC paid are then
redeemed within six years of the initial purchase in the case of Class B shares,
or within 12 months of the initial purchase for certain Class A share purchases,
a CDSC will be imposed upon redemption. Such purchases under the Reinstatement
Privilege are subject to all limitations in the Statement of Additional
Information regarding this privilege.
Subject to the Fund's compliance with applicable regulations, the Fund has
reserved the right to pay the redemption or repurchase price of shares of the
Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the shares being sold. If a shareholder receives a distribution in kind, the
shareholder could incur transaction, tax or other charges when converting the
securities to cash.
Due to the relatively high cost of maintaining small accounts, the Fund reserves
the right to redeem shares in any account for their then-current value (which
will be promptly paid to the shareholder) if at any time the total investment in
such account drops below $500 because of redemptions, except in the case of
accounts established for monthly automatic investments and certain payroll
savings programs, Automatic Exchange Plan accounts and tax-deferred retirement
plans, for which there is a lower minimum investment requirement (see
"Purchases"). Shareholders will be notified that the value of their account is
less than the minimum investment requirement and allowed 60 days to make an
additional investment before the redemption is processed. No CDSC will be
imposed with respect to such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE -- Investments in Class A or Class B shares
("Direct Purchases") will be subject to a CDSC for a period of 12 months (in the
case of purchases of $1 million or more of Class A shares) or six years (in the
case of purchases of Class B shares). Purchases of Class A shares made during a
calendar month, regardless of when during the month the investment occurred,
will age one month on the last day of the month and each subsequent month. Class
B shares purchased on or after January 1, 1993 will be aggregated on a calendar
month basis -- all transactions made during a calendar month, regardless of when
during the month they have occurred, will age one year at the close of business
on the last day of such month in the following calendar year and each subsequent
year. For Class B shares of the Fund purchased prior to January 1, 1993,
transactions will be aggregated on a calendar year basis -- all transactions
made during a calendar year, regardless of when during the year they have
occurred, will age one year at the close of business on December 31 of that year
and each subsequent year. At the time of a redemption, the amount by which the
value of a shareholder's account for a particular class represented by Direct
Purchases exceeds the sum of the six calendar year aggregations (12 months in
the case of purchases of $1 million or more of Class A shares) of Direct
Purchases may be redeemed without charge ("Free Amount"). Moreover, no CDSC is
ever assessed on additional shares acquired through the automatic reinvestment
of dividends or capital gain distributions ("Reinvested Shares").
Therefore, at the time of redemption of shares of a particular class, (i) any
Free Amount is not subject to the CDSC, and (ii) the amount of the redemption
equal to the then-current value of Reinvested Shares is not subject to the CDSC,
but (iii) any amount of the redemption in excess of the aggregate of the
then-current value of Reinvested Shares and the Free Amount is subject to a
CDSC. The CDSC will first be applied against the amount of Direct Purchases
which will result in any such charge being imposed at the lowest possible rate.
The CDSC to be imposed upon redemptions will be calculated as set forth in
"Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except that, with respect to transfers of registration to an IRA
rollover account, the CDSC will be waived if the shares being reregistered would
have been eligible for a CDSC waiver had they been redeemed.
DISTRIBUTION PLANS
The Trustees have adopted separate distribution plans for Class A, Class B and
Class C shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Rule"), after having concluded that there is a reasonable
likelihood that the plans would benefit the Fund and its shareholders.
CLASS A DISTRIBUTION PLAN. The Class A Distribution Plan provides that the Fund
will pay MFD a distribution/service fee aggregating up to (but not necessarily
all of) 0.35% of the average daily net assets attributable to Class A shares
annually in order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of Class A shares. The expenses to be paid by MFD on
behalf of the Fund include a service fee to securities dealers which enter into
a sales agreement with MFD of up to 0.25% of the Fund's average daily net assets
attributable to Class A shares that are owned by investors for whom such
securities dealer is the holder or dealer of record. This fee is intended to be
partial consideration for all personal services and/or account maintenance
services rendered by the dealer with respect to Class A shares. MFD may from
time to time reduce the amount of the service fee paid for shares sold prior to
a certain date. Currently the service fee is reduced to 0.15% per annum of the
Fund's average daily net assets attributable to Class A shares sold prior to
March 1, 1991. MFD may also retain a distribution fee of 0.10% per annum of the
Fund's average daily net assets attributable to Class A shares as partial
consideration for services performed and expenses incurred in the performance of
MFD's obligations under its Distribution Agreement with the Fund. MFD, however,
currently is suspending this 0.10% per annum of the Fund's average daily net
assets attributable to Class A shares distribution fee and will not accept
payment of this fee in the future unless it first obtains the approval of the
Board of Trustees. In addition, to the extent that the aggregate of the
foregoing fees does not exceed 0.35% per annum of the average daily net assets
of the Fund attributable to Class A shares, the Fund is permitted to pay other
distribution-related expenses, including commissions to dealers and payments to
wholesalers employed by MFD for sales at or above a certain dollar level. Fees
payable under the Class A Distribution Plan are charged to, and therefore
reduce, income allocated to Class A shares. Service fees may be reduced for a
securities dealer that is the holder or dealer of record for an investor who
owns shares of the Fund having an aggregate net asset value at or above a
certain dollar level. Dealers may from time to time be required to meet certain
criteria in order to receive service fees. MFD or its affiliates are entitled to
retain all service fees payable under the Class A Distribution Plan for which
there is no dealer of record or for which qualification standards have not been
met as partial consideration for personal services and/or account maintenance
services performed by MFD or its affiliates for shareholder accounts. Certain
banks and other financial institutions that have agency agreements with MFD will
receive service fees that are the same as service fees to dealers.
CLASS B DISTRIBUTION PLAN. The Class B Distribution Plan provides that the Fund
will pay MFD a daily distribution fee equal on an annual basis to 0.75% of the
Fund's average daily net assets attributable to Class B shares and will pay MFD
an annual service fee of up to 0.25% of the Fund's average daily net assets
attributable to Class B shares (which MFD will in turn pay to securities dealers
which enter into a sales agreement with MFD at a rate of up to 0.25% per annum
of the Fund's average daily net assets attributable to Class B shares owned by
investors for whom that securities dealer is the holder or dealer of record).
This service fee is intended to be additional consideration for all personal
services and/or account maintenance services rendered by the dealer with respect
to Class B shares. Fees payable under the Class B Distribution Plan are charged
to, and therefore reduce, income allocated to Class B shares. The Class B
Distribution Plan also provides that MFD will receive all CDSCs attributable to
Class B shares (see "Redemptions and Purchases" above), which do not reduce the
distribution fee. MFD will pay commissions to dealers of 3.75% of the purchase
price of Class B shares purchased through dealers. MFD will also advance to
dealers the first year service fee at a rate equal to 0.25% of the purchase
price of such shares and, as compensation therefor, MFD may retain the service
fee paid by the Fund with respect to such shares for the first year after
purchase. Therefore, the total amount paid to a dealer upon the sale of shares
is 4.00% of the purchase price of the shares (commission rate of 3.75% plus
service fee equal to 0.25% of the purchase price). Dealers will become eligible
for additional service fees with respect to such shares commencing in the
thirteenth month following purchase. Dealers may from time to time be required
to meet certain criteria in order to receive service fees. MFD or its affiliates
are entitled to retain all service fees payable under the Class B Distribution
Plan for which there is no dealer of record or for which qualification standards
have not been met as partial consideration for personal services and/or account
maintenance services performed by MFD or its affiliates to shareholder accounts.
The purpose of the distribution payments to MFD under the Class B Distribution
Plan is to compensate MFD for its distribution services to the Fund. Since MFD's
compensation is not directly tied to its expenses, the amount of compensation
received by MFD during any year may be more or less than its actual expenses.
For this reason, this type of distribution fee arrangement is characterized by
the staff of the SEC as being of the "compensation" variety. However, the Fund
is not liable for any expenses incurred by MFD in excess of the amount of
compensation it receives. The expenses incurred by MFD, including commissions to
dealers, are likely to be greater than the distribution fees for the next
several years, but thereafter such expenses may be less than the amount of the
distribution fees. Certain banks and other financial institutions that have
agency agreements with MFD will receive agency transaction and service fees that
are the same as commissions and service fees to dealers.
CLASS C DISTRIBUTION PLAN. The Class C Distribution Plan provides that the Fund
will pay MFD a distribution fee of up to 0.75% per annum of the Fund's average
daily net assets attributable to Class C shares and will annually pay MFD a
service fee of up to 0.25% per annum of the Fund's average daily net assets
attributable to Class C shares (which MFD in turn pays to securities dealers
which enter into a sales agreement with MFD at a rate of up to 0.25% per annum
of the Fund's daily net assets attributable to Class C shares owned by investors
for whom that securities dealer is the holder or dealer of record). The
distribution/service fees attributable to Class C shares are designed to permit
an investor to purchase such shares through a broker-dealer without the
assessment of an initial sales charge or a CDSC while allowing MFD to compensate
broker-dealers in connection with the sale of such shares. The service fee is
intended to be additional consideration for all personal services and/or account
maintenance services rendered with respect to Class C shares. MFD or its
affiliates are entitled to retain all service fees payable under the Class C
Distribution Plan with respect to accounts for which there is no dealer of
record as partial consideration for personal services and/or account maintenance
services performed by MFD or its affiliates for shareholder accounts. The
purpose of the distribution payments to MFD under the Class C Distribution Plan
is to compensate MFD for its distribution services to the Fund. Distribution
payments under the Plan will be used by MFD to pay securities dealers a
distribution fee in an amount equal on an annual basis to 0.75% of the Fund's
average daily net assets attributable to Class C shares owned by investors for
whom that securities dealer is the holder or dealer of record. (Therefore, the
total amount of distribution/service fees paid to a dealer on an annual basis is
1.00% of the Fund's average daily net assets attributable to Class C shares
owned by investors for whom the securities dealer is the holder or dealer of
record.) MFD also pays expenses of printing prospectuses and reports used for
sales purposes, expenses with respect to the preparation and printing of sales
literature and other distribution related expenses, including, without
limitation, the compensation of personnel and all costs of travel, office
expense and equipment. Since MFD's compensation is not directly tied to its
expenses, the amount of compensation received by MFD during any year may be more
or less than its actual expenses. For this reason, this type of distribution fee
arrangement is characterized by the staff of the SEC as being of the
"compensation" variety. However, the Fund is not liable for any expenses
incurred by MFD in excess of the amount of compensation it receives. Certain
banks and other financial institutions that have agency agreements with MFD will
receive agency transaction and service fees that are the same as distribution
and service fees to dealers. Fees payable under the Class C Distribution Plan
are charged to, and therefore reduce, income allocated to Class C shares.
DISTRIBUTIONS
The Fund intends to pay substantially all of its net investment income to its
shareholders as dividends on an annual basis. The Fund may make one or more
distributions during the calendar year to its shareholders from any long-term
capital gains, and may also make one or more distributions during the calendar
year to its shareholders from short-term capital gains. Shareholders may elect
to receive dividends and capital gain distributions in either cash or additional
shares of the same class with respect to which a distribution is made. See "Tax
Status" and "Shareholder Services -- Distribution Options" below. Distributions
paid by the Fund with respect to Class A shares will generally be greater than
those paid with respect to Class B and Class C shares because expenses
attributable to Class B and Class C shares will generally be higher.
TAX STATUS
The Fund is treated as an entity separate from the other series of the Trust for
federal income tax purposes. In order to minimize the taxes the Fund would
otherwise be required to pay, the Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of Code, and to make
distributions to its shareholders in accordance with the timing requirements
imposed by the Code. It is expected that the Fund will not be required to pay
entity level federal income or excise taxes, although foreign-source income
received by the Fund may be subject to foreign withholding taxes.
Shareholders of the Fund normally will have to pay federal income taxes (and any
state or local taxes) on dividends and capital gain distributions from the Fund,
whether paid in cash or additional shares. A portion of the dividends received
from the Fund (but none of the Fund's capital gain distributions) may qualify
for the dividends-received deduction for corporations. A statement setting forth
the federal income tax status of all dividends and distributions for that year,
including the portion taxable as ordinary income, the portion taxable as long
term capital gains, the portion, if any, representing a return of capital (which
is free of current taxes but results in a basis reduction), and the amount, if
any, of federal income tax withheld will be sent to each shareholder promptly
after the end of such year.
The Fund intends to withhold U.S. federal income tax at a rate of 30% on
dividends and certain other payments that are subject to such withholding and
are made to persons who are neither citizens nor residents of the U.S.,
regardless of whether a lower rate may be permitted under an applicable law or
treaty. The Fund is also required in certain circumstances to apply backup
withholding of 31% on taxable dividends and redemption proceeds paid to any
shareholder (including a shareholder who is neither a citizen nor a resident of
the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. However,
backup withholding will not be applied to payments which have had 30%
withholding taken. Prospective investors should read the Account Application for
information regarding backup withholding of federal income tax and should
consult their own tax advisers as to the tax consequences of an investment in
the Fund.
NET ASSET VALUE
The net asset value per share of each class of shares of the Fund is determined
each day during which the Exchange is open for trading. This determination is
made once each day as of the close of regular trading on the Exchange by
deducting the amount of the liabilities attributable to the class from the value
of the assets attributable to the class and dividing the difference by the
number of shares of the class outstanding. Assets in the Fund's portfolio are
valued on the basis of their market values as described in the Statement of
Additional Information. The net asset value of each class of shares is effective
for orders received by the dealer prior to its calculation and received by MFD
prior to the close of that business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund, one of two series of the Trust, has three classes of shares entitled
Class A, Class B and Class C Shares of Beneficial Interest (without par value).
The Trust has reserved the right to create and issue additional classes and
series of shares, in which case each class of shares of a series would
participate equally in the earnings, dividends and assets attributable to that
class of shares of that particular series. Shareholders are entitled to one vote
for each share held and shares of each series would be entitled to vote
separately to approve investment advisory agreements or changes in investment
restrictions, but shares of all series would vote together in the election of
Trustees or ratification of selection of accountants. Additionally, each class
of shares of a series will vote separately on any material increases in the fees
under its Distribution Plan or on any other matter that affects solely its class
of shares, but will otherwise vote together with all other classes of shares of
the series on all other matters. The Trust does not intend to hold annual
shareholder meetings. The Declaration of Trust provides that a Trustee may be
removed from office in certain instances (see "Description of Shares, Voting
Rights and Liabilities" in the Statement of Additional Information).
Each share of a class of the Fund represents an equal proportionate interest in
the Fund with each other class share, subject to the liabilities of the
particular class. Shares have no pre-emptive or conversion rights (except as
described above in "Purchases -- Conversion of Class B Shares"). Shares are
fully paid and non-assessable. Should the Fund be liquidated, shareholders of
each class are entitled to share pro rata in the net assets attributable to that
class available for distribution to shareholders. Shares will remain on deposit
with the Shareholder Servicing Agent and certificates will not be issued except
in connection with pledges and assignments and in certain other limited
circumstances.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance (e.g., fidelity bonding and errors and omissions insurance) exists and
the Trust itself is unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide total rate of return quotations for
each class of shares and may also quote fund rankings in the relevant fund
category from various sources, such as the Lipper Analytical Services, Inc. and
Wiesenberger Investment Companies Service. Total rate of return quotations
reflect the average annual percentage change over stated periods in the value of
an investment in a class of shares of the Fund made at the maximum public
offering price of the shares of that class with all distributions reinvested and
which, if quoted for periods of six years or less, will give effect to the
imposition of the CDSC assessed upon redemptions of the Fund's Class B shares.
Such total rate of return quotations may be accompanied by quotations which do
not reflect the reduction in value of the initial investment due to the sales
charge, or the deduction of a CDSC, and which will thus be higher. The Fund's
total rate of return quotations are based on historical performance and are not
intended to indicate future performance. Total rate of return reflects all
components of investment return over a stated period of time. The Fund's
quotations may from time to time be used in advertisements, shareholder reports
or other communications to shareholders. For a discussion of the manner in which
the Fund will calculate its total rate of return, see the Statement of
Additional Information. For further information about the Fund's performance for
the fiscal year ended September 30, 1994, please see the Fund's Annual Report. A
copy of the Annual Report may be obtained without charge by contacting the
Shareholder Servicing Agent (see back cover for address and phone number). In
addition to information provided in shareholder reports, the Fund may, in its
discretion, from time to time, make a list of all or a portion of its holdings
available to investors upon request.
7. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of the Fund, should contact their investment dealer
or the Shareholder Servicing Agent (see back cover for address and phone
number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in his account. At the
end of each calendar year, each shareholder will receive income tax information
regarding reportable dividends and capital gain distributions for that year (see
"Tax Status").
DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional
shares; this option will be assigned if no other option is specified;
-- Dividends in cash; capital gain distributions reinvested in
additional shares;
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the record date. Checks for dividends and capital
gain distributions in amounts less than $10 will automatically be reinvested in
additional shares of the Fund. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service is unable to deliver checks to the shareholder's address of record, such
shareholder's distribution option will automatically be converted to having all
dividends and other distributions reinvested in additional shares. Any request
to change a distribution option must be received by the Shareholder Servicing
Agent by the record date for a dividend or distribution in order to be effective
for that dividend or distribution. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS
For the convenience of shareholders, the Fund makes available the following
programs designed to enable shareholders to add to their investment in an
account with the Fund or withdraw from it with a minimum of paper work. The
programs involve no extra charge to shareholders (other than a sales charge in
the case of certain Class A share purchases) and may be changed or discontinued
at any time by a shareholder or the Fund.
LETTER OF INTENT -- If a shareholder (other than a group purchaser as
described in the Statement of Additional Information) anticipates purchasing
$50,000 or more of Class A shares of the Fund alone or in combination with
shares of Class B or Class C of the Fund or any of the classes of other MFS
Funds or MFS Fixed Fund (a bank collective trust) within a 13-month period (or
36-month period for purchases of $1 million or more), the shareholder may obtain
such shares of the Fund at the same reduced sales charge as though the total
quantity were invested in one lump sum, subject to escrow agreements and the
appointment of an attorney for redemptions from the escrow amount if the
intended purchases are not completed, by completing the Letter of Intent section
of the Account Application.
RIGHT OF ACCUMULATION -- A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together with
the current offering price value of all holdings of all classes of shares of
that shareholder in the MFS Funds or MFS Fixed Fund (a bank collective trust),
reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM -- Shares of a particular class of the Fund
may be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the same
class of another MFS Fund. Furthermore, distributions made by the Fund may be
automatically invested at net asset value in shares of the same class of another
MFS Fund, if shares of such Fund are available for sale (without a sales charge
and not subject to any applicable CDSC).
SYSTEMATIC WITHDRAWAL PLAN -- A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic payments,
as designated on the Account Application and based upon the value of his
account. Each payment under a Systematic Withdrawal Plan (a "SWP") must be at
least $100, except in certain limited circumstances. The aggregate withdrawals
of Class B shares in any year pursuant to a SWP will not be subject to a CDSC
and are generally limited to 10% of the value of the account at the time of the
establishment of the SWP. The CDSC will not be waived in the case of SWP
redemptions of Class A shares which are subject to a CDSC.
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made through a
shareholder's checking account twice monthly, monthly or quarterly. Required
forms are available from the Shareholder Servicing Agent or investment dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least $5,000
in any MFS Fund may exchange their shares for shares of the same class of shares
of other MFS Funds (and, in the case of Class C shares, for shares of MFS Money
Market Fund) under the Automatic Exchange Plan, a dollar cost averaging program.
The Automatic Exchange Plan provides for automatic exchanges of funds from the
shareholder's account in an MFS Fund for investment in the same class of shares
of other MFS Funds selected by the shareholder. Under the Automatic Exchange
Plan, exchanges of at least $50 each may be made to up to four different funds.
A shareholder should consider the objectives and policies of a fund and review
its prospectus before electing to exchange money into such fund through the
Automatic Exchange Plan. No transaction fee is imposed in connection with
exchange transactions under the Automatic Exchange Plan. However, exchanges of
shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A
shares of MFS Cash Reserve Fund will be subject to any applicable sales charge.
For federal and (generally) state income tax purposes, a transfer is treated as
a sale of the shares exchanged and, therefore, could result in a capital gain or
loss to the shareholder making the exchange. See the Statement of Additional
Information for further information concerning the Automatic Exchange Plan.
Investors should consult their tax advisers for information regarding the
potential capital gain and loss consequences of transactions under the Automatic
Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares, and because of the
assessment of the CDSC for certain share redemptions in the case of Class A
shares which are subject to a CDSC.
TAX-DEFERRED RETIREMENT PLANS -- Except as noted under "Purchases -- Class C
Shares," shares of the Fund may be purchased by all types of tax-deferred
retirement plans, including IRAs, SEP-IRA plans, 401(k) plans, 403(b) plans
and other corporate pension and profit-sharing plans. Investors should consult
with their tax advisers before establishing any of the tax-deferred retirement
plans described above.
--------------------
The Fund's Statement of Additional Information, dated February 1, 1995, contains
more detailed information about the Fund, including information related to (i)
investment policies and restrictions, (ii) Trustees, officers and investment
adviser, (iii) portfolio transactions and brokerage commissions, (iv) the
Distribution Plans and (v) various services and privileges provided for the
benefit of its shareholders, including additional information with respect to
the exchange privilege.
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Toll-free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Independent Accountants
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
MFR-1 2/95/211/211M 14/214/314
MFS(R) RESEARCH FUND
500 Boylston Street
Boston, MA 02116
MFS(R) RESEARCH FUND
Prospectus
February 1, 1995
